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SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
______
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): October 5, 1994
BORDEN, INC. ______
(Exact name of registrant as specified in its charter)
New Jersey I-71 13-0511250 ------(State or other jurisdiction (Commission (IRS Employer of incorporation) file number) Identification No)
180 East Broad St., Columbus, OH 43215 ------(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: 614-225-4000 ------2
ITEM 5. OTHER EVENTS
On October 5, 1994, RJR Nabisco Holdings Corp., a Delaware corporation ("Holdings"), filed a Registration Statement on Form S-4 (the "Registration Statement") with the Securities and Exchange Commission (the "Commission") under the Securities Act of 1933, as amended, for the registration of 353,680,264 shares of Holdings common stock, par value of $.01 per share ("Holdings Shares"). The Registration Statement was filed by Holdings in connection with the exchange offer (the "Offer") to be commenced by Borden Acquisition Corp., a New Jersey corporation ("Purchaser"), and a subsidiary of Whitehall Associates, L.P. ("Whitehall"), an affiliate of Kohlberg Kravis Roberts & Co. ("KKR"), for all of the outstanding shares of common stock, par value $.625 per share ("Company Shares") of Borden, Inc., a New Jersey corporation (the "Company"), pursuant to the Agreement and Plan of Merger, dated as of September 23, 1994, among Purchaser, Whitehall and the Company (the "Merger Agreement"). In addition, the Conditional Purchase/Stock Option Agreement, dated as of September 23, 1994, by and among Whitehall, Purchaser and the Company (the "Option Agreement") was executed concurrently with the Merger Agreement. The Merger Agreement and the Option Agreement were filed with the Commission on September 27, 1994 as exhibits to the Company's Current Report on Form 8-K, dated September 11, 1994, and are incorporated herein by reference.
In connection with the filing of the Registration Statement, the Company hereby makes the following disclosure regarding the background and reasons for the Company's decision to enter into the Merger Agreement and the Option Agreement. At the time the Offer is commenced, in connection with the filing by Purchaser of a Schedule 14D-1 pursuant to the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder (the Exchange Act"), the Company will file a Schedule 14D-9 with the Commission under the Exchange Act, which Schedule 14D-9 will contain the Company's formal recommendation with respect to the Offer and additional information required by the Exchange Act.
BACKGROUND
The decision by the Board of Directors of the Company (the "Board") to enter into the Merger Agreement reflected, in part, an assessment of the risks and potential benefits of ongoing restructuring efforts against the risks and benefits of a transaction that would offer all shareholders the opportunity to receive a premium for their Company Shares payable in
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Holdings Shares. A significant factor in the Board's deliberation was the history of the Company's prior restructuring efforts. Set forth below is a summary of the events that led to the Board's decision.
1992 RESTRUCTURING PLAN. In October 1992, the Company announced its third restructuring program since 1989 (the "1992 Restructuring Plan"). The 1992 Restructuring Plan was aimed at integrating the numerous acquisitions the Company had made, reducing costs and reversing a downward trend in earnings. In conjunction with the 1992 Restructuring Plan, the Company established a restructuring reserve of $642 million (pretax) charged against third quarter 1992 results, which reduced the Company's 1992 year end stockholders' equity to $1.13 billion, down from $1.69 billion in 1989, before the successive restructurings began.
The 1992 Restructuring Plan did not achieve the anticipated results. The Company's first quarter 1993 net income was $27.2 million and earnings per share was $.20, an 43.0% decline in net income from the same period in 1992 (excluding a charges in 1993 and 1992 for accounting changes). Sales in the first quarter of 1993 fell 7.2% to $1.30 billion, from $1.40 billion in the same period of 1992. In the second quarter of 1993, earnings per share declined 76.4% to $0.13 from $0.55 in the second quarter of 1992. Net income of $18.5 million was down 76.7% from $79.3 million in the second quarter of 1992. Sales were $1.35 billion, down 6.0% from $1.44 billion in the second quarter of 1992.
In early 1993, at the initiation of KKR, representatives of KKR met with Anthony S. D'Amato, then Chairman and Chief Executive Officer of the Company, Lawrence O. Doza, then Vice President and Chief Financial Officer, and a representative of the Company's financial advisor, CS First Boston Corporation ("First Boston"), to discuss a possible transaction involving KKR and the Company. After discussion, Mr. D'Amato advised KKR's representatives that the Company did not wish to pursue a transaction with KKR at that time.
DEVELOPMENT OF 1993 RESTRUCTURING PLAN. In 1993, the Company began to develop alternatives to the 1992 Restructuring Plan. In addition, in June 1993, the Company hired Ervin R. Shames as President and Chief Operating Officer. Mr. Shames joined the Company with 22 years of experience in the food business, including positions as President and Chief Executive Officer of General Foods USA and President of Kraft USA. On July 28, 1993, the Company announced that it was reviewing its portfolio of businesses to identify those it would retain and those it would not, and was reducing the quarterly cash
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dividend on the common stock to $0.15 per share from $0.30 per share.
During the fall of 1993, the Company accelerated the review of its portfolio of businesses and its strategic alternatives. Booz Allen & Hamilton Inc. ("Booz Allen"), a business consulting firm, was asked to assess the existing businesses and their long-term potential and to recommend which businesses to retain and which to divest. In September 1993, First Boston was retained by the Company to provide financial advice with respect to this program. In October 1993, the Board engaged Lazard Freres & Co. ("Lazard Freres") to act as financial advisor to the Board with regard to the consideration of strategic alternatives. The Board also engaged Wachtell, Lipton, Rosen & Katz, which had previously advised the Company in special situations, as special counsel.
The Company's third quarter 1993 results showed a net loss of $9.4 million, or $0.07 per share, versus a net loss in the third quarter of 1992 of $1.8 million, or $.01 per share before the charge for the 1992 Restructuring Plan. Sales in the third quarter of 1993 fell to $1.39 billion from $1.53 billion in the comparable period of 1992. Nearly all of the principal businesses of the Company posted substantial declines versus prior year performance.
In November 1993, Company management with the assistance of Booz Allen presented to the Board a plan (the "1993 Restructuring Plan") for restructuring the portfolio of the Company's businesses. The 1993 Restructuring Plan provided for major divestitures, including the sale of the Company's North American snacks business, its seafood business, its jams and jellies business and certain other businesses and products representing, in the aggregate, annual revenues of approximately $1.25 billion, or nearly 20% of projected 1993 sales of $6.75 billion. The 1993 Restructuring Plan also aimed at improving the Company's domestic dairy business, largely through volume recovery and cost reduction, and contemplated retention of nearly all of the non-food businesses. The 1993 Restructuring Plan envisioned cost reductions phased in over two years, reaching an annualized savings rate of $100 million by the end of 1995. These savings were to be achieved through a combination of divestitures and productivity gains.
Under the 1993 Restructuring Plan, which was reviewed by Booz Allen, management projected 1994 earnings per share at the upper end of the $0.75 to $1.00 per share range of estimates by securities analysts, and set performance targets for annual earnings per share growth in 1995 and 1996 of at least double the food industry average, sales growth of 6%
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annually and an increase in return on investment from a range of 5% to 6% in 1994 to 12% in 1996. Further, the 1993 Restructuring Plan contemplated a further reduction in the Company's quarterly cash dividend from $0.15 per share to $0.075 per share, and a $752.3 million pretax restructuring charge against 1993 fourth quarter earnings of which approximately $637.4 million was for business divestitures and $114.9 million for organizational restructuring.
EVALUATION OF 1993 RESTRUCTURING PLAN AND POSSIBLE SALE OF THE COMPANY. In reviewing the proposed 1993 Restructuring Plan, the Board considered that continued poor performance would reduce financial flexibility (which, in turn, could limit the Company's ability to raise capital at attractive rates and to pursue strategic growth opportunities); that the 1993 Restructuring Plan was premised on significant turnarounds within a year or slightly longer in the Company's dairy and pasta business and improvements in almost all of the Company's other divisions; that many of the asset sales included in the 1993 Restructuring Plan would be difficult and time-consuming to consummate; that the dividend payout might not be sustainable even at the reduced rate contemplated; and that a number of key management positions were held by new managers, making it difficult to assess the likelihood of success of the 1993 Restructuring Plan. The Board also took into consideration the fact that the Company was highly leveraged and exposed to liquidity risk by virtue of its relatively high ratio of short-term debt (particularly commercial paper) to total debt in the event of rating agency downgrades, and that the 1993 Restructuring Plan would leave the Company with debt coverages less favorable than the median for investment grade companies and without tangible net worth.
After weighing these risks and considering that previous restructuring efforts had not achieved targeted results and after receiving two unsolicited inquiries regarding the sale of the Company, one from KKR and one from another party, the Board determined to instruct Lazard Freres to make contacts with a selected group of companies considered to be potential buyers of the Company. The potential buyers contacted by Lazard Freres consisted primarily of industrial buyers rather than financial buyers, because Lazard Freres believed that a leveraged buyout did not appear to be feasible given the Company's operating performance and high debt levels. Lazard Freres, however, did contact KKR because of its prior indication of interest in the Company and its ownership interest in Holdings. KKR, in turn, brought the possibility of a transaction with the Company to the attention of Holdings. The other party that had previously contacted the Company was also contacted by Lazard Freres.
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In response to Lazard Freres's solicitations, only Holdings and one other company expressed interest in obtaining information about the Company. Both Holdings and the other potential buyer (the "Potential Buyer") entered into confidentiality agreements with the Company and commenced due diligence. Holdings, however, after preliminary meetings, declined to pursue its interest. Holdings indicated that, due to the then-current trading price of the Company Shares, Holding's own indebtedness and the debt levels of the Company, Holdings was unwilling to proceed with an acquisition of the Company. In addition, Holdings said that it had determined that its strategic interest was in substantially less than all of Borden's businesses.
At a Board meeting held on December 9, 1993, Lazard Freres indicated that the Potential Buyer appeared to be interested in acquiring all of the Company. At the Board meeting, management recommended that the Company proceed with the 1993 Restructuring Plan it had previously recommended. The Board, however, determined that, given the risks inherent in the 1993 Restructuring Plan, talks with the Potential Buyer should continue, and the decision as to whether to implement the 1993 Restructuring Plan was postponed. That same day, the Board accepted the resignation of Anthony S. D'Amato, as Chairman and Chief Executive Officer, and appointed Frank J. Tasco, a Director of the Company and retired Chairman and Chief Executive Officer of Marsh & McLennan Companies, Inc., as Chairman of the Board of the Company, and Ervin R. Shames, as Chief Executive Officer.
On December 21, 1993 the Potential Buyer indicated that it would not be interested in pursuing an acquisition of the entire Company but that it would be willing to explore the acquisition of just the Company's Packaging and Industrial Products Division ("PIP") and a concurrent investment in the remaining food company. However, the indicated price levels would not have generated proceeds sufficient to reduce the Company's debt to a level appropriate to the remaining food business. Thus, the Board rejected this suggestion in part because it was advised that such a divestiture would leave the Company undercapitalized. The Board then instructed management to prepare the 1993 Restructuring Plan for final approval.
1993 RESTRUCTURING PLAN ADOPTED; GOALS SET. On January 4, 1994, the Board formally approved the 1993 Restructuring Plan. Over the previous months, the Board had received from management and Booz Allen an extensive review of the Company's 50 distinct domestic and international businesses. The Company announced that, with the help of its
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financial advisors, the Board had evaluated a full range of alternatives for the Company, including sale or merger, and that the Company was not aware of any third party expressing interest in proposing such transactions. The Board also reviewed the alternative of liquidation and concluded that adverse tax consequences and the uncertainties involved in the sale of the Company in parts rendered this alternative unattractive.
In announcing the 1993 Restructuring Plan, the Company stated that it had set financial goals, including earnings per share for 1994 at the upper end of the $0.75 to $1.00 range of analysts' estimates, cash flow of $400 million to $450 million after capital expenditures and including divestiture proceeds, substantially all of which was intended to be applied to debt repayment, and cost reductions reaching an annualized rate of $70 million to $85 million by the end of the year.
As a result of the write-off related to the implementation of the 1993 Restructuring Plan, the Company's stockholders' equity as of December 31, 1993 was reduced to $245.9 million.
PROGRESS UNDER THE 1993 RESTRUCTURING PLAN. Following the adoption of the 1993 Restructuring Plan, the Board, with the assistance of its financial advisors and management, closely monitored its implementation and the associated divestitures. In its 1993 Annual Report which was issued in late March 1994, the Company acknowledged that the success of the 1993 Restructuring Plan depended on multiple divestitures at anticipated prices, sharply reduced costs throughout the Company, a reversal of the weak sales and income performance of the Company's pasta business and a turnaround of the Company's domestic dairy operations, which, based on early 1994 results, would be a significant challenge.
The Company's first quarter 1994 earnings per share were $.04 and net income was $5.8 million. In its announcement of first quarter results, the Company also stated that its earnings projections for 1994 were then "in line" with the current range of analyst projections of $.70 to $.95 per share, as opposed to the January 1994 earnings per share target at the "upper end" of the $.75 to $1.00 range.
In June 1994, the Board and management became increasingly concerned about the Company's progress in achieving the cost reductions and earnings improvements targeted under the 1993 Restructuring Plan. The Board and management were particularly concerned that the failure to
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achieve significant progress by that time would make it difficult to reach the targets for 1994 and subsequent years.
FURTHER RESTRUCTURING CONTEMPLATED IN LIGHT OF SIX-MONTH RESULTS. On July 26, 1994, management advised the Board that it would begin to explore possible modifications to the 1993 Restructuring Plan which might involve the sale or closure of all or part of the dairy operations and other businesses. The Board determined that the alternative of a sale of the entire Company should also be explored again. The Board was told that the only parties that had contacted the Company since January 1994 were KKR and Japonica Partners ("Japonica").
On May 24, 1994, Japonica wrote to Mr. Tasco stating that Japonica was interested in an equity investment in the Company as a "proactive white knight." In response, the Board authorized Lazard Freres to contact Japonica to investigate, on behalf of the Board, Japonica's interest in the Company and its capacity to effectuate a transaction involving the Company.
On June 13, 1994, Mr. Tasco wrote to Japonica, advising them that Lazard Freres was acting as the Company's financial advisor and was authorized to represent the Company in discussions with third parties. Subsequently, a representative of Japonica contacted Lazard Freres, but did not propose any transaction and did not provide any evidence of Japonica's source of funds for any transaction, despite Lazard Freres's repeated inquiries. (Japonica, in letters to Mr. Tasco, disputed the foregoing characterization of its contacts with Lazard Freres although it never stated that it had proposed a transaction or provided evidence of its financial resources).
Accordingly, on July 16, 1994, Mr. Tasco wrote to Japonica explaining that in light of the serious challenges facing the Company, it was disinclined to pursue discussions with a party who was unable or unwilling to make substantive proposals or to provide any evidence of its financial capacity. At no point during any of its contacts with the Company or its advisors did Japonica make any substantive proposal or provide evidence of its ability to finance any transaction with respect to the Company. (The Company's written correspondence with Japonica is filed as exhibits to this report and the discussion herein of such correspondence is qualified by reference to the texts thereof, see Item 7).
Pursuant to its decision to explore the alternative of a sale of the Company, the Board, at its July 26, 1994 meeting, instructed Lazard Freres to respond to KKR's prior contacts. Based on the advice of Lazard Freres and given the
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publicity concerning the Company's efforts to find a buyer in late 1993 and the lack of inquiries, the Board determined that it was reasonable to conclude that no other bidder was interested.
On July 27, 1994, the Company announced that for the second quarter of 1994, it had net income of $11.1 million or $.08 per share compared with income from continuing operations of $30.5 million, or $0.22 per share, in the same period of 1993. Net sales rose 1.3% to $1.37 billion from $1.35 billion in the second quarter of 1993. The six-month results included continuing losses in the Company's dairy business that were considerable. The Company stated that it was moving more slowly than it had hoped in achieving the goals of the 1993 Restructuring Plan. The Company further stated that each of the Company's businesses must contribute to the Company's objectives by virtue of market position, growth prospects, profit potential or some combination of those objectives. In light of this, the Company further stated that it was reviewing progress to date and planned to take any corrective measure that might become necessary. The Company announced that, given its results in the first half of 1994, it was clear that its earlier expectation of earnings for the year would not be realized, and did not give a further earnings forecast.
The results for the first half of 1994 also caused the Board and management to focus on the liquidity of the Company. In connection with the 1993 Restructuring Plan, the Company obtained an amendment to its only financial covenant, a covenant related to the net worth of the Company. The amendment required achievement of financial ratios that would be met under the goals of the 1993 Restructuring Plan. The Board and management were particularly concerned about the level of the Company's short-term liabilities, including the commercial paper used to finance operations. The Board was advised that, if earnings continued below the amounts forecasted in the 1993 Restructuring Plan and the Company undertook a further restructuring, its debt ratings could be lowered and its ability to issue commercial paper could be limited. In early July 1994 the Company sought to increase its $520 million credit facilities on terms which were substantially the same terms as existed previously for a majority of the facilities. Due in part to the five-year term of the proposed facility and the existence of other Company credit facilities with terms more favorable to the lenders, these efforts met resistance in the marketplace. Later in July 1994 the Company determined to pursue a larger bridge facility that would consolidate the Company's bank lines and backstop its commercial paper. Accordingly, the Company obtained $1.4
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billion, 2-1/2 year financing facilities in August 1994 from a group of banks led by Citibank, N.A. and Credit Suisse.
PROPOSED 1994 RESTRUCTURING PLAN. At a special meeting of the Board on August 16, 1994, management presented further analysis of the alternatives available to the Company. First Boston provided a financial analysis for each such alternative and management recommended a plan to further reconfigure the Company (the "Proposed 1994 Restructuring Plan"). The Proposed 1994 Restructuring Plan provided for the divestiture of the dairy business (excluding cheese), the Company's largest business, which was depleting the Company's earnings and cash. Management advised the Board that, in its view, the Company did not have the time or the resources to turn the dairy business around. While the sale of the dairy business would improve cash flow, it was expected to generate a substantial writeoff without meaningful debt reduction. Management also recommended the additional sale of two profitable businesses from the PIP division, Wallcoverings and Packaging Resources, principally in order to generate cash to reduce debt.
The Proposed 1994 Restructuring Plan also called for realigning the Company into two operating divisions: Consumer Packaged Products and Worldwide Adhesives and Resins, and significantly reducing costs in the Company's continuing operations by substantial personnel reductions and other programs. As part of the Proposed 1994 Restructuring Plan, management also recommended that the Board reduce the quarterly cash dividend on the Company Shares to $0.01 per share. The Board was advised that adoption of the Proposed 1994 Restructuring Plan would require a significant charge of approximately $500 million (after-tax) in the third quarter of 1994, resulting in substantial negative shareholders' equity. In addition, the Board was advised that in the third quarter of 1994, the Company would likely incur additional pre-tax charges of approximately $95 million as a result of less than estimated proceeds from the divestiture of discontinued operations pursuant to the 1993 Restructuring Plan and could possibly incur certain other balance sheet adjustments of up to $100 million. Management had projected that the Company's 1994 earnings per share would be $0.50 without a restructuring, and earnings per share under the Proposed 1994 Restructuring Plan were projected to be $0.47 for 1994, $0.75 for 1995, $0.84 for 1996, $1.10 for 1997 and $1.21 for 1998. The Proposed 1994 Restructuring Plan called for a reduction in the Company's debt level from $2.287 billion in 1994 to $1.659 billion in 1996 and $1.294 billion in 1998. After presentation by management and the Company's financial advisors, the Board authorized management to finalize the details of the Proposed 1994
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Restructuring Plan with a view to its formal approval and announcement in early September 1994.
DEVELOPING THE KKR PROPOSAL. On August 3, 1994, KKR signed a confidentiality agreement (the "Confidentiality Agreement") and began to receive certain nonpublic information concerning the Company, specifically the Company's then-current "base case" projections for 1994 showing earnings per share of $0.50 and net income from continuing operations of $71 million. The Confidentiality Agreement contained certain provisions that would prohibit KKR from making an unsolicited tender offer for the Company's stock. On the same day, KKR proposed exploring a transaction, the consideration for which would be securities owned by partnerships controlled by KKR. Following the Board meeting of August 16, 1994, KKR communicated to Lazard Freres that it would be interested in pursuing a transaction with the Company in which it would pay a "meaningful" premium to the Company's trading price using Holdings Shares as currency. At a special meeting of the Board on August 18, 1994, management conveyed this to the Board. Management explained that KKR would require "due diligence" meetings with the senior management of the Company before it would be in a position to formalize a proposal. Management further indicated that KKR would be willing to make a decision prior to the September 7, 1994 Board meeting at which the Board intended to take final action on the Proposed 1994 Restructuring Plan.
During the course of the Board's deliberations concerning continuing discussions with KKR, Mr. Shames expressed his view that the Proposed 1994 Restructuring Plan was achievable and should be pursued by the Company. He said that implementation of the Proposed 1994 Restructuring Plan would make the Company more saleable if the Board chose to sell the Company in the future. He said that he believed that it was imperative to commence implementing the Proposed 1994 Restructuring Plan without additional delays. Cognizant that the Company's prior restructuring plans had fallen short of their goals and that further restructuring efforts posed significant risks, the Board determined that it was in the best interests of the Company and its shareholders to continue discussions with KKR prior to acting on the Proposed 1994 Restructuring Plan. The Board, therefore, directed management, with the assistance of Lazard Freres and First Boston, to proceed with KKR to determine whether KKR would make a proposal that would provide a premium for all shareholders. At the same time, management was instructed to prepare to implement the Proposed 1994 Restructuring Plan on September 7, 1994, as had been contemplated, so that there would be no delay in the event that an acceptable proposal from KKR did not materialize
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.
On August 22, 1994, Lazard Freres met with KKR. KKR expressed interest in meeting with management to conduct due diligence and indicated that it would be ready to make a definitive proposal by September 7, 1994. On August 25 and 26, 1994, Lazard Freres, First Boston and members of senior management met with KKR in Columbus, Ohio to conduct due diligence. On September 2, 1994, KKR proposed an offer to acquire 75% of the Company through an exchange offer for approximately 100 million Company Shares, at $13.50 per share, and a conditional purchase/stock option agreement wherein it would have the right to acquire 28,138,000 Company Shares for $11 per share, with the consideration in both cases to be paid in Holdings Shares valued at market. Over the course of the next three days, management of the Company, Lazard Freres, and First Boston negotiated with KKR and Morgan Stanley & Co., KKR's investment banker, particularly with respect to KKR's willingness to pursue an offer to acquire the entire Company.
On September 7, 1994, the Board met to consider both the management's Proposed 1994 Restructuring Plan and the KKR proposal that had resulted from the negotiations upon the understanding that these were the two viable alternatives available to the Company. During the meeting, management again reviewed for the Directors the principal elements of the Proposed 1994 Restructuring Plan. Management then summarized the KKR proposal. Responding to the Company's request for an offer that could be made for all of the Company Shares, KKR proposed to acquire 100% of the Company Shares at $13.50 per share, payable in Holdings Shares, through an exchange offer for all of the Company Shares followed by a merger in which any Company Shares remaining outstanding would receive the same consideration that had been paid in the exchange offer. Under New Jersey law, such a merger would require the affirmative vote of 66-2/3% of the Company's outstanding shares. KKR's proposal was contingent upon the Company agreeing to enter into a conditional purchase/stock option agreement for up to approximately 28,138,000 Company Shares, payable in Holdings Shares, at $11 per share. In addition, the KKR proposal contemplated certain fees and reimbursements for KKR on terms to be negotiated. Finally, KKR proposed that it would be entitled to board representation proportionate to its ownership, subject to a minimum of 40% representation if it acquired 28,138,000 Company Shares (approximately 19.9% of the total then outstanding Company Shares) pursuant to the exercise of its option or otherwise. The proposal was contingent on completion of due diligence, and the exchange offer would be contingent on certain waivers being obtained under the Company's credit facilities. The proposal was not otherwise subject to financing. Both the Board and its advisors believed that KKR intended to keep current management, to offer
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management an opportunity to obtain an equity interest in the surviving enterprise and to restructure the Company. However, the Board was advised that KKR had no substantive discussions of these matters, had made no commitments to management and had made no decision with respect to the precise nature of its restructuring plan. Management advised the Board that it understood that any decisions by KKR would be made only after it had completed a thorough analysis of the Company.
In reporting to the Board on the negotiations, the Company's representatives indicated that they wished to ensure that, in the event of a competing transaction proposal, KKR would not be able both to profit on the conditional purchase/stock option agreement and to obtain a "topping" fee. KKR had not yet agreed to that point. The representatives also reported to the Board that the Company had requested that KKR provide some post-transaction guarantee of the price level of the Holdings Shares that would be issued to the Company's shareholders in the exchange offer. However, these representatives indicated that it appeared that while KKR had stated that it would negotiate a "collar" of approximately 10% around the trading price for Holdings Shares at the time the transaction was announced to protect the value that the Company's shareholders would receive in the exchange offer, KKR had refused to consider any post-exchange offer guarantee of the trading value of Holdings Shares. The representatives said that they would press for a wider collar on the Holdings Share price but that they did not believe that a post-transaction guarantee would be achievable in the negotiations. The representatives indicated that they were seeking to reduce as much as possible the fees requested by KKR.
Although the Board thought that the $13.50 per Company Share price then offered was too low and that certain of the other terms proposed by KKR were not acceptable, the Board instructed the Company's negotiators to go back to KKR to seek to improve the price and to seek to negotiate satisfactory arrangements with respect to the other terms of the transaction. The Board took this action in the belief that a satisfactory proposal could be elicited from KKR. The Board considered that such a proposal would offer the shareholders of the Company a premium for their Company Shares in the form of a highly liquid security, which presented its own risks and opportunities. At the same time, the Board noted that while the Proposed 1994 Restructuring Plan was designed to improve the Company's operating results and reduce its debt, it nonetheless had significantly lower earnings projections than previous restructuring plans and that it entailed significant risks to the equity value of the Company. These risks included, in particular, the consequences of having substantial
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negative net worth, the possibility of a credit rating downgrade and, if results of operations and divestiture proceeds were not realized as planned, the risk of further deterioration in the Company's financial condition. The Board also considered the risk that the announcement of the Proposed 1994 Restructuring Plan would have a negative effect on the trading price for the Company Shares, thereby implicitly increasing the premium inherent in a transaction with KKR. The Board took into account the fact that the previous restructuring attempts by the Company had fallen short of their goals. The Board adjourned the meeting in order to permit the Company's negotiators to proceed.
In negotiations on September 7 and 8, 1994 KKR indicated that it would be willing to increase its offer price to $14.25 per Company Share, and that the collar would be approximately 13%, depending on the price of Holdings Shares on the day that the transaction was announced. KKR also accepted the Company's position that KKR not profit as a result of exercising the option in circumstances where KKR had received a topping fee, and agreed that it would receive a 33-1/3% representation on the Board as a minimum if it purchased 28,138,000 Company Shares, or approximately 19.9% of the outstanding Company Shares, pursuant to exercise of the option. KKR insisted on the payment of (1) a $20 million "commitment" fee, (2) a $50 million "topping" fee, against which the commitment fee would be credited, and (3) expense reimbursement of up to $15 million. The September 7, 1994 Board meeting re-convened on September 9, 1994. Mr. Shames said that he believed that the Proposed 1994 Restructuring Plan could be accomplished and was a better alternative for the Company. In that regard, Mr. Shames stated he believed that it was the wrong time to sell the Company because successfully pursuing the Proposed 1994 Restructuring Plan would result, over time, in greater value for shareholders than that reflected in the KKR proposal. Nonetheless, after careful consideration of all the factors before it, the Board of Directors voted to authorize management to proceed to negotiate agreements with KKR on the terms outlined, to complete the Company's due diligence investigation of Holdings, and to permit KKR to complete its due diligence of the Company. Mr. Shames abstained from the vote of the directors.
At a special meeting held by the Board on September 11, 1994, the Board authorized the Company to enter into an agreement-in-principle (the "Letter of Intent") with KKR's affiliate, Whitehall. The Letter of Intent expressed the intent of the parties to negotiate a definitive merger agreement on substantially the terms already described to the Board. KKR had also requested a condition in the merger
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agreement dealing with the refinancing of the Company's debt because, as a result of its due diligence and in anticipation of costs related to the proposed transactions, KKR believed that the Company's bank credit facilities should be increased to provide a cushion for working capital needs and their maturities extended. It was agreed that this condition would be limited to terms to be set forth in the merger agreement. The Letter of Intent also provided for the payment of a $20 million commitment fee to KKR (which was subsequently paid) and, in consideration of the Letter of Intent and such fee, KKR agreed that, if for any reason no merger agreement was entered into, KKR would be required to purchase 28,138,000 Company Shares for $11 per share, payable in Holdings Shares, providing the Company with a saleable asset of over $300 million that could be used to reduce debt or for other purposes. The Letter of Intent also provided for the payment of the $50 million "topping" fee (reduced by the $20 million commitment fee) in the event that, during the pendency of the Letter of Intent a third party made a "Transaction Proposal" which was subsequently consummated. (The Letter of Intent was filed with the Company's Form 8-K, dated September 12, 1994. The description of the Letter of Intent contained herein is qualified by reference to the full text of the Letter of Intent.)
The Letter of Intent was announced on September 12, 1994 and the parties proceeded to negotiate definitive agreements. Following the announcement on September 12, 1994 that the Company had entered into the Letter of Intent with Whitehall, Japonica wrote again to the Company, reiterating its interest in acting as a "proactive white knight." The Company responded with a letter to Japonica indicating that the Board was prepared to explore all serious, substantive proposals with a view to maximizing the value of the Company Shares. The Company noted that none of Japonica's communications had contained any actual proposal, but it indicated that if Japonica had a proposal that it believed would maximize shareholder value and that could be effected, Japonica should contact Lazard Freres, who would arrange a meeting.
On September 15, 1994, Japonica wrote again to the Company demanding that the Company forward to Japonica all material and information provided to other potential bidders, including KKR. In response, the Company wrote to Japonica the next day indicating once more that, although none of its communications had yet included any concrete proposal or provided the information regarding financing that the Company had requested, the Board remained willing to explore all serious substantive proposals. In response to Japonica's request for information that had been provided to other
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bidders, the Company enclosed a form of confidentiality agreement, already executed by the Company, for Japonica's signature. The confidentiality agreement did not contain any "stand-still" provisions. Japonica did not return the confidentiality agreement.
On September 19, 1994, the Company offered to meet with Japonica and to make available to it certain senior members of management and the Company's legal and financial advisors on the assumption that, in view of its persistence, Japonica must have believed that it had a proposal to maximize shareholder value that could be effectuated. A meeting was arranged for September 21, 1994. At the meeting, Japonica indicated that it did not wish to sign the confidentiality agreement. Japonica presented a "Letter of Continuing Interest" with regard to the Company and attached to it certain materials with respect to its "Dynamic Tension(TM)" management philosophy. Although the "Letter of Continuing Interest" contained various nonspecific suggestions with respect to the Company, it did not contain, and upon questioning by representatives of the Company and its advisors, Japonica did not make, any proposal for the Company. Japonica also refused to provide any information with respect to its financing resources. The Company indicated that it would consider any credible proposal that Japonica chose to make, and, subject to execution of the confidentiality agreement, provide appropriate confidential information.
On September 22, 1994, the Board convened to consider the Merger Agreement and the Option Agreement (collectively, the "Agreements") which had been negotiated with KKR. At the meeting the Board reviewed in detail the proposed terms of the transaction. The Board received an updated report on the Company's results of operations and financial condition. The Board also reviewed investor reaction to the announcement of the Letter of Intent, the correspondence and meeting with Japonica, the due diligence that had been performed on Holdings, the presentations of Lazard Freres and First Boston and the fairness opinions delivered by Lazard Freres and First Boston.
At the September 22, 1994 Board meeting the Board, with Mr. Shames abstaining, voted to approve the Agreements and the transactions contemplated thereby, to recommend to the shareholders of the Company that they accept the Offer, that they tender their Company Shares to Purchaser and that, if required by applicable law, they approve and adopt the Merger Agreement. Mr. Shames repeated the views he expressed on September 9, 1994 and stated that he was also abstaining because he felt a conflict arising from the issue of his future
-15- 17
involvement in the Company (although he stated that he had no agreements with KKR). The Board further authorized a press release relating to the Agreements, and a letter to be sent to Japonica, following the execution of the Agreements, indicating that the Company's agreements with KKR's affiliate, Whitehall, do not preclude the Board's consideration of a proposal by Japonica, and that the Board is interested in obtaining the best possible transaction for the Company's shareholders and should Japonica decide to make a substantive proposal, the Board is prepared to work with Japonica to that end. The Board indicated that if Japonica chose to submit a proposal, it should specify the means and sources of financing. The letter noted that Japonica had failed to provide information as to its ability to finance the type of transactions it had referred to even though the Board had been requesting that information for several months.
After the Board meeting, the Company and KKR finalized the details of the Agreements and on September 23, 1994, the Company, Purchaser and Whitehall entered into the Merger Agreement and the Option Agreement. The terms of the transactions were announced in a joint press release issued on September 23, 1994.
REASONS FOR THE EXCHANGE OFFER AND MERGER; RECOMMENDATION OF THE BOARD OF DIRECTORS OF THE COMPANY
The Board of Directors of the Company has determined that the Merger Agreement and the Option Agreement and the transactions contemplated thereby, including the Offer and Merger, taken together, are fair to the shareholders of the Company and recommends that holders of Company Shares accept the Offer (following its commencement), tender their Company Shares thereunder to the Purchaser and, if required by applicable law, approve and adopt the Merger Agreement. This determination and recommendation was made by the entire Board, with Ervin R. Shames, the Company's Chief Executive Officer, abstaining.
As described above under "Background," the Board was confronted with two realistic choices: to approve the Proposed 1994 Restructuring Plan or to authorize the Company to enter into the Merger Agreement. The Board's decision to enter into the Merger Agreement was based in large part upon balancing the risks and opportunities of the Proposed 1994 Restructuring Plan recommended by management against the risks and benefits of the Merger Agreement. On the one hand, the Board considered the Proposed 1994 Restructuring Plan to involve risk to the equity value of the Company in the short run and, if the restructuring
-16- 18
were to be unsuccessful, a substantial future risk. On the other hand, although the Merger Agreement offers all shareholders the opportunity to receive a premium for their Company Shares, because the form of consideration to be paid to shareholders is Holdings Shares, the Board took into account the risk to the Holdings Shares because of tobacco developments (including litigation, legislation and governmental regulation) that the Board recognized were not determinable. In balancing the two alternatives, the Board determined that the transactions contemplated by the Merger Agreement were the less risky and preferable alternative.
The recommendation by the Board that the Company's stockholders accept the Offer and tender their Company Shares is not, and should not be considered to be, a recommendation that the Company's shareholders continue to own or, alternatively, make a decision to sell the Holdings Shares acquired by such holders as a result of the Offer or the Merger.
In its deliberations, the Board considered a number of factors including, without limitation, the following:
(i) The Board's knowledge of the business, operations, properties, assets, financial condition, operating results and prospects of the Company, including in particular its close monitoring of the adoption and implementation of the 1993 Restructuring Plan, and the failure of that plan to attain its goals (see "Background" for a description of the 1993 Restructuring Plan);
(ii) The Board's knowledge and judgments as to the results of the Company's restructurings in 1989, 1991 and 1992, and their failure to achieve the anticipated results;
(iii) The Board's judgment as to the future prospects of the Company in light of management's Proposed 1994 Restructuring Plan (see "Background" for a description of the Proposed 1994 Restructuring Plan), which the Board viewed as posing significant risks for the equity value of the Company including that it would result in the Company having a substantial negative net worth; that it would require the sale of some of the Company's profitable businesses; that there were risks inherent in selling such businesses and attendant uncertainties as to what prices could be realized; and that the proposed restructuring would still leave the Company highly leveraged with a significant amount of indebtedness even after application of the proceeds from the sales of the businesses. The Board considered that the projected earnings for the Company following implementation of the proposed restructuring
-17- 19
would not, based upon the advice of Lazard Freres, likely result in an implied stock price (using earnings multiples of comparable companies) exceeding $14.25 for a significant period of time;
(iv) The view expressed by the Company's Chief Executive Officer that the Proposed 1994 Restructuring Plan could be accomplished and that it was a better alternative for the Company (see "Background");
(v) The oral and written presentations of First Boston and Lazard Freres and the opinions of First Boston and Lazard Freres that, as of September 22, 1994, the consideration to be received by the stockholders of the Company (other than KKR and its affiliates) in the Offer and the Merger is fair to such stockholders from a financial point of view. These opinions were based on drafts of the Agreements and were subsequently reconfirmed in writing upon the financial advisors' review of the definitive agreements. Such opinions, which are subject to limitations, qualifications and assumptions, including those relating to the absence of adverse future developments in Holdings' tobacco business, are filed as exhibits to this report and should be read in their entirety;
(vi) The terms and conditions of the Merger Agreement and the Option Agreement; the Board considered in particular the "no-solicitation" provision of the Merger Agreement, the fees and expense reimbursements payable to KKR and the termination provisions of the Merger Agreement and concluded that the terms of the Merger Agreement and the Option Agreement would not preclude the Board from considering alternative transaction proposals for the Company;
(vii) Possible alternatives to the Offer and the Merger, including continuing to operate the Company as an independent public company, approving the further restructuring proposed by the Company's management, or liquidating the Company, as well as a range of potential values to the Company's stockholders associated with such alternatives determined with the assistance of the Company's financial advisors, the timing of effectuating such alternatives and the likelihood of achieving those values;
(viii) Information concerning the business, financial condition and results of operations of Holdings, including the reports of the results of the due diligence investigation of Holdings; in that connection the Board took into account that the impact on Holdings from litigation (including pending and future matters as well as class action litigation), legislation (pending and future) and governmental regulation (present and
-18- 20
future) involving tobacco products was unknowable and could be devastating with respect to the value of Holdings Shares;
(ix) The historical market prices of the Company Shares and the Holdings Shares;
(x) The fact that the consideration to be received by the Company's stockholders in the Offer and the Merger represented a premium over the trading price of the Company Shares prior to the announcement of the Letter of Intent. In this regard, the Board considered the risk that announcement of the Proposed 1994 Restructuring Plan might negatively impact the trading price of the Company Shares;
(xi) The fact that the consideration to be received by stockholders of the Company in the Offer and the Merger will consist of equity securities of Holdings, a widely followed, publicly-traded company, affording them a significant degree of liquidity should the Company's stockholders determine to sell Holdings Shares acquired in the Offer or the Merger;
(xii) The fact that the Offer is for all of the outstanding Company Shares and holders of Company Shares have the right to choose whether or not to exchange their shares in the Offer;
(xiii) The taxable nature of the transaction;
(xiv) The correspondence from, and the results of, the discussions and the meeting with Japonica and its representatives, the fact that no specific transaction was proposed by Japonica, that Japonica would provide no information with respect to its potential sources of financing and that the Merger Agreement does not, in the Board's judgment, preclude consideration by the Board of any proposal made by Japonica or any other party; (copies of the correspondence between the Company and Japonica have been filed as an exhibit to this Report, see Item 7); and
(xv) The fact that the efforts to sell the Company in late 1993 were not successful and that despite the public disclosure that the Company was considering a number of alternatives for the Company, including the possible sale or merger of the Company, no third party contacted the Company subsequent to such announcement except Whitehall and Japonica and only Whitehall made a proposal to acquire the Company (see "Background").
In reaching the conclusion that the holders of Company Shares will receive fair value in the Offer and the
-19- 21
Merger, in Holdings Shares, the Company's Board considered the opinions of its financial advisors (copies of which are filed herewith as exhibits, see Item 7), its knowledge of the Company's businesses and discussions with the Company's management and the Company's and Board's financial advisors of their views concerning the businesses, financial condition and prospects of Holdings. The Board, with the assistance of the Company's financial advisors, also considered recent and current market prices of Holdings Shares, on which the exchange ratio for the Offer and the Merger was based. The analyses and opinions of both of the Company's financial advisors were for the information of the Company's directors and do not constitute a recommendation to the Company's shareholders concerning any action they may take in connection with the Offer, the Merger or Holdings Shares. Neither financial advisor nor the Company's directors intend for any other party, including the Company's stockholders, to have any rights or causes of action as a result of the delivery of the opinions or the related analyses and advice or the inclusion of the opinions as exhibits to this Form 8-K.
The foregoing discussion of the information and factors considered and given weight by the Board is not intended to be exhaustive. In view of the variety of factors considered in connection with its evaluation of the Offer and the Merger, the Board did not find it practicable to, and did not quantify or otherwise assign relative weights to, the specific factors considered in reaching its determination. In addition, individual members of the Company's Board of Directors may have given different weights to different factors.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
CORRESPONDENCE WITH JAPONICA PARTNERS
1. Letter from P.B. Kazarian to F.J. Tasco -- 5/24/94 2. Letter from P.B. Kazarian to F.J. Tasco -- 6/5/94 3. Letter from Japonica Partners to J. Rosenfeld -- 6/8/94 4. Letter from F.J. Tasco to Japonica Partners -- 6/13/94 5. Letter from P.B. Kazarian to J. Rosenfeld -- 6/20/94 6. Letter from P.B. Kazarian to M. David-Weill -- 6/24/94 7. Letter from P.B. Kazarian to F.J. Tasco -- 7/5/94 8. Letter from P.B. Kazarian to F.J. Tasco -- 7/14/94 9. Letter from F.J. Tasco to P.B. Kazarian -- 7/19/94 10. Letter from Japonica Partners to J. Rosenfeld 7/26/94 11. Letter from Japonica Partners to F.J. Tasco -- 7/26/94
-20- 22
12. Letter from P.B. Kazarian to F.J. Tasco -- 8/11/94 13. Letter from P.B. Kazarian to F.J. Tasco -- 8/19/94 14. Letter from Japonica Partners to E.R. Shames with attached list of questions to management -- 9/7/94 15. Letter from P.B. Kazarian to F.J. Tasco -- 9/13/94 16. Letter from A.L. Miller to P.B. Kazarian -- 9/14/94 17. Letter from Japonica Partners to F.J. Tasco -- 9/15/94 18. Letter from F.J. Tasco to P.B. Kazarian with attached confidentiality letter -- 9/16/94 19. Letter from Japonica Partners to F.J. Tasco -- 9/17/94 20. Letter from F.J. Tasco to P.B. Kazarian -- 9/19/94 21. Letter from Japonica Partners to F.J. Tasco with "Dynamic Tension" and Management Principles attachments -- 9/21/94 22. Letter from Japonica Partners to Borden, Inc. Board of Directors -- 9/22/94 23. Letter from F.J. Tasco to P.B. Kazarian -- 9/23/94 24. Letter from A.R. Brownstein to M. Nussbaum -- 9/26/94 25. Letter from Japonica Partners to F.J. Tasco -- 9/27/94 26. Letter from M. Nussbaum to M. Lipton -- 10/5/94 27. Letter from Japonica Partners to Board of Directors -- 10/5/94
FAIRNESS OPINIONS
28. Opinion of CS First Boston Corporation, dated September 22, 1994 29. Opinion of Lazard Freres & Co., dated September 22, 1994
-21- 23
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
BORDEN, INC.
Date: October 5, 1994 James C. Van Meter ------James C. Van Meter Executive Vice President and Chief Financial Officer (Principal Financial Officer & Duly Authorized Signing Officer)
-22- 24
EXHIBIT INDEX
Exhibit No. ------1. Letter from P.B. Kazarian to F.J. Tasco -- 5/24/94 2. Letter from P.B. Kazarian to F.J. Tasco -- 6/5/94 3. Letter from Japonica Partners to J. Rosenfeld -- 6/8/94 4. Letter from F.J. Tasco to Japonica Partners -- 6/13/94 5. Letter from P.B. Kazarian to J. Rosenfeld -- 6/20/94 6. Letter from P.B. Kazarian to M. David-Weill -- 6/24/94 7. Letter from P.B. Kazarian to F.J. Tasco -- 7/5/94 8. Letter from P.B. Kazarian to F.J. Tasco -- 7/14/94 9. Letter from F.J. Tasco to P.B. Kazarian -- 7/19/94 10. Letter from Japonica Partners to J. Rosenfeld 7/26/94 11. Letter from Japonica Partners to F.J. Tasco -- 7/26/94 12. Letter from P.B. Kazarian to F.J. Tasco -- 8/11/94 13. Letter from P.B. Kazarian to F.J. Tasco -- 8/19/94 14. Letter from Japonica Partners to E.R. Shames with attached list of questions to management -- 9/7/94 15. Letter from P.B. Kazarian to F.J. Tasco -- 9/13/94 16. Letter from A.L. Miller to P.B. Kazarian -- 9/14/94 17. Letter from Japonica Partners to F.J. Tasco -- 9/15/94 18. Letter from F.J. Tasco to P.B. Kazarian with attached confidentiality letter -- 9/16/94 19. Letter from Japonica Partners to F.J. Tasco -- 9/17/94 20. Letter from F.J. Tasco to P.B. Kazarian -- 9/19/94 21. Letter from Japonica Partners to F.J. Tasco with "Dynamic Tension" and Management Principles attachments -- 9/21/94 22. Letter from Japonica Partners to Borden, Inc. Board of Directors -- 9/22/94 23. Letter from F.J. Tasco to P.B. Kazarian -- 9/23/94 24. Letter from A.R. Brownstein to M. Nussbaum -- 9/26/94 25. Letter from Japonica Partners to F.J. Tasco -- 9/27/94 26. Letter from M. Nussbaum to M. Lipton -- 10/5/94 27. Letter from Japonica Partners to Board of Directors -- 10/5/94 28. Opinion of CS First Boston CORPORATION, dated September 22, 1994 29. Opinion of Lazard Freres & Co., dated September 22, 1994
-23- 1 EXHIBIT 1
[LETTERHEAD OF JAPONICA PARTNERS]
VIA FACSIMILE HIGHLY CONFIDENTIAL
May 24, 1994
Mr. Frank J. Tasco Chairman Borden Inc. 277 Park Avenue New York, NY 10172
Dear Frank:
Given your public disclosure of the Board's efforts to sell the Company, we wish to meet.
Our first preference is as a "white knight".
We are inclined to entertain a materially higher valuation if the snack and other targeted businesses are not liquidated.
We should meet forthwith.
Best Health,
/s/ Paul ------Paul B. Kazarian Managing Partner
1 EXHIBIT 2
[LETTERHEAD OF JAPONICA PARTNERS]
VIA FACSIMILE HIGHLY CONFIDENTIAL
June 5, 1994
Mr. Frank J. Tasco Chairman Borden Inc. 277 Park Avenue New York, NY 10172
Dear Frank:
Wrote to you on May 24th.
Given your public disclosure of the Board's efforts to sell the Company, we wish to meet.
Our first preference is as a "white knight".
We are inclined to entertain a materially higher valuation if the snack and other targeted businesses are not liquidated.
We should meet forthwith.
Best Health,
/s/ Paul B. Kazarian ------Paul B. Kazarian Managing Partner
1
EXHIBIT 3
[Letterhead of Japonica Partners]
Confidential
June 8, 1994
Jerry Rosenfeld Lazard Freres & Co. One Rockefeller Plaza 32nd floor New York, New York 10020
Dear Mr. Rosenfeld:
Responding to your phone message.
We are advised to obtain written bona fides as to your role and authorization in this matter prior to commencing conversation with you.
Preferably, such written confirmation should originate from your principal.
Please fax such representation by the close of business today.
In advance, we thank you.
Sincerely,
/s/ Japonica Partner ------
JAPONICA PARTNERS
1 EXHIBIT 4
[LETTERHEAD OF BORDEN, INC.]
June 13, 1994
Japonica Partners 30 Kennedy Plaza Providence, R. I. 02903
Dear Sirs:
In response to your June 8 letter, please be advised that Lazard Freres & Co. is Borden's investment banker and as such is duly authorized to represent Borden in discussions with third parties concerning Borden affairs.
Very truly yours,
/s/ Frank J. Tasco ------Frank J. Tasco Chairman
cc: E. Shames
1 EXHIBIT 5
[LETTERHEAD OF JAPONICA PARTNERS]
VIA FACSIMILE CONFIDENTIAL
June 20, 1994
Jerry Rosenfeld Lazard Freres & Co. One Rockefeller Plaza, 32nd floor New York, NY 10020
Dear Mr. Rosenfeld:
Received a written communication from Frank Tasco. Telephoned you yesterday and left a message.
Please feel free to call at your earliest convenience.
Sincerely,
/s/ Paul B. Kazarian ------Paul B. Kazarian Managing Partner cc: F. Tasco
1 EXHIBIT 6
[LETTERHEAD OF JAPONICA PARTNERS]
VIA FACSIMILE CONFIDENTIAL
June 24, 1994
Michel DAVID-WEILL Lazard Freres & Co. One Rockefeller Plaza New York, NY 10020
Dear Mr. DAVID-WEILL:
Received the attached letter from Borden, Inc.'s Chairman Mr. Frank J. Tasco suggesting we contact your firm in connection with our interest in the Company.
Prior to our receipt of Mr. Tasco's letter, a Mr. J. Rosenfeld from your organization had called, but efforts to reach him subsequent to Mr. Tasco's letter have been to no avail.
Given the sensitivity of this topic, your guidance in understanding the proper protocol in communicating with your organization would be greatly appreciated.
Please feel free to call.
Sincerely,
/s/ Paul B. Kazarian ------Paul. B. KAZARIAN Managing Partner
[Omitted from this letter is an attachment which is filed separately as exhibit 4 to this Form 8-K]
1 EXHIBIT 7
[LETTERHEAD OF JAPONICA PARTNERS]
VIA FACSIMILE HIGHLY CONFIDENTIAL
July 5, 1994
Frank J. Tasco Chairman Borden, Inc. 277 Park Avenue New York, NY 10172
Dear Frank:
With your letter of June 13, 1994 on file, we spoke with the designated Lazard partner. On behalf of his firm, he communicated the following.
If we wish to submit a more specific proposal, it would be reviewed by Mr. Martin Lipton and the Board.
In all fairness, Lazard's view of the Company's situation, as indicated below, was less than encouraging:
1. the Company is too complicated to understand from the outside,
2. the Company cannot pay down its current debt load,
3. the sale of substantial assets is the heart & soul of management's plan for the Company,
4. investors have responded negatively to management's plan with a considerable valuation decline, and
5. the Board would not reconsider the sale of the snack businesses despite:
a. the erosion of shareholder value cited in point 4, b. sale proceeds are likely to amount to a small fraction of initial expectations, and c. the loss of a major portion of the "Value Gap" recovery.
2
Frank J. Tasco July 5, 1994 Page 2
Nevertheless, we remain interested in the Company's situation and are inclined to entertain a higher valuation towards maximizing shareholder value if the snack and other remaining targeted businesses are retained.
Your constructive and expeditious guidance to advance a friendly initiative would be appreciated.
Respectfully,
/s/ Paul B. Kazarian ------Paul B. Kazarian Managing Partner
1 EXHIBIT 8
[LETTERHEAD OF JAPONICA PARTNERS]
VIA FACSIMILE HIGHLY CONFIDENTIAL
July 14, 1994
Frank J. Tasco Chairman Borden, Inc. 277 Park Avenue New York, NY 10172
Dear Frank:
Respectfully, awaiting your response.
Received your recent letter.
It would be appropriate and appreciated if we heard from you prior to what one source indicated was a July 26th Board meeting.
To reiterate, we are inclined to entertain a materially higher valuation towards maximizing shareholder value if the snack and other remaining targeted businesses are retained.
The on-going sale of assets in order to repay bank loans may reduce the upper range of the Company's "Value Gap" and the potential value recovery by up to $500 million.
As we have indicated, our preference is that of a pro-active white knight.
Sincerely,
/s/ Paul ------Paul B. Kazarian Managing Partner
1 EXHIBIT 9
[LETTERHEAD OF BORDEN, INC.]
July 19, 1994
Mr. Paul B. Kazarian Managing Partner Japonica Partners 30 Kennedy Plaza Providence, Rhode Island 02903
Dear Mr. Kazarian:
I am in receipt of your letters of July 5th and July 14th, 1994.
Mr. Rosenfeld repeatedly asked your colleague Mr. Fahmey questions relating to the financial resources of your group and the proposed sources of funds for the transaction you are suggesting. Your colleague avoided answering these questions. We take this to mean that you do not have financing. Mr. Rosenfeld did not suggest that Borden is unable to pay down its current debt load or comment upon the anticipated proceeds of the asset sales program. He simply expressed the view, consistent with the above, that financing the acquisition of Borden is a complex matter.
Borden faces serious challenges and it is doing its best to address them. Any distraction from these efforts entails a severe cost which could only be justified if it were likely to produce a material benefit for the Company. On this basis we do not believe it is in Borden's interest to pursue this matter further with you.
Yours sincerely,
/s/ Frank J. Tasco ------Frank J. Tasco Chairman
1 EXHIBIT 10
[LETTERHEAD OF JAPONICA PARTNERS]
VIA FACSIMILE HIGHLY CONFIDENTIAL
July 26, 1994
Jerry Rosenfeld General Partner - Investment Banker Lazard Freres & Co. One Rockefeller Plaza, 32nd Floor New York, NY 10020
Dear Mr. Rosenfeld:
We are alarmed by the statements contained in the attached letter from Mr. Frank Tasco referencing our telephone conversation.
Assuming such statements accurately represent your reporting of our conversation, such actions are beyond gross negligence and are both potentially destructive to shareholder value and -- obviously -- would not merit protection under any indemnification agreements with the Company.
We expect immediate retraction of these statements.
In direct contrast to the statements in Mr. Tasco's letter, records of our conversation clearly indicate the following:
Point 1. Never during our conversation was any transaction as referenced in the attached letter suggested, discussed or even mentioned.
Point 2. You did not ask any questions relating to our financial resources. In fact, you complemented Japonica Partners on being a credible and highly successful firm with a good reputation.
Point 3. You specifically stated that Borden cannot pay down its current debt load.
Point 4. You repeatedly stated that the Board would not reconsider the sale of the snack businesses despite:
a. the erosion of shareholder value as investors have responded negatively to
2
Jerry Rosenfeld July 26, 1994 Page 2
management's plan with a considerable valuation decline.
b. sale proceeds are likely to amount to a small fraction of initial expectations, and
c. the loss of a major portion of the "Value Gap" recovery.
To reiterate, we expect full retraction of these statements in writing prior to your next communication with the Company.
Regards,
/s/ Japonica Partners ------JAPONICA PARTNERS
Attachment
[Omitted from this letter is an attachment which is filed separately as exhibit 9 to this Form 8-K]
1 EXHIBIT 11
[LETTERHEAD OF JAPONICA PARTNERS]
VIA FACSIMILE HIGHLY CONFIDENTIAL
July 26, 1994
Mr. Frank J. Tasco Chairman Borden Inc. 277 Park Avenue New York, NY 10172
Dear Frank:
Received your recent letter.
Importantly, there appears to be a significant miscommunication with your advisor that needs to be corrected at the Board-level.
In direct contrast to the statements in your letter, records of our telephonic conversation with the Lazard Freres investment banker on June 27th clearly indicate the following:
Point 1. Never during our conversation was any transaction as referenced in your letter suggested, discussed or even mentioned.
Point 2. The Lazard Freres General Partner did not ask any questions relating to our financial resources. In fact, he complemented Japonica Partners on being a credible and highly successful firm with a good reputation.
Point 3. He specifically stated that Borden cannot pay down its current debt load (See attached).
Point 4. He repeatedly stated that the Board would not reconsider the sale of the snack business (See attached) despite:
a. the erosion of shareholder value as investors have reacted negatively to management's plan with a considerable valuation decline
b. sale proceeds are likely to amount to a small fraction of initial expectations, and
2
Frank J. Tasco July 26, 1994 Page 2
c. the loss of a major portion of the "Value Gap" recovery.
We have asked for and expect a retraction from your investment banker.
Furthermore, we will consult with advisors as to whether continued non-principal communication is appropriate.
As for the concluding paragraph of your letter, it is 100% incongruent with the facts. To reiterate, we are inclined to entertain a materially higher valuation towards maximizing shareholder value if the snack and other remaining targeted businesses are retained.
The on-going sale of assets in order to repay bank loans may reduce the upper range of the Company's "Value Gap" and the potential value recovery by up to $500 million.
As we have indicated, our preference is that of a pro-active white knight.
Respectfully.
/s/ JAPONICA PARTNERS ------JAPONICA PARTNERS
Attachment
[Omitted from this letter is an attachment which is filed separately as exhibit 7 to this Form 8-K]
1 EXHIBIT 12
[LETTERHEAD OF JAPONICA PARTNERS]
VIA FACSIMILE HIGHLY CONFIDENTIAL
August 11, 1994
Frank J. Tasco Chairman Borden, Inc. 277 Park Avenue New York, NY 10172
Dear Frank:
Continuing to review your latest July letter with our advisors. Will respond forthwith.
To reiterate, we are inclined to entertain a materially higher valuation towards maximizing shareholder value if the snack and other remaining targeted businesses are retained.
The on-going sale of assets in order to repay bank loans may reduce the upper range of the Company's "Value Gap" and the potential value recovery by up to $500 million.
As we indicated, our preference is that of a pro-active white knight.
Respectfully,
/s/ Paul ------Paul B. Kazarian Managing Partner cc: List
1 EXHIBIT 13
[LETTERHEAD OF JAPONICA PARTNERS]
VIA FACSIMILE HIGHLY CONFIDENTIAL
August 19, 1994
Mr. Frank J. Tasco Chairman Borden, Inc. 277 Park Avenue New York, NY 10172
Dear Frank:
We view the latest news regarding the continuing and expanding liquidation of the Company's businesses and the increasing pressure exerted by creditors with great alarm. Comments involving the specter of a bankruptcy filing are even more disturbing.
Prospects of further dividend reduction or elimination are of concomitant relevance and continue the trend of ignoring the interests of equity holders in favor of creditors.
In this context, issues regarding lender liability, equitable subordination, and fraudulent conveyance are of direct relevance and serious concern.
Given the urgency of this matter, and your pattern of delayed or non-responses, we are willing to entertain your suggestions as to an appropriate meeting time and place. Please provide such suggestions by noon today.
If you choose not to adequately address this issue, we may have no choice but to consider, among other alternatives, communicating with the Company's Board members and the creditors involved.
As we have indicated, our preference is that of a pro-active white knight.
Very truly yours,
/s/ Paul B. Kazarian ------Paul B. Kazarian Managing Partner cc: List
1 EXHIBIT 14
[LETTERHEAD OF JAPONICA PARTNERS]
VIA FACSIMILE HIGHLY CONFIDENTIAL
September 7, 1994
Mr. Ervin R. Shames President and CEO Borden, Inc. 180 East Broad Street Columbus, Ohio 43215-3799
Dear Mr. Shames:
We respectfully request that all stockholders be expeditiously provided with information and answers to the attached questions.
Filing such information with the SEC and/or scheduling an analyst/shareholders meeting may be an appropriate first step.
Very truly yours,
/s/ JAPONICA PARTNERS ------JAPONICA PARTNERS cc: List
2 Highly Confidential Draft September 7, 1994 06:15 PM
September 6th Questions to Management
Cash Flow
1. Without proceeds from asset sales, how much 1st half interest expense would have been paid?
2. With first half negative free cash flow of $62 million before proceeds from asset sales, what is the Company's targets for free cash flow in 1994 and 1995 excluding proceeds from assets sales?
3. How can management be meeting its cash flow targets when net debt (including A/R financing, TMI, discontinued operations and other off balance sheet financing) has remained essentially unchanged?
4. With the latest asset sale of Jays, reportedly selling for between 12% to 14% of sales, how can management be meetings its target of $400 million in net proceeds from asset sales? Will the remaining snack assets be sold at similar revenue multiples? Please provide expected asset sale proceeds.
5. Would a 5th major restructuring cause 1995 free cash flow to be negative? What would be the estimated cash cost of such a restructuring?
6. Will the Company provide shareholders with monthly, or at a minimum, quarterly itemized cash flow targets and results? Components of operating cash flow should include restructuring cash costs, discontinued business cash costs, individual asset sale proceeds, working capital components, depreciation, deferred and current taxes, Other Assets and Other, Net.
7. How much will annualized interest expense increased from that projected in early 1994 given deteriorating credit spread costs, essentially no debt reduction by mid-year, rising interest rates and increased financing fees?
8. Without the apparent decrease in quarter to quarter cash interest to book interest ratio of approximately $12 million and the positive cash tax effect of $11 million, wouldn't Free Cash Flow after the $87 million in asset proceeds be nominal to negative? Will second half cash expense increase proportionately? Please explain the $11 million cash tax line item.
9. Please provide components of Other assets and Other, net in the annual and quarterly cash flows.
1 3 Highly Confidential Draft September 7, 1994 06:15 PM
September 6th Questions to Management (cont.)
10. What are the debt repayment requirements in 1994 and 1995?
11. What is the status of the $52 million in IRS contested items?
12. Given the apparent delay in cash spending on restructuring and capital expenditures to conserve cash in the first half, what will be the impact on second half free cash flow? How has this affected planned cost reductions and the Company's competitive position? Please provide revised 1994 cap-ex projections.
Bank Debt
13. What are waiver provisions for covenant violations under the new bank loan agreement? What percentage of the banks must agree for covenant amendments?
14. What are upcoming 1994 and 1995 monthly/quarterly covenant compliance dates, and what are these covenants? Please provide statistics and definitions.
15. Can the holders of the Company's zero-coupon bonds demand redemption for cash in 1997, or can the Company compel them to accept stock (see page 24 of the 1993 Annual Report)?
16. What is the dollar amount of dividend "basket" cushion under the new bank agreement?
17. If the new bank agreement fees total $20 to $30 million, will this be funded with additional debt?
18. How much, if any, does the cost of the bank debt increase with rating downgrades?
19. When will the Company file a copy of the new bank agreement with the SEC?
20. How much commercial paper is currently issued and outstanding? What are the projections for the remainder of the year? How much commercial paper will be classified as long-term debt?
21. Given the possibility that monthly bank covenant requirements to pay down debt are top priority, would shareholders' needs be subordinated?
2 4 Highly Confidential Draft September 7, 1994 06:15 PM
September 6th Questions to Management (cont.)
Operating
22. What are the Company's new EPS estimates for 1994 and 1995?
23. Is the approximately 220 and 330 basis point gross and operating margin decline, respectively, for the first six months in 1994 considered "on target?"
24. What effect, if any, would a major reduction to the already reduced capital expenditure further weaken the Company's competitive position and jeopardize product quality?
25. Will any recent "me-too" new products out-perform past new product introductions? Also, what has been the total unexpensed cash cost of new products introduced or re-introduced over the past 12 months?
26. Given some estimates that pasta operating profit up-side is $5 million to $10 million per quarter, does that mean domestic pasta sales of an estimated $120 million broke even in the second quarter?
27. Do the 80% of brands market share improvement comments apply to only about $100 million of quarterly domestic product sales when domestic pasta and dairy are excluded?
28. With the exception of major asset sales, are current management's plans essentially the same as those in 1992, including the addition of new management and focus on brand equity?
29. What are the components of the $7.7 million change in Other (income) and expense, net between second quarter 1993 and 1994 that provided almost all the earnings in the second quarter 1994.
30. With the sale of snacks and other businesses, as well as the speculated disposal of dairy, will the Company suffer a significant loss of competitive advantage and leverage with its retailers and consumers?
31. Did pasta dollar market share, not tonnage volume, decline by one point in the second quarter, as shown by IRI?
32. How much of Dairy's increased operating loss was associated with the introduction of "low bidding" business strategies?
3 5 Highly Confidential Draft September 7, 1994 06:15 PM
September 6th Questions to Management (cont.)
33. How many of the supposedly reduced employees are still getting paid, or retained and paid as consultants, e.g., P.R. consultant? What is the annualized dollar amount?
Restructuring and Sale of Assets
34. Would any disposal and restructuring expenses associated with dairy and/or other assets eliminate any incremental proceeds from asset sale?
35. Given Chairman Tasco's statements in early 1994 that improving Dairy was the single greatest potential for increasing shareholder value in the near term, has this changed?
36. Would any up-side shareholder value be lost from asset sales with insufficient proceeds to pay down significant debt?
37. If the North American food business is at break-even levels before interest, could further downsizing be expected to reverse the negative trend?
38. Quantify the impact of any expected increase in overhead burden rate resulting from major asset sales. How is overhead and fixed burden allocated among the various dairy products?
39. How much as been paid and committed to be paid to outside consultants and advisors, both business and legal, in 1993 and 1994?
40. What was the peak operating profit of discontinued businesses and dairy during the past 5 years?
41. How much expense and cash costs associated with Columbus and New York headquarters have been historically and currently allocated to discontinued operations and dairy? How has that recently changed?
42. Given that the Dairy business provided $90 million in operating income in 1991, has the opportunity to recover that potential value been essentially eliminated?
43. Given that the $1.2 billion in sales from discontinued operations operated profitably as recently as 1991, does the disposal of these businesses and the mounting phase-out losses eliminate the potential to recover that lost value?
4 6 Highly Confidential Draft September 7, 1994 06:15 PM
September 6th Questions to Management (cont.)
44. With regards to the $1.2 billion in sales from discontinued businesses and the Dairy business, is the loss of operating profit and potential shareholder value consistent with management's stated objective of building shareholder value?
Accounting
45. Should the TMI and Sale of accounts receivable debt and associated financing expenses be classified as debt and interest expense, respectively? What is the all-in cost of the A/R program, and where is it classified?
46. Is actual total debt currently at approximately $2.5 billion and interest at $170 to $180 million, with TMI and A/R sales classified as debt?
47. How much debt and interest expense is being allocated to discontinued operations?
48. Are operating earnings significantly lower if restructuring charge reversals are added back to the P&L?
49. Given the $94 million pretax charge for asset write downs and changes in accounting estimates primarily relating to the cost of consumer and trade promotions in 1993, is there any write down expected in 1994 relating to consumer and trade promotions?
50. Please provide disclosure of balance sheet, P&L and cash flow information relating to discontinued operations. Given the frequent statements that results are on target, please provide the targets as well.
51. Should the 2nd quarter environmental charge be considered a one-time charge given the recent reduction in spending? (1993 expected spending was $18.4 million, and actual spending was only $4.3 million). See Annual Reports.
5 1 EXHIBIT 15
[LETTERHEAD OF JAPONICA PARTNERS]
VIA FACSIMILE
September 13, 1994
Mr. Frank J. Tasco Chairman Borden, Inc. 277 Park Avenue New York, NY 10172
Dear Frank:
You should not be surprised by our phone call first thing this morning and this letter. The situation reported in today's press concerning your agreement to an ownership swap for securities held by an LBO firm is clearly contrary to representations made by you and your advisors.
We have communicated repeatedly in writing and by phone since May 24, 1994 (see attached Listing of 14 Correspondences). As previously stated,
1. Our intent remains that of a pro-active white knight, a role now of greater necessity.
2. We are inclined to entertain a materially higher valuation to maximize shareholder value if the remaining targeted businesses are not liquidated.
Contra-fiduciary behavior is not acceptable nor is a massive decline in shareholder value and evisceration of Company fundamentals.
Again, we urge you to respond constructively and immediately. Your "duty of loyalty" and "duty of care" can not be abdicated.
Sincerely,
/s/ Paul B. Kazarian ------Paul B. Kazarian Managing Partner
2
Borden, Inc.
Listing of Correspondence
Date Recipient Sender ------
1. May 24, 1994 Frank Tasco Japonica Partners
2. June 5, 1994 Frank Tasco Japonica Partners
3. June 8, 1994 Jerry Rosenfeld Japonica Partners - Lazard
4. June 13, 1994 Japonica Partners Frank Tasco
5. June 20, 1994 Jerry Rosenfeld Japonica Partners - Lazard
6. June 24, 1994 David-Weill Japonica Partners - Lazard
7. July 5, 1994 Frank Tasco Japonica Partners
8. July 14, 1994 Frank Tasco Japonica Partners
9. July 19, 1994 Japonica Partners Frank Tasco
10. July 26, 1994 Frank Tasco Japonica Partners
11. July 26, 1994 Jerry Rosenfeld Japonica Partners - Lazard
12. August 11, 1994 Frank Tasco Japonica Partners
13. August 19, 1994 Frank Tasco Japonica Partners
14. September 7, 1994 Ervin Shames Japonica Partners
1 EXHIBIT 16
[LETTERHEAD OF BORDEN, INC.]
September 14, 1994
Mr. Paul B. Kazarian Managing Partner Japonica Partners 30 Kennedy Plaza Providence, RI 02903
Dear Mr. Kazarian:
Mr. Tasco has authorized me to respond to your letter to him dated September 13, 1994, as follows.
Borden's Board has consistently maintained that it is prepared to explore all serious, substantive proposals with a view to maximizing the value of the Borden shares. We note that none of your communications referenced in your letter contained any proposal. If you have a proposal that you wish to discuss with us that in your view meets such criteria and can be effected, please advise us of same through our investment banker, Louis Perlmutter of Lazard Freres & Co., (212) 632-6152, and he will arrange a meeting with you.
Very truly yours,
/s/ Allan L. Miller ------Allan L. Miller
ALM:lm
VIA FACSIMILE cc: Louis Perlmutter
1 EXHIBIT 17
[LETTERHEAD OF APONICA PARTNERS]
VIA FACSIMILE
September 15, 1994
Frank J. Tasco Borden, Inc. 180 East Broad Street Columbus, OH 43215-3799
Dear Mr. Tasco:
Received your fax this morning. This response, apparently from your Law Department, claiming a continuing willingness to explore alternatives to maximize shareholder value, is nothing short of outrageous.
Since May of this year, and through almost a dozen written communications and incessant phone calls, we have relentlessly tried to establish a constructive dialogue to act as a proactive white knight and to maximize shareholder value. Our numerous attempts to establish such a dialogue and your refusals to do so are irrefutably well documented.
We even contacted your investment banker, who during our conversation complemented Japonica on being a credible and highly successful firm with a good reputation. That conversation was thereafter misrepresented, distorted and conveniently reconstructed to justify your refusal to establish a dialogue as referenced above. Indeed, in your July 19th letter regarding a proposed transaction, you concluded that "we do not believe it is in Borden's interest to pursue this matter further with you."
It is difficult to conclude that anything less than a situation of tilting the playing field has been carefully designed. In fact, padlocking the entrance to the process and seeking to shackle the competition in order to advance a preferred suitor's proposal seem to be more apt characterizations.
Your refusal and failure to act consistently with your duty to maximize shareholder value, and the defensive, in fact hostile, responses by you and your advisors are well documented and will not go without notice.
These actions and disingenuous statements to the contrary raise questions as to violations of duty of loyalty and duty of care.
2 Frank J. Tasco September 15, 1994 Page 2
Also, such behavior and the history of recent events raise issues of gross negligence.
Months ago, you should have and could have provided us with equal treatment to the Whitehall group and others, including equal information and response time. Your advisor's comments to us that Borden is too complex to understand from the outside and that neither a financial nor a strategic buyer could make an acquisition work can only be viewed as further examples -- in a pattern of behavior -- of your attempts to preclude us from the process.
In this context, the Whitehall agreement and related provisions must be treated with suspect and questionable validity. This issue should not be under emphasized, nor should aspects of bad faith. We should also note that since the Board has determined that the Company should be sold, executing asset sales and/or non-ordinary business contracts/agreements may diminish shareholder value and is therefore impermissible.
Despite the many contra-fiduciary obstacles that you and your advisors have, and will undoubtedly continue to erect, we seek to press forward, determined to maximize shareholder value as a proactive white knight.
Please immediately deliver to Japonica Partners all material and information provided to other potential bidders, including the Whitehall group. We are also willing to visit sites where such information is maintained.
Sincerely,
/s/ JAPONICA PARTNERS ------JAPONICA PARTNERS cc: List
1 EXHIBIT 18
[LETTERHEAD OF BORDEN, INC.]
September 16, 1994
Mr. Paul B. Kazarian, Managing Partner Japonica Partners 30 Kennedy Plaza Providence, Rhode Island 02903
Dear Mr. Kazarian:
We are in receipt of your letter of September 15, 1994. That letter as well as your previous correspondence and our responses, including this one, have been communicated to our Board.
You continue to mischaracterize our previous communications with you. Our Board has consistently maintained that it is prepared to explore all serious, substantive proposals in a view to maximizing the value of the Borden shares. None of the communications received from you to date have included any proposal. In early July our financial advisor repeatedly asked your colleague questions concerning the financial resources of your group and the proposed sources of funds for any proposals you are considering. Your colleague refused to answer these questions. Your refusal to provide us with any basis for concluding that discussions with your group would be likely to produce a material benefit for Borden was the reason that we determined in July not to pursue discussions.
Let me reiterate our position as it is today and as it has consistently been. If you have a proposal that you wish to discuss with us that in your view can be effected and will lead to maximizing the value of the Borden shares, please advise us of the same and we will meet with you. In that regard, we have enclosed a form of Confidentiality Agreement which would be a predicate for such a meeting. It is the same form of agreement that was agreed to by KKR except that it does not include certain standstill provisions that were agreed to by KKR. We would prefer that you arrange such a meeting through our investment banker, Louis Perlmutter of Lazard Freres & Co., telephone number (212) 632-6152, fax number (212) 632-6054, although management personnel would be available for such a meeting if it were to be appropriate. If you would prefer, you may contact our General Counsel, Allan Miller, telephone number (614) 225-4884, fax number (614) 225-7133, about such a meeting
2 Mr. Paul B. Kazarian September 16, 1994 Page 2 and, in any event, the signed confidentiality letter should be returned to Mr. Miller.
Very truly yours,
/s/ Frank J. Tasco ------Frank J. Tasco
Enc. cc: Louis Perlmutter Allan Miller
3
[LETTERHEAD OF BORDEN, INC.]
September 16, 1994
Japonica Partners 30 Kennedy Plaza Providence, RI 02903
Attention: Mr. Paul B. Kazarian
Dear Mr. Kazarian:
You have requested information concerning Borden, Inc. (the "Company") in connection with a possible transaction with the Company or its shareholders. You will treat confidentially any information furnished to you by or on behalf of the Company (the "Evaluation Material"; provided, however, that the term "Evaluation Material" does not include, and your confidentiality obligations hereunder do not apply to, information which was or becomes generally available on a non-confidential basis).
You will not use the Evaluation Material in any way detrimental to the Company or its shareholders; provided, however, that you may disclose any Evaluation Material to your directors, officers, employees, agents, advisors, potential financing sources or affiliates who need to know such information for the purpose of evaluating the transaction (it being understood that they shall be informed by you of the confidential nature of such information and that by receiving such information they are agreeing to be bound by this agreement).
In the event that you are requested in any proceeding to disclose any Evaluation Material, you will give the Company prompt notice of such request so that the Company may seek an appropriate protective order. If in the absence of a protective order you are nonetheless compelled to disclose Evaluation Material, you may disclose such information without liability hereunder; provided, however, that you give the Company written notice of the information to be disclosed as far in advance of its disclosure as is practicable and, upon the Company's request and at the Company's expense, use your best efforts to obtain assurances that confidential treatment will be accorded to such information.
You hereby acknowledge that you are aware of the restrictions imposed by the United States securities laws on any person who has received from an issuer material, nonpublic information from purchasing or selling securities of such issuer
4 Japonica Partners September 16, 1994 Page 2
or from communicating such information to any other person under circumstances in which it is reasonably foreseeable that such person is likely to purchase or sell such securities in reliance upon such information.
You shall not make any disclosure concerning the subject matter of the prior paragraphs, including that you are having or have had discussions with the Company, and the Company will not make disclosure of such discussions which identifies you or your affiliates as parties thereto, except in either case as expressly provided in this agreement; provided that you or the Company may make such disclosure if either has received the written opinion of counsel (which opinion shall be provided to the other party reasonably in advance of such disclosure) that such disclosure must be made in order not to commit a violation of law and, if the action which is to be disclosed was in violation of the prior paragraph, such disclosure expressly states such violation.
For two years from the date hereof, (i) you agree not to initiate contact (except for those contacts made in the ordinary course of business) with any officer or employee of the Company regarding its business, operations, prospects or finances, except with the prior consent of the Company and (ii) you will not directly solicit (which shall not include executives brought to your attention with that person's knowledge) for hire any person known to you to be employed by the Company in an executive capacity.
Upon the Company's request you will promptly redeliver to the Company all copies of the Evaluation Material and will destroy all memoranda, notes and other writings prepared by you or your directors, officers, employees, agents or affiliates based on the Evaluation Material. You understand that neither the Company nor any of its representatives or advisors makes any representation or warranty as to the accuracy or completeness of any Evaluation Material which may be furnished to you. You agree that neither the Company nor its representatives or advisors shall have any liability to you or any of your representatives resulting from the use of the Evaluation Material.
You agree that money damages would not be a sufficient remedy for any breach of this agreement by you or your directors, officers, employees, agents or affiliates, and that in addition to all other remedies the Company shall be entitled to specific performance and injunctive or other equitable relief as a remedy for any such breach, and you further agree to waive and to use your best efforts to cause your directors,
5
Japonica Partners September 16, 1994 Page 3
officers, employees, agents or affiliates to waive, any requirements for the securing or posting of any bond in connection with such remedy.
This agreement shall be governed by and construed in accordance with the laws of the State of New Jersey, without giving effect to its conflict of laws principles or rules.
If you are in agreement with the foregoing, please so indicate by signing and returning one copy of this agreement which will constitute an agreement between you and the Company with respect to the matters set forth herein.
Very truly yours,
BORDEN, INC.
By: /s/ Allan L. Miller ------Allan L. Miller Senior Vice President
Confirmed and Agreed to:
JAPONICA PARTNERS
By: ------Name: Title:
1
EXHIBIT 19
[LETTERHEAD OF JAPONICA PARTNERS]
September 17, 1994
Frank J. Tasco Borden, Inc. 180 East Broad Street Columbus, OH 43215-3799
Dear Mr. Tasco:
Upon review of your fax this morning, several points are worth note:
POINT I: SEMANTIC SOPHISTRY: Your comments as to why Japonica Partners has been denied opportunity to act as a proactive white knight and maximize shareholder value are both factually inaccurate and logically inconsistent. Your attempts at semantic sophistry will not remedy concerns of irreparable harm or breaches of duty.
POINT II: 117-DAY DISADVANTAGE: At a minimum, your actions to date have impeded the maximization of shareholder value by 117 days, giving a preferred suitor at least a 117-day advantage.
POINT III: EQUAL ACCESS TO INFORMATION: Our team remains prepared to meet immediately in Columbus, New York, or any other location in order to obtain the information provided to Whitehall.
Please immediately fax to us today a list of all such material and information, which must currently exist. Also, please provide us with a listing of all meetings and communications, both written and verbal, including specific dates and content, between Borden and its advisors and Whitehall.
POINT IV: ANSWERS TO SEPTEMBER 7TH QUESTIONS: On Wednesday, September 7th, 10 days ago, we provided you with the attached list of questions in order to advance our efforts as a proactive white knight seeking to maximize shareholder value. We understand these were distributed to the Board at that time. These inquiries were provided before the Whitehall agreement was executed, and should have been answered prior to advancing with such an agreement.
2
Frank J. Tasco September 7, 1994 Page 2
POINT V: "LEVEL PLAYING FIELD" PROCEDURES: Given your actions to date, continuing to discourage Japonica Partners' effort to maximize shareholder value (as a proactive white knight) and encouraging a preferred suitor is totally inappropriate. A procedure to develop a fair and level playing field must be established immediately.
In this regard, you should provide Japonica Partners with, at a minimum, immediate notice and sufficient time to respond prior to contemplating any further actions between Borden and Whitehall. And, all should be made aware that communications, directly or indirectly, to Whitehall of our efforts are prohibited.
Our legal advisors will be sent the faxed September 16th letter agreement. Obviously, this should not be used by you to further delay providing us with a listing of items referenced in points III and IV.
As we have stated repeatedly, we are open to meet with you to discuss the above today, tomorrow or as soon as possible. Given that 117 days have passed since our first communication, it is incumbent upon you to accelerate efforts regarding Japonica Partners. If you don't wish to extend the courtesy of proposing a date, time and location for a meeting, we suggest Providence as early as Sunday, September 18, 1994.
As mentioned in our September 15th letter, since the Board has determined that the Company should be sold, executing asset sales and/or non-ordinary business contracts/agreements may diminish shareholder value and is therefore impermissible.
As Japonica Partners has stated innumerable times since May 24th, our preference is that of a proactive white knight in order to maximize shareholder value.
Sincerely,
/s/ JAPONICA PARTNERS ------JAPONICA PARTNERS cc: List, incl. Borden, Allan L. Miller and Louie Perlmutter
[Omitted from this letter is an attachment which is filed separately as exhibit 14 to this Form 8-K]
1 EXHIBIT 20
[LETTERHEAD OF BORDEN, INC.]
September 19, 1994
Mr. Paul B. Kazarian Managing Partner Japonica Partners 30 Kennedy Plaza Providence, Rhode Island 02903
Dear Mr. Kazarian:
Your fax dated September 17th was received by us this morning. We note that, like all of your previous communications, it contains no proposal for Borden or its shareholders. Nonetheless, on the assumption that you have a proposal that in your view can be effected and will lead to maximizing the value of the Borden shares, representatives of Borden and its advisors are prepared to meet with you at the offices of our lawyers, Wachtell, Lipton, Rosen & Katz, 51 West 52nd Street, 33rd floor, New York, New York on Wednesday, September 21st, at 2:00 p.m. subject only to your agreement to appropriate confidentiality arrangements. We await your (or your counsel's) comments on the confidentiality letter we sent you.
Very truly yours,
/s/ Frank J. Tasco ------Frank J. Tasco cc: Martin Nussbaum, Esq.
1 EXHIBIT 21
[LETTERHEAD OF JAPONICA PARTNERS]
September 21, 1994
Mr. Frank J. Tasco Chairman Borden, Inc. 277 Park Avenue New York, NY 10172
Dear Frank:
INTRODUCTION:
We are writing this letter to express our continuing interest (the Letter of Continuing Interest "LCI") in effecting a significant transaction with Borden or its shareholders to enable shareholders to receive substantially greater value than would be available to them under the Whitehall scheme while restoring Borden's business to positive levels of achievement. As we have said repeatedly from the outset we wish to act as a proactive white knight; and the board's determination to sell Borden mandates that the board accept us in that role.
To that end we are forming a new entity, Buckeye Partners, to effect the transaction. Through Buckeye, Japonica Partners will pursue the objective of rebuilding Borden as an independent company, headquartered in Columbus.
We do not wish to divert your focus by reminding you of the history of our attempts to communicate with you (see, for example, attached letters); but the unwillingness of the board or its advisors to state your objectives has increased the difficulty in specifically addressing those objectives. Because we neither have had access to the materials that you provided to Whitehall nor have been given the opportunity to conduct due diligence, this letter is based on the assumption that the information publicly available about Borden would be confirmed by a review of those materials and the due diligence process. As you probably inferred from the long period of time we have been writing to you, we have conducted an extensive review of Borden and its operations; and in our view, we believe that a beneficial transaction can be consummated.
Against this background we wish to state the principles and alternatives which would govern the transaction we propose.
2
Mr. Frank J. Tasco September 21, 1994 Page 2
VALUE ASSESSMENT:
The target which we believe to be attainable for shareholders with a continuing interest in the company is $22 to $25 per share during 1995.
Currently, our intent would be to pay between $16 and $18 per share. This is the value that would serve as the basis for determining the consideration to be received by Borden or its shareholders, and the additional capital needed by Borden to achieve its corporate and business objectives and policies. Such valuation could include mediums of exchange in addition to transaction securities.
STRUCTURAL ALTERNATIVES:
From reports carried in the business press it appears that a substantial number of Borden's shareholders wish to have the opportunity to recoup lost value by participating in Borden's future growth. We propose to offer them chance to do so if they so choose. While we are prepared to accept a broad range of ownership levels, in order to assure liquidity, we understand that the minimum continued participation should equal at least 10% of the equity. Given what may be a large interest in continuing ownership, if the shareholders so elect, their continued ownership could range as high as 80%. Because the board has expressed a desire to deliver to shareholders consideration in the form of shares in another publicly held company, we are prepared to address this apparent desire under which shares of a major, highly regarded, New York Stock Exchange, Fortune 500 company could constitute all or a portion of consideration to be paid to Borden and its shareholders.
MAINTAINING AND RESTORING BORDEN'S VALUE:
Our positive operating philosophy of Dynamic Tension will enable us to restore Borden's luster and create jobs for the operating workforce that is the core of productivity and the restoration of shareholder value. (See attached Exhibits on "Dynamic Tension" and Management Principles). Central to this objective is the infusion of equity that will permit the execution of this program and lead to growth of stock value through appreciation and restoration of dividends to at least their former levels.
Our computations have been made without giving effect to compensation that could be paid to Whitehall and its affiliates; and we believe that it is incumbent on the directors of
3
Mr. Frank J. Tasco September 21, 1994 Page 3
Borden to take all appropriate steps to minimize the reduction in shareholder value that would result from such compensation. We presume that you have the ability to do so in the proper exercise of your fiduciary duty.
Because of our confidence in Borden's future, and in contrast to the Whitehall transaction, we would not divert cash to fees and would accept equity and/or warrants. Similarly, as we have repeatedly written to you, realization of value requires that Borden cease its asset divestitures, especially since the prices that have been obtained reflect past non-performace and financial pressure to sell rather than full value for excellent results and strategic opportunity. Obtaining consent from Whitehall for such sales is of no moment since they are not the controlling shareholders of Borden. In short, the sale of assets is inconsistent with value realization for Borden's current owners.
Under the "Dynamic Tension" rebuilding plan, certain under-performing businesses would be allowed to operate as an independent business unit, facilitating their rapid restructuring and eliminating the risks to Borden's better performing business.
Another component for consideration is to immediately restore Borden's dividend to a higher level to accommodate the individual investor who depends on this income.
FINANCIAL SUBSTANCE:
As you can see, the objectives and effects of a transaction would be to enhance the value of Borden's businesses and shares. Your advisor has previously complimented Japonica Partners on being a credible and highly successful firm with a good reputation. In the past, attempts to divert attention from the substance of our proposals by efforts to shift attention to financeability have been shown to be both foolish and futile. As evidenced by the fully financed CNW offer of $1.6 billion and a successfully concluded Allegheny International transaction, financing has always been available to implement a sound strategy -- even at a time when our own resources were more limited. We have received numerous expressions of interest in providing financing by substantial institutions; but we will not conclude arrangements and incur the related commitment expenses until terms and structure are agreed to with by Borden.
4
Mr. Frank J. Tasco September 21, 1994 Page 4
SHAREHOLDER DEMOCRACY:
Contrary to the views expressed by some of your advisors, we also believe that the shareholders should have a determinative role in selecting among the alternatives available to them. We would therefore structure the transaction in a non-coercive manner so as to enable your shareholders to decide whether they agree that our transaction is in their best interest and in the best interest of their company.
Importantly, shareholders should be allowed to vote on both proposals on an equal footing basis. Positioning the process to facilitate this election is consistent both with principals of American corporate democracy and the board's fiduciary duty to maximize shareholder value.
JAPONICA PARTNERS' TRACK RECORD:
The Borden shareholders can take comfort from Japonica Partners's established history of maximizing shareholder value and concluding transactions which others have characterized as difficult or impossible. CNW and Allegheny International were both companies where financing had collapsed for management sponsored transactions. CNW's management buyout with a major LBO firm had collapsed at substantially lower levels than the final sale price. Allegheny International's management buyout proposal could not get any financing, and many major buyout firms passed on what became an American success story. On the basis of analysis initially conducted from the outside and confirmed by due diligence, we identified value that created substantial shareholder wealth in both instances.
CONCLUSION:
Consistent with our role of proactive white knight, we look forward to working with you to conduct a meaningful due diligence, concluding a definitive agreement, closing a transaction and delivering enhanced value to your shareholders.
Allowing shareholders to vote on both proposals on an equal footing basis is clearly consistent with the board's fiduciary duty to maximize shareholder value.
5
Mr. Frank J. Tasco September 21, 1994 Page 5
Finally, asset sales prior to resolution of the situation must be put on hold.
Very truly yours,
/s/ JAPONICA PARTNERS ------JAPONICA PARTNERS
[Omitted from this letter are attachments which are filed separately as exhibits 1, 10, 11, 12, 14 and 19 to this Form 8-K]
6
DYNAMIC TENSION (TM) CYCLE
[Graphic: circles connected by clockwise arrows containing the following texts:
Productivity Improvement & Training
Lower cost Product
More Competitive Pricing = Greater Market Share
New Products + More P&M Expenditure
Increased Sales
Job Growth
[Surrounding central shape with the text:]
"Greater Shareholder Wealth"
JAPONICA PARTNERS & CO.
7
JAPONICA PARTNERS & CO.
Management Principles
[Graphic with boxes containing the following texts:]
Consistency, Predictability & Growth.
Profitability is a state of mind.
Keep it simple.
If you can't measure it, you can't manage it.
Management's job is to identify and successfully implement investment opportunities that permit us to achieve the financial targets we set.
Building an effective management process through shared values of involvement, intensity, discipline and persistence.
There are no mature markets, only mature managers who need to be rejuvenated or replaced.
Wear out the soles of your shoes before the seat of your pants.
Continuous training. Continuous betterment. 1 EXHIBIT 22
[LETTERHEAD OF JAPONICA PARTNERS]
BY FACSIMILE FOR IMMEDIATE DELIVERY
September 22, 1994
Board of Directors Borden, Inc. 277 Park Avenue New York, NY 10172
Dear Board Members:
Japonica Partners write this letter regarding our September 21st letter and meeting of same day. We find it difficult to understand how your actions are designed to maximize shareholder value:
1. MISLEADING A COMPETING SUITOR:
In addition to your unresponsive actions since May 24th, Borden's treasurer David Kelly's comments on Friday, September 9th were, to say the least misleading. He clearly stated that we can assume that until the Board of Directors meets on the last Tuesday of September there would not be a meeting, that nothing would be announced, that nothing significant was taking place other than going through a normal course of review. This pattern of actions can only be viewed, at a minimum as disadvantaging, if not seeking to preclude a competing offer.
Mr. Kelly's misrepresentations were only one of a continuing pattern of attempting to delay, deflect and discourage Japonica's efforts. That course of conduct delayed by approximately 4 months Japonica's ability to create the fully developed proposal you now request.
Japonica Partners has been requesting a constructive dialogue with you for at least 120 days. These requests went unanswered. Only three days ago you agreed to meet. Given your knowledge of Japonica's interest for over 120 days, and given that a competing, apparently preferred suitor has been given access reportedly for a year or more, it is absolutely unreasonable to expect that a competing suitor present a fully detailed, comprehensive proposal in 3 days, with at a minimum a 120 day disadvantage.
2
Borden, Inc. September 22, 1994 Page 2
Nonetheless, we provided you with a menu of options, with considerable detail, to discuss and consider.
2. CONTRA-FIDUCIARY SECTION 10:
Your advisors stated that they cannot assist by providing a sense of direction that would provide greater shareholder value than an arguably coercive Whitehall stock swap. Although surprising, this appears consistent with the contra-fiduciary Section 10 of the September 12th letter of intent between Ervin Shames and Whitehall Associates, L.P., which provides that the Company shall not:
. . . . authorize or permit any of its officers . . . to (a) solicit, initiate, encourage (including by way of furnishing information), or take any other action to facilitate, any inquiry or the making of any proposal which constitutes, or may reasonably be expected to lead to, any acquisition or purchase of a substantial amount of assets of, or equity interest in, the Company or any of its subsidiaries or any tender offer (including a self tender offer) or exchange offer, merger, consolidation, business combination, sale of substantially all assets . . . or enter into negotiations or discussions regarding any of the foregoing, or furnish to any other person any information with respect to its business, properties or assets . . . or otherwise cooperate in any way with, or assist or participate in, facilitate or encourage, any effort or attempt by any other person to do or seek any of the foregoing. . . .
Whether or not comparable provisions may sometimes be appropriate, Section 10 cannot be justified when Japonica Partners was ignored in favor of a Whitehall proposal that is unattractive rather than pre-emptive.
The board has an obligation to maximize shareholder value. Japonica Partners has offered to work with the Company to develop a competing and more attractive offer that would maximize shareholder value. Each of the Board members has a personal fiduciary duty to Borden's shareholders to exercise care in conducting him or herself in the affairs of the Company, especially when it comes to maximizing shareholder value. That duty would include working with a proactive "white knight" such as Japonica Partners in developing an attractive competing offer to the Whitehall proposal.
3
Borden, Inc. September 22, 1994 Page 3
However, the September 11th letter of intent apparently prohibits you from doing so. The Board members have an unresolvable conflict: honoring Section 10 of the Company's agreement with Whitehall would apparently preclude management from working with Japonica Partners to develop a competing offer, which in turn would violate their duty to the shareholders. Providing sought after guidance to Japonica Partners in selecting among the range of options proposed would apparently breach the September 11 agreement. This appears to be an untenable conflict in which the Board has been placed.
3. MENU OF ALTERNATIVES:
We presented the Company with a wide ranging menu of options, all designed to maximize shareholder value, all of which we were willing to discuss. A value of between $16 and $18 was suggested. A view to achieving a share price in the range of $22 to $25 in 1995 was also included in the discussion. We suggested an equity infusion between $200 million and $500 million. Acquiring outstanding stock for cash and/or stock was yet another option presented, so was an increase in the dividend.
In our pursuit of maximizing shareholder value through a constructive process, we sought guidance from your advisors and representatives and the Company's management representatives and advisors with respect to a preferred course of action. We received absolutely no direction. In fact, we were told that neither the Company nor its advisors could not give any such direction. Our repeated attempts to establish a positive dialogue to maximize shareholder value were casually dismissed.
4. ACCESS TO COMPARABLE INFORMATION:
We have also asked management for a list, merely by description, of information and materials provided to Whitehall, as a first step in the signing of a confidentiality agreement to obtain information on the Company. Not only did management refuse to provide such a list, it would not assure us that the Company would necessarily give us the same information it furnished to Whitehall. Only after an hour of discussions and after numerous requests did your representatives indicate that they would
4
Borden, Inc. September 22, 1994 Page 4
even give us a copy of lawsuits filed which are publicly available but which have not been disclosed.
5. TIME FRAME:
You should establish a time frame that would allow for a process that would -- in the interest of maximizing shareholder value -- place both proposals on a level playing field.
6. SHAREHOLDER VOTE ON COMPETING PROPOSALS:
You are urged to exercise your fiduciary duty, establish a process to ensure a level playing field and put the competing proposals to a vote by shareholders. We further ask that you instruct your advisors to expedite negotiating a confidentiality agreement and provide a list of the information given Whitehall and to insure that Japonica Partners receives no less than what Whitehall received.
Again, we urge you to consider these issues and your fiduciary duty to maximize shareholder value with absolute urgency.
Respectfully,
/s/ JAPONICA PARTNERS ------JAPONICA PARTNERS
1 EXHIBIT 23
[LETTERHEAD OF BORDEN, INC.]
September 23, 1994
Mr. Paul B. Kazarian Managing Partner Japonica Partners 30 Kennedy Plaza Providence, Rhode Island 02903
Dear Mr. Kazarian:
The Board of Directors has reviewed your "letter of continuing interest" dated September 21, 1994 and the "Dynamic Tension" and Management Principles attachments to that letter. The Board also reviewed your September 22 letter.
You have still not proposed any particular transaction. If you wish to propose any transaction, please do so. Our agreements with Whitehall do not preclude our consideration of a proposal by you. If you choose to submit a proposal, please specify the means and sources of financing. Your letters again failed to provide information as to your ability to finance the type of transactions you refer to even though we have been requesting that information for several months.
The Borden Board of Directors is interested in obtaining the best possible deal for the Borden Shareholders and should you decide to make a substantive proposal we are prepared to work with you to that end.
Very truly yours,
/s/ Frank J. Tasco ------Frank J. Tasco
1 EXHIBIT 24
[LETTERHEAD OF WACHTELL, LIPTON, ROSEN & KATZ]
September 26, 1994
BY HAND
Martin Nussbaum, Esq. Shereff, Friedman, Hoffman & Goodman 919 Third Avenue New York, New York 10022
Re: Borden, Inc.
Dear Marty:
Further to your client's letter of September 22, 1994, the Borden Board has instructed me to ask you again if you or your clients have any comments on the Confidentiality Agreement delivered to you on September 16, 1994. As I have indicated to you previously, we will attempt to accommodate all reasonable comments.
Very truly yours,
/s/ Andrew R. Brownstein ------Andrew R. Brownstein
ARB:lb
1 EXHIBIT 25
[LETTERHEAD OF JAPONICA PARTNERS]
VIA FACSIMILE HIGHLY CONFIDENTIAL
September 27, 1994
Frank J. Tasco Borden, Inc. 277 Park Avenue New York, NY 10172
Dear Mr. Tasco:
Until a transaction is closed, we respectfully request that:
1. Borden not sell any more assets
2. Borden publicly disclose the sale prices, revenues, and purchasers of all asset sales in the past 12 months
3. No decisions be culminated other than in the ordinary course of business
4. Neither Whitehall nor its affiliates be allowed to manage or participate in the management of the Company, and
5. The $1.4 billion bank financing agreement be filed with the SEC immediately.
The recent sale of Campfire marshmallows for a reported $5 million and Jays for a reported 12% of almost $100 million in revenues must be either reversed or halted immediately. Further, the role, backgrounds, and compensation of all advisors in the divestiture process should be disclosed.
We are exploring alternatives to assist Borden's shareholders as a pro-active white knight, and hope that we may yet receive good faith guidance from you to assist in providing a meaningful choice to maximize shareholder value.
Parenthetically, the semantic sophistry contained in your communications is absurdly transparent and will not be responded to herein.
Cordially,
/s/ JAPONICA PARTNERS JAPONICA PARTNERS
1
EXHIBIT 26
[LETTERHEAD OF SHEREFF, FRIEDMAN, HOFFMAN & GOODMAN]
October 5, 1994
Martin Lipton, Esq. Wachtell, Lipton, Rosen & Katz 51 West 52nd Street New York, New York 10019
Re: Borden, Inc.
Dear Marty,
I am writing at the request and on behalf of our client, Japonica Partners. As you are aware Japonica has expressed to the Borden, Inc. board a continuing interest in providing to Borden's shareholders a more attractive alternative than the proposed transaction with Whitehall Associates, L.P. At our meeting in your offices Japonica sought to work cooperatively with Borden in formulating a proposal that could best serve this objective, but was told that in the view of Borden and its financial advisors, it was more appropriate for Borden's representatives to respond to a proposal.
As requested at that meeting, Japonica is currently working on a proposal which it anticipates forwarding to Borden in a timely manner. However, its ability to formulate a proposal and the potential attractiveness of a proposal are being diminished by Borden's announced intention to continue divestitures.
Japonica has written to Borden on numerous occasions to express its view that the sales of Borden's businesses are not in the interest of Borden's shareholders, especially at the price levels being realized. The persuasiveness of this view has been strengthened by the execution of the agreements with Whitehall. Because the value of Borden shares is fixed in those agreements, Borden shareholders can receive no value as a result of divestitures. On the other hand, by reducing the size of Borden's asset base, there is less opportunity to develop value that can be shared with Borden's shareholders. Furthermore, any other interested parties, such as Japonica, will find it more difficult to formulate attractive proposals when the composition of Borden is in such flux.
Accordingly, maximizing shareholder value, the stated objective of Borden's representatives at our meeting, will be best served by a discontinuation of the divestitures. I submit that the fiduciary duty of Borden's board requires that it do no less.
At our meeting, Japonica requested an opportunity to meet with Borden's board. We were told that this request would be communicated at the next board meeting; but as yet we have heard no reply. Japonica again requests the opportunity to meet with Borden's directors to discuss with them alternatives available to Borden's shareholders.
Best regards.
Sincerely,
/s/ Marty ------
Martin Nussbaum
MN:md cc: Paul B. Kazarian
1
Exhibit 27
[JAPONICA PARTNERS' LETTERHEAD]
October 5, 1994
VIA FACSIMILE
Board of Directors Borden, Inc. 277 Park Avenue New York, New York 10172
Dear Board Members:
1. JAPONICA PREPARING PROPOSAL We are in the process of preparing a proposal that seeks to create greater value than the RJR stock cram-down for Borden's shareholders, employees, customers, and suppliers. Consistent with industry practice, a proposal's financing and sources of funds will follow the determination of a transaction structure and the submission of such a proposal. As previously stated, our preference is as a proactive white knight.
As you undoubtedly realize, the sale of assets at characteristically liquidation prices, if allowed to continue, may not only eradicate up to $700 million in business revenue, but may substantially impair shareholder value, and seek to erect yet another obstacle to structuring the financing for an alternate proposal. Conversely, these assets could be a key ingredient in the rebuilding of Borden, an integral part of our proposal.
2. POSTPONING THE ASSET SALES It is difficult to see anything but upside potential to postponing the sale of assets until the current situation is resolved. Asset sales are not required by Borden's proposed transaction with Whitehall, and the proceeds of such sales do not appear to increase the value to be realized by Borden's shareholders. On the other hand, altering the composition and diminishing the size of Borden's business as a result of divestitures not only reduces Borden's value, but also makes it more difficult to evaluate Borden and formulate an alternate proposal.
2
3. JAYS SOLD AT 12% OF REVENUE Only a few weeks ago, it was reported that the almost $100 million-in-sales Jays snack business was sold for no more than $12 million, or 12% of revenue. It was also reported that Borden purchased Jays for about $30 million in 1986 and spent millions in new, state-of-the-art automated equipment and expanded capacity.
4. $5 PER SHARE LOSS IN VALUE How can a continuation of this liquidation be justified when shareholders have been punished with a loss of approximately $5 per share since the asset sale program was announced in January, at which time the stock was trading as high as $18-3/8?
In fact, some have suggested that a continuation for the sale of assets may be yet another tactic to discourage a competing proposal and obstruct the maximization of shareholder value.
5. THE MISLEADING $25 MILLION ASSET SALE LIMIT Statements that Borden's pre-takeover asset sales are limited to $25 million seem to be grossly misleading, given that assets generating $500 million to $700 million in sales are currently on-the-block but are excluded from the transparent limit. Furthermore, the Company's continued non-disclosure of the terms associated with the sale of assets, including the roles and fees paid to various advisers can only be viewed as another effort to cover-up the on-going liquidation. (See attached listing of 1994 Known Asset Sales)
Please exercise your fiduciary duty of care and duty of loyalty and put an end to the apparent liquidation of Borden's assets.
Respectfully,
JAPONICA PARTNERS See Attached
3 Exhibit 27
Borden, Inc. 1994 Known Asset Sales
Date Business Sold ------
1. May-94 Borden Ice Cream Japan 2. May-94 U.S. Claim Products 3. May-94 Bennett's Sauces 4. May-94 Foodservice Division 5. Jul-94 Bama Jams 6. Jul-94 Accent Hobby 7. Aug-94 Jays snacks 8. Sep-94 Campfire marshmallows 9. Oct-94 Heller, France 10. Oct-94 Humbrol, U.K.
-2- 1 EXHIBIT 28
[LETTERHEAD OF CS FIRST BOSTON CORPORATION]
September 22, 1994
Board of Directors Borden, Inc. 277 Park Avenue New York, NY 10172
Gentlemen and Madame:
You have requested our opinion as to the fairness, from a financial point of view, to the holders of Common Stock, par value $.625 per share (the "Company Shares"), of Borden, Inc., a New Jersey corporation ("Borden" or the "Company"), other than Kohlberg Kravis Roberts & Co. ("KKR") and its affiliates, of the consideration to be received by Borden's stockholders pursuant to the Merger Agreement expected to be dated as of September 22, 1994 among Borden Acquisition Corp., a New Jersey corporation ("Acquisition"), Whitehall Associates, L.P., a Delaware limited partnership ("Whitehall"), and the Company (the "Merger Agreement"). The Merger Agreement provides for an exchange offer (the "Exchange Offer") and subsequent merger (the "Merger"; the Exchange Offer and Merger, together, the "Transaction") in which each Company Share (other than treasury stock and shares owned by Whitehall or any of its subsidiaries) will be exchanged for a number of shares of Common Stock, par value $.01 per share ("RN Shares"), of RJR Nabisco Holdings Corp., a Delaware corporation ("RN"), determined by dividing $14.25 by the average of the average of the high and low sales prices of RN Shares as reported on the New York Stock Exchange Composite Tape on each of the ten consecutive trading days immediately preceding the second trading day prior to the date of expiration of the Exchange Offer, but subject to the limitation that in no event will Borden stockholders receive more than 2.375 RN shares nor less than 1.78125 RN Shares for each Company Share.
In arriving at our opinion, we have reviewed, among other things, the letter of intent dated as of September 11, 1994 between the Company and Whitehall (the "Letter of Intent"), a draft of the Merger Agreement and a draft of the Conditional Purchase/Stock Option Agreement expected to be dated as of September 22, 1994 by and among Whitehall, Acquisition and the
2 Company (the "Option Agreement"), as well as certain publicly available business and financial information relating to each of RN and the Company. We have also reviewed certain other information, including financial forecasts provided to us by each of RN and the Company. We have met with RN's management and representatives of KKR and with the Company's management to discuss the past and current operations and financial condition and prospects of each of RN and the Company, respectively. We have also considered certain financial and stock market data for each of RN and the Company and we have compared that data with similar data for other publicly held companies in businesses similar to those of RN and the Company, respectively, and we have considered the financial terms of certain other business combinations that have recently been effected. We also considered such other information, financial studies, analyses and investigations and financial, economic and market criteria that we deemed relevant.
In connection with our review, we have not assumed any responsibility for independent verification of any of the foregoing information and have relied on its being complete and accurate in all material respects. With respect to the financial forecasts, we have assumed that they have been reasonably prepared on bases reflecting the best currently available estimates and judgments of each of RN's and the Company's management as to the future financial performance of RN and the Company, respectively. We express no view as to such forecasts or the assumptions on which they are based (which, in the case of RN, includes the assumption that RN's tobacco business will not become subject to materially more burdensome litigation costs or regulatory requirements) and there cannot be any assurance that actual results of the Company or RN will not differ materially from those reflected in the projections. We have not assumed any responsibility for an independent evaluation or appraisal of the assets or liabilities of RN or the Company, nor have we been furnished with any such appraisals. In rendering our opinion, we have assumed that the execution versions of the Merger Agreement and the Option Agreement will not differ materially from the drafts we have reviewed, that the Transaction will be consummated on the terms described in the Merger Agreement and the Option Agreement, without any waiver of any terms or conditions by the Company and that obtaining the necessary regulatory approvals for the Transaction will not have an adverse effect on RN or on the trading value of the RN Shares.
In giving this opinion we have assumed, with your consent, that there will not be any material adverse effect on RN or on the trading value of the RN Shares as a result of or relating to (x) the proposal, enactment or adoption after the date hereof
-2- 3 of any laws or regulations (including the imposition of additional taxes on the manufacture, sale or distribution of tobacco products) by any federal, state, local or other jurisdiction or any governmental or regulatory body or agency thereunder relating to, arising out of, or otherwise affecting the tobacco industry, including without limitation the manufacture, sale, distribution or use of tobacco products, or (y) any judicial or administrative proceeding initiated or decided after the date hereof, including any civil or criminal litigation or arbitration relating to or arising out of or otherwise involving or affecting RN, the tobacco industry, or any other company engaged in said industry, including without limitation the manufacture, sale, distribution or use of tobacco products. We are not in a position to make an independent evaluation of these matters and we assume no responsibility for and express no view with respect to these matters.
Our opinion addresses only the fairness from a financial point of view of the consideration to be received by stockholders of the Company, other than KKR and its affiliates, in each of the Exchange Offer and the Merger. We do not express any views on any other terms of the Transaction or any related agreements or arrangements, including any transactions which might occur among KKR, RN and the Company after consummation of the Exchange Offer or the Merger. Our opinion also does not address the Company's underlying business decision to effect the Transaction. We were not requested to, and did not, solicit third party offers to acquire all or any part of the Company or participate in efforts other advisors may have made to solicit alternative offers. Our opinion is necessarily based solely upon information available to us and business, market, economic and other conditions as they exist on, and can be evaluated as of, the date hereof. This opinion does not represent our opinion as to what the value of the RN Shares to be exchanged for Company Shares actually will be when the Exchange Offer or the Merger is consummated. As a result of the limitation on the number of RN Shares to be received as described in the first paragraph of this letter, such actual value could be higher or lower than $14.25 per share at such times. Because of the large aggregate amount of RN shares being issued to stockholders of the Company and other factors, such securities may trade initially at prices below those at which they would trade on a fully distributed basis.
We have acted as financial advisor to the Company in connection with the Transaction and will receive a fee for our services, a significant portion of which is contingent upon KKR's acquisition of a majority of the outstanding Company Shares. In the
-3- 4 past, we have provided investment banking services for the Company, RN and KKR for which we have received customary compensation. In the ordinary course of our business, we actively trade the debt and equity securities of both the Company and RN for our own account and for the accounts of customers and, accordingly, may at any time hold a long or short position in such securities.
It is understood that this opinion is only for the information of the Board of Directors of the Company. However, this opinion may be included in its entirety in any proxy statement or exchange offer recommendation statement on Schedule 14D-9 from the Company to holders of Company Shares. This opinion may not, however, be summarized, excerpted from or otherwise publicly referred to without our prior written consent. In addition, we may not be otherwise publicly referred to without our prior consent.
Based upon and subject to the foregoing, it is our opinion that, as of the date hereof, the consideration to be received by the stockholders of the Company, other than KKR and its affiliates, in each of the Exchange Offer and the Merger is fair to such stockholders from a financial point of view.
Very truly yours,
CS FIRST BOSTON CORPORATION
by /s/ CS First Boston Corporation ------
-4- 1 EXHIBIT 29
[LETTERHEAD OF LAZARD FRERES & CO.]
September 22, 1994
The Board of Directors Borden, Inc. 180 East Broad Street Columbus, OH 43215
Dear Members of the Board:
You have requested our opinion as to the fairness, from a financial point of view, to the holders of shares of Common Stock, par value $.625 per share ("Company Common Stock"), of Borden, Inc. (the "Company") of the consideration to be received in a series of transactions (collectively, the "Transactions") pursuant to the Agreement and Plan of Merger, to be entered into among the Company, Whitehall Associates, L.P. ("WA") and Borden Acquisition Corp. ("Merger Co."), a draft of which, dated September 19, 1994 (the "Merger Agreement"), has been furnished to us. The terms of the Merger Agreement provide, among other things, that (i) WA promptly will offer to exchange (the "Exchange Offer"), for each outstanding share of Company Common Stock, a number (the "Appli- cable Number") of shares of common stock, par value $.01 per share ("RJR Common Stock"), of RJR Nabisco Holdings Corp. ("RJR"), having a trading value (as determined in the Merger Agreement) equal to $14.25; provided that the Applicable Number may not be less than 1.78125 nor exceed 2.375, and (ii) following the consummation of the Exchange Offer, subject to, among other things, WA having obtained the favorable vote of holders of at least 66 2/3% of the outstanding shares of Company Common Stock, Merger Co. will merge with and into the Company, and each of the remaining outstanding shares of Company Common Stock (other than shares owned by the Company as treasury stock or owned by WA, Merger Co. or any other subsidiary of WA) will be converted into the right to receive the Applicable Number of shares of RJR Common Stock.
2 In connection with the rendering of this opinion, we have:
(i) Reviewed the terms and conditions of the Merger Agreement and the financial terms of the Transactions as set forth therein, and the Conditional Purchase/Stock Option Agreement, to be entered into among the Company, WA and Merger Co., a draft of which, dated September 19, 1994 (the "Option Agreement"), has been furnished to us;
(ii) Analyzed certain historical business and financial information relating to the Company and RJR, including the Annual Reports to Stockholders and Annual Reports on Forms 10-K for each of the fiscal years ended December 31, 1990 through 1993, and the Quarterly Reports on Forms 10-Q of the Company and RJR for the quarters ended March 31, 1994 and June 30, 1994;
(iii) Reviewed certain financial forecasts and other data provided to us by the Company and each of RJR and WA relating to the businesses of the Company and RJR, respectively, including the most recent business plan for the Company prepared by the Company's senior management, in the form furnished to us;
(iv) Conducted discussions with members of senior managements of the Company and each of RJR and WA with respect to the businesses and prospects of the Company and RJR, respectively, and the strategic objectives of each;
(v) Reviewed public information with respect to certain other companies in the lines of businesses we believe to be generally comparable in whole or in part to the businesses of the Company and RJR and reviewed the financial terms of certain other business combinations that have recently been effected;
(vi) Reviewed the historical stock prices and trading volumes of Common Stock of the Company and RJR; and
(vii) Conducted such other financial studies, analyses and investigations as we deemed appropriate.
We have relied upon the accuracy and completeness of the financial and other information concerning the Company and RJR that have been received by us and have not assumed any responsibility for independent verification of such information or any independent valuation or appraisal of any of the assets of the Company or RJR nor have we been furnished with any such
-2- 3 appraisals. With respect to financial forecasts, we have assumed that they have been reasonably prepared on bases reflecting the best currently available estimates and judgements of management of the Company and RJR as to the future financial performance of the Company and RJR, respectively. We assume no responsibility for and express no view as to such forecasts or the assumptions on which they are based.
Our opinion is necessarily based on economic, monetary, market and other conditions as in effect on, and the information made available to us as of, the date hereof. In that regard, as you are aware, we are not in a position to make an independent evaluation of the matters discussed below. Accordingly, for purposes of this opinion, we have assumed, with your concurrence, that no material adverse effect on RJR or on the trading value of RJR Common Stock will result from (x) the proposal, enactment or adoption after the date hereof of any laws or regulations (including the imposition of additional taxes on the manufacture, sale or distribution of tobacco products) by any federal, state, local or other jurisdiction or any governmental or regulatory body or agency thereunder relating to, arising out of, or otherwise affecting the tobacco industry, including without limitation the manufacture, sale, distribution or use of tobacco products, or (y) any judicial or administrative proceeding decided after the date hereof, including any civil or criminal litigation or arbitration, relating to or arising out of or otherwise involving or affecting RJR, the tobacco industry, or any other company engaged in said industry, including without limitation the manufacture, sale, dis- tribution or use of tobacco products. We assume no responsibility for and express no view with respect to the matters described in the previous sentence.
In rendering our opinion, we have assumed that the actual Agreement and Plan of Merger and the actual Conditional Purchase/Stock Option Agreement, entered into among the parties thereto, will be identical in all material respects to the Merger Agreement and the Option Agreement, respectively, and that the Transactions will be consummated on the terms described in the Merger Agreement, without any waiver of any terms or conditions by the Company and that obtaining the necessary regulatory approvals for the Transactions will not have an adverse effect on RJR or on the trading value of RJR Common Stock. In addition, we note that because of the large number of Shares of RJR Common Stock being issued to stockholders of the Company and other factors, such securities may trade initially at prices below those at which they would trade on a fully distributed basis.
-3- 4 We are acting as financial advisor to the Company's Board of Directors in connection with the Transactions and will receive fees for such services, a substantial portion of which fees are contingent upon the consummation of the Transactions. Our firm has in the past provided and is currently providing investment banking and financial advisory services to the Company and has received fees for rendering such services. Our firm has in the past also provided investment banking and financial advisory services to RJR and affiliates of WA and has received fees for rendering such services.
Our engagement and the opinion expressed herein are solely for the benefit of the Company's Board of Directors and are not on behalf of, and are not intended to confer rights or remedies upon, RJR, WA, any stockholder of the Company or RJR or any other person. It is understood that, except for inclusion of this letter in its entirety in a proxy statement or exchange offer recommendation statement on Schedule 14D-9 from the Company to holders of shares of Company Common Stock relating to the Transactions, this letter may not be disclosed or otherwise referred to without our prior written consent, except as may otherwise be required by law or by a court of competent jurisdiction.
Based on and subject to the foregoing, we are of the opinion that, as of the date hereof, the consideration to be paid to the stockholders of the Company (other than WA, Merger Co. or any other subsidiary of WA) in the Exchange Offer and the Merger is fair to such stockholders, from a financial point of view.
Very truly yours,
/s/ Lazard Freres & Co. ------
-4-