Post of the Day
May 5, 1998

From our
Union Carbide Board


Subject: Perspectives of the ex-takeover
Author: MFUCarbide

Y'all,

As usual, the comments presented are one of an interested stockholder and does not reflect the opinions or attitudes of Union Carbide or its management. Yeah, buddy!

Someone wrote me today asking for "Deepthroat Carbide" to respond. Although I am flattered, I don't have that kind of information. If I did maybe I would really understand why we apparently rejected an offer to become one of the largest chemical companies around and would complete understand if "shareholder interest" was really served.

The offer would have been an asset injection of BP's chemical and post-refining operations into UK (if you're not familiar BP is British Petroleum, a former state-run enterprise from across the Pond). UK in exchange would give BP stock and allow it to obtain a majority of ownership in UK. UK would become a publicly owned subsidiary of BP (UK would be controlled by a UK company--sorry, love the pun!).
The thing that strikes them this time is that it appears we were soliciting BP somehow instead of receiving an unsolicited offer.  
Obviously distracted from work today, most of us around the office discussed why the offer was rejected and who really rejected who. Reading the Reuters articles from today and yesterday it is a little confusing--one says BP rejected UK's proposal while the other said the opposite. Well, whatever happened it is off...for now. Some of the older guys (well, they all were male) remember former ovations from other companies like Exxon. Others remember the horrifying days of post-Bhophal and the GAF (?) takeover attempt. The rumors about takeovers, spin-offs and downsizings are always present.

The thing that strikes them this time is that it appears we were soliciting BP somehow instead of receiving an unsolicited offer. And knowing how Dr. Joyce (whom has a degree in economics) is a whealer-dealer (we have joint-ventures out the wazzo and sell processing technology around the world), it sounds like we were talking very intimately with BP trying to strike a deal. As to where and who broke down that is one of the two $64K questions. We had some ideas though.

One speculation is that the idea of acquiring a bunch of assets from BP for well-valued stock was not a good deal. If you've ever been in a chemical plant (I am sure some of you have never even seen one--that's ok) you know that they take a lot of money to build and maintain. Huge steel columns. Pumps. Electrical equipment. Tanks. Roads. Big stuff. Sometimes really BIG stuff. Some companies maintain their equipment really well. Most American firms do. A lot don't. State-run and former enterprises have a history of not taking care of their stuff. Taking on a bunch of rotting equipment in the middle of a earnings downcycle wouldn't be all that great on cashflow, especially after announding a $1B plant in Malaysia due out post-2000. The deal might not have been good for UK in that light.

Another reason could be the goal for $4/share in '99/'00. Asset injection of possibly inferior business in the industry downcycle could exaserbate the cyclicality problem and lead to UK missing our self-imposed $4/share target. And if we miss it Joyce and a few others go without, and things won't be too plesant around here if that happened. Let's just say that is one of our biggie goals.

Another reason could be the simple fact UK's Board doesn't want to answer to someone else. With BP then calling the shots as the majority stockholder, the old UK Board wouldn't have the control it once did. If BP didn't like the direction UK was taking and already having a majority of the shares and probably a bunch of BP Board members on the UK Board, picking up the remaining control of the company would be simple. For a bunch of managers and a CEO who worked themselves up the latter in for years and years, giving up control to another enterprise could be the most scary thing of all. And what is to keep BP from selling off parts of UK either.
  One thought that could not be avoided is the pocket book issue. The Board, CEO, and managers have massive amounts of stock options. Many of them aren't due for years and years.
One thought that could not be avoided is the pocket book issue. The Board, CEO, and managers have massive amounts of stock options. Many of them aren't due for years and years. To take an offer now might mean that they will not be worth as much as managers think they are if they go it alone, especially if they loose control of the company and can't completely control asset, investment, or production decisions.

One more thought. Asset injection would make UK a larger, diversified petrochemcial company much like it was in the mid-80's before all the divestures. Of course, the comapny is fundamentally different and not sprawling as it was before, but it would be very large. There might not be the ability to go through the divestures again if the deal doesn't work out. The most valuable assets, the process technology and catalysts, could be lost in a breakup.

Whatever the reason(s), the news has suddenly increased attention on our company. Usually we shun it for good reason. Chemcial companies are down there with tobacco companies and lawyers. And, of course, no one will ever forget Bhophal. But what I saw today was kind of unique. People were really curious about the offer. I got nine e-mails from y'all today. I usually get one every two weeks or so. We were wondering what the terms were. We wondered about the organization. We wondered a lot. I hope personally as a stockholder we learn more about what happened. I would like to see our stock increase to what we feel is an 'appropriate value.' Some have mentioned a break-up value of $70 a share, but that (in my opinion) is wrong because the value is from the basic chemical operations (olefins, ethylene oxide, polyethylene) feeding the speciality operations. Whatever it is it would be nice to know more instead of being silent like we usually are.

One consequence that could emerge from this failed attempt of a nice takeover is a hostile one or another bid could come. That is the viewpoint of people out on the Street buying up UK. They believe that since we were sweet talking with BP we've shown we're a tad flirtatious. The fear is that someone big will want to come in and take us over since we have been willing to go this far. We'll see. And trust me, the employees are watching too. You could say we are kinda interested too.

Until later,

MFUCarbide


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