Chesapeake Makes Hostile Bid for Shorewood
Chesapeake also said it would file preliminary materials with the U.S. Securities and Exchange Commission to launch a consent solicitation against Shorewood in an attempt to oust its board of directors. Both companies make packaging used in a wide variety of industries, including videotapes, cigarettes and pharmaceutical products.
Chesapeake has been expanding into the high-margin, fast-growing business of manufacturing paperboard sleeves that cover videotapes and the paper used inside of compact disc containers. Shorewood is a leader in those areas.
In a seldom-used takeover strategy called a "Pac-Man defense" named after the popular video game, Virginia-based Chesapeake last month offered to buy Shorewood for $480 million after Shorewood announced it wanted to buy Chesapeake for $700 million. In a Pac-Man defense, a company that is a target of a hostile bid makes a bid for its suitor. The strategy, which was created during the ferocious takeover wars of the 1980s, is considered an extremely aggressive move.
Both companies have rejected the overtures and said they plan to pursue their proposed acquisitions.
In addition to trying to oust the Shorewood board and replace it with a new slate of directors, Chesapeake also plans to solicit written consents from Shorewood shareholders in order to eliminate the staggered election process of its nine-member board of directors.
Chesapeake had been expected to raise its bid after it earlier this week announced plans to buy a 14.9% stake in Shorewood from Ariel Capital Management for $17.25 a share.
Shares of Shorewood rose 1-9/16 to close at 17-1/4 on the New York Stock Exchange on Friday. Chesapeake stock gained 3/16 to close at 31.
After receiving the Chesapeake bid, Shorewood changed its corporate bylaws to make a consent solicitation more difficult. The company now requires a two-thirds majority of its 29 million outstanding shares, compared with a previous simple majority.
Shorewood insiders control about 25% of the company's stock, of which at least 17% is held by members of the founding Shorewood family.
Also Friday, Chesapeake filed suit against Shorewood in Delaware Chancery Court, claiming that Shorewood directors have breached fiduciary duties. The lawsuits seeks to prohibit Shorewood from interfering with the tender offer and anticipated consent solicitation.
Chesapeake has targeted at least $20 million in annual cost savings from the acquisition and expects the proposed acquisition to increase earnings per share in the first year of the combination.
The bid will be funded from cash on hand and a credit facility from First Union National Bank. The offer is not subject to conditional financing.
The tender offer is expected to expire Jan. 3.
Edited by Bill Noone