BUSINESS Master Harold and the Board

Lockheed dodged Harold Simmons this time. But next year...

For Harold Simmons, its simple.

“My strategy,” says the fifty-nine-year-old billionaire Dal-lasite, “is to buy the stock of a vulnerable, undervalued company in the expectation that, once the public recognizes its hidden value, the stock price will go up. If its management fails to cut the mustard, then I acquire control in order to force changes. I’m just trying to assert my rights as a major shareholder.”

This simple business logic explains why, this spring, Simmons stalked his biggest takeover prey yet-the Lockheed Corporation. The California-based aerospace giant, in which Simmons owns a 19 percent stake, has lately done anything but cut the mustard. Despite revenues of $9.9 billion, Lockheed’s net income last year plunged to $2 million from $624 million in 1988. An irritated Simmons compares the nation’s sixth-largest defense contractor with Valhi, Inc., his 88 percent-owned holding company: while Valhi’s revenues were only a fourth those of Lockheed’s, its (1989) operating income was $425 million-eight times Lockheed’s, at $53 million.

Simple logic also explains why Simmons, whose takeover attempt was unsuccessful, will likely make another run at Lockheed next year: he has half a billion dollars tied up in the corporation.

Simmons’s involvement with Lockheed dates to August 1988, when several of his companies, primarily Houston-based NL Industries, began buying Lockheed stock, ostensibly as a long-term investment. By last February, after the Simmons group had accumulated 11.9 million shares, for some $530 million, Lockheed’s management realized it might be in for a major assault by the corporate raider dubbed the “Texas Gunslinger” by the business media. Simmons was unhappy that his Lockheed stock had sunk 40 percent in value in less than six months, handing him an estimated paper loss of a whopping $128 million.

To add insult to injury, Lockheed Chairman and CEO Daniel M. Tellep told Simmons that his request for six NL Industries seats on Lockheed’s board of directors-a concession to which Simmons felt NL, as Lockheed’s largest single stockholder, was entitled-had been rejected. Simmons also learned that Lockheed had moved up the date of its annual shareholders meeting to March 29, six weeks ahead of the customary May date-an apparent ploy to hamstring any effort by Simmons to solicit shareholder votes, or proxies.

For Simmons, who describes himself as a shareholder’s friend- “Hell, I’m a company builder, not a black-hat villain1-it was time to take control of a company that not only wasn’t cutting the mustard, it was ignoring the people who owned it. What ensued was a six-week proxy battle for the shareholders’ allegiance that got plenty of press and cost both sides millions of dollars.

In a swift and bold move, Simmons nominated his own rival slate of fourteen directors (including himself) to replace the company’s incumbent board. To counter any criticism of Simmons’s lack of experience in defense/aerospace, ML was careful to propose some heavyweights in this field, including former Texas Senator John Tower and ex-Joint Chiefs of Staff member Admiral Elmo R. Zumwalt Jr.

Then Simmons aggressively set about lobbying Lockheed’s institutional shareholders, who owned about 60 percent of its stock.



Calling fellow raider Carl Icahn in New York, he persuaded him to vote his TWA pension Fund’s 300,000 Lockheed shares in favor of the NL position.

Both Simmons and Lockheed used news releases, mass mailings, and phone campaigns to solicit shareholders’ votes. They took out full-page ads in publications like The Wall Street Journal to trade volleys in the escalating war of words.

Simmons, who resented that his recommendations were being ignored, labeled the company’s restructuring plan a disaster and claimed it had squandered $1.5 billion on diversification. Lockheed produced a videocassette warning its employees of the dire consequences of a Simmons-controlled board of directors. Simmons must have found it gratifying to know that apparently not all were convinced-a week before the meeting, some Lockheed employees were carrying “Honk for Harold” placards at a rally in Burbank.

As the March annual meeting drew near, both sides predicted victory, though the proxy vote was termed too close to call. The six-week proxy battle had been costly, with Lockheed spending $8 million and Simmons laying out $6 million. But, asks Simmons, “Wouldn’t you spend six million to protect a $500 million investment?”

A sensible question from a man who parlayed common sense into a personal wealth of almost $2 billion. Simmons rose from a negative net worth in 1974 to head a $3.5 billion corporate empire in chemicals, sugar, forest products, fast food, and oil field services; from rural East Texas and outdoor plumbing to a 17th-floor office in Dallas’s Lincoln Centre Three (where he’s still likely to answer a ringing phone himself). Simmons says he operates differently from what he calls “the raiders from central casting’1 who in the Eighties took a 5 to 10 percent equity position and financed the rest. “The days of overpriced and overleveraged deals are mostly over,” he contends. “Making major investments in companies as I do is extremely risky. I’ll do what I have to in order to protect my and other stockholders’ interests. I don’t even mind being called a raider if it helps shake up a lethargic management.”



When the votes were all counted, lock-heed management’s board nominees had won reelection with around 59 percent of the 52.7 million shares voted. Still, the Simmons forces felt they could claim a victory of sorts for shareholders’ rights. All four of NL’s other proposals-including adopting confidential voting of proxies and opting out of Delaware’s tough anti-takeover law-had carried with surprisingly wide margins.

There were other gains as well. “Enhancing shareholder value’1 are words being used with increasing frequency by Lockheed Chairman Tellep. Creation of three board seats for representatives of major stockholders is under consideration, and the company has announced plans for some asset sales, further work-force reductions, and a phase-out of its Burbank operation.

Furthermore, Simmons hasn’t hung up his guns. NL Industries has filed a lawsuit in Los Angeles federal court challenging the legality of the Lockheed directors election. The suit accuses the incumbent board of illegally engineering extra proxies through an employee stock ownership plan and of unfairly pressuring employees to vote for management’s nominees. The complaint asked the court to declare Simmons’s nominees the winners or set a new election. Tellep contends the suit is without merit and brands it “pure harassment.”

Harassment or no, Simmons isn’t about to get off Tellep’s back. Should the suit fail to overturn the directors’ election, there’s always next year. Besides, the prodding already may be paying off. For 1990’s first quarter, Lockheed reported an 11 percent gain in net income from a year earlier.

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