16 Pages Posted: 21 Oct 2008
This case concerns the hostile bid for Koppers Co. and its subsequent acquisition by Beazer PLC for $61 a share, one of the most controversial takeovers of the 1980s. The controversy holds powerful lessons for business managers: (1) the value of a global franchise and the willingness of an acquirer to pay a significant premium for a company that fits its global strategy; (2) the process of creating value after a strategic acquisition as opposed to the capture of existing value by financial buyers; (3) the influence of differing accounting treatments, tax treatments, costs of capital, and foreign-exchange risks on European acquirers' acquisition strategies; and (4) valuation issues, including the time of high growth required to justify the premium price paid for a strategic acquisition (horizon analysis).
Charles Pullin was planning to retire as chief executive officer of Koppers Co. in December 1988. He had successfully moved the Pittsburgh-based conglomerate from steel-mill construction into two major business lines: construction materials and services (including products used in highway and bridge construction) and chemical and allied products (including commodity and specialty chemicals and treated wood products). These businesses were well positioned to profit from the renewed emphasis on repairing the aging infrastructure in the United States.
The improved operating performance and tremendous potential of Koppers Co. had not, however, gone unnoticed. Brian Beazer had built Beazer PLC, the home-building firm his father had founded in England in 1933, into a diversified company with approximately $ 2 billion in worldwide revenues. When Beazer visited the United States in June 1987 looking for acquisition candidates in the building industry, his investment banker, Shearson Lehman Hutton, gave him a list of 20 companies, including Koppers. Beazer and Shearson pared the list down to 6, and after more than 50 days of discreetly examining Koppers and its properties (often driving out to see plants firsthand), Beazer made his move.
Pullin and other Koppers executives noticed several large blocks of Koppers stock trading hands in early 1988, and the stock price had climbed substantially after the market crash in October 1987. (Exhibit 1 provides trading-volume and closing price history for Koppers common stock.) Executives traced a cache of stock to a confidential custodial account belonging to Shearson Lehman Hutton. Shearson had amassed more than 1.2 million shares of Koppers stock by late January 1988 (slightly less than the 4.9% ownership threshold that required a report to the Securities and Exchange Commission). When Shearson suddenly sold off Koppers 290,000 shares, however, First Boston Corp. (Koppers' investment banker), convinced Pullin that no bona fide bidder was behind Shearson's accumulation. Satisfied that Koppers was not subject to a takeover threat, Pullin focused on communicating the company's turnaround to the investment community.
Then, on March 3, 1988, a reporter called Pullin with shocking news: Beazer had taken out a full-page advertisement in The Wall Street Journal announcing that a bidding group whose investors included Beazer and Shearson had launched a $ 45-per-share tender offer. Pullin was now faced with several pressing questions:
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Keywords: international banking, investment banking, international case, diversity case, strategy formulation, strategy implementation, takeovers, valuation
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