Education & Workforce Development

BEHIND THE NEWS: Great Lakes board battled for sweet price from suitor Bulriss not talking Legal costs singe ITT

April 18, 2005

Great Lakes Chemical Corp. shareholders have had a lot to feel disappointed about in recent years. But there's no way they can feel let down over the board's handling of the company's $1.5 billion sale to Connecticut-based Crompton Corp.

A new regulatory filing shows directors of Indianapolis-based Great Lakes went to extraordinary lengths to extract every penny possible from Crompton before sealing the sale March 8.

A blow-by-blow account contained in the filing shows the Great Lakes board first began contemplating "strategic alternatives," such as a sale of all or part of the company, in late 2003.

At various times over the next year, at least three firms expressed serious interest. Great Lakes executives had an unambiguous message for all suitors: The company wouldn't sell unless its shareholders received a meaningful premium to the stock price at the time.

The high-stakes poker game didn't always look as though it was going to go Great Lakes' way. Early this year, the three suitors who appeared most serious all bailed. Crompton, the only one named in the filing, did so reluctantly, explaining it was only willing to do an "at-market" deal.

Undeterred, the Great Lakes board on Feb. 8 authorized director Nigel Andrews to go back to Crompton in an attempt to "reopen" discussions. A day later, Andrews told Crompton CEO Robert Wood Great Lakes would accept a per-share price equal to its 52-week high. That price, $29.83, would give shareholders a 13-percent premium.

Wood countered in mid-February. Instead of offering a fixed price for each Great Lakes share, he offered 2.22 Crompton shares.

That worked out to an 11-percent premium. Over the next month, Great Lakes continued to push for more. But Crompton officials held firm, pointing out that if Crompton shares rose before the deal would close midyear, Great Lakes shareholders ultimately might reap a price equivalent to the 52-week high.

In fact, they've done even better. Based on Crompton's stock price last week, Great Lakes shareholders are slated to receive the equivalent of $31.06, 4 percent above the 52-week high and 18 percent above where the stock traded two months ago.

Well done, said Dmitry Silversteyn, an analyst with Longbow Research in Cleveland.

"I think this is a positive deal for Great Lakes shareholders. They got as high a price as they could have reasonably expected," he said. "They are getting a premium to what I think the company is worth."

Last November, just as sale discussions were shifting into high gear, Great Lakes CEO Mark Bulriss resigned, citing "personal reasons." As severance, Bulriss, 52, received $6.2 million in salary, bonus and other benefits.

Back then, Wall Street suspected the board nudged Bulriss toward the door, frustrated over stumbles and competitive pressures that had whacked nearly 50 percent off the stock price since 1998.

But at the time, no one outside the companies' inner circles knew sale discussions were brewing. The disclosures in the regulatory filing raise a new set of questions. Why would Bulriss depart just as those talks gained momentum? Did he quit because he opposed a sale?

Via e-mails from his Indianapolis home, Bulriss shed no light on such questions. "This is still a sensitive time for the [Great Lakes] team, and I would prefer not to say anything that diverts the team's attention from the task at hand," he wrote.

At ITT Educational Services Inc., all the numbers look good these days-except one.

The Carmel-based for-profit education company has continued to pump out strong operating results amid the 14-month-old Department of Justice investigation into allegations of falsified records, including those related to grades and student attendance.

But costs associated with the investigation, and the torrent of investor lawsuits that followed, sure are getting steep.

On April 12, at an investor conference in Atlanta, ITT CEO Rene Champagne said investigation-related legal costs totaled $20 million as of the end of the year. The company had set aside $25 million for those costs, but will increase that reserve if needed.

He pointed out that an independent board committee has looked into what the DOJ is investigating and found no systemic fraud or violations by senior management.

The way the probe surfaced publicly rattled even the most steeled investor. On Feb. 25, 2004, federal investigators armed with a search warrant raided and seized documents from the company's headquarters and 10 of its more than 70 U.S. campuses.

Investors bailed, sending ITT shares into a free fall. The day of the raids, they fell 33 percent, to $38.50. But in recent months, investors have tiptoed back. Shares last week were trading for about $49.
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