Takeovers: Massachusetts Mischief
Imagine Franz Kafka and Lewis Carroll teaming up as a pair of business writers, their story topped with an O. Henry kicker, and spiced up with a Chaucer-like subtheme of cuckolds and jilted suitors. Lace it with xenophobia and cheap political grandstanding.
Set the whole thing in Worcester, Massachusetts.
And add a laugh track.
Not since Gov. Michael Dukakis ran for president in 1988 had the Massachusetts Establishment found so popular a cause to rally around.
On March 15, 1990, the British conglomerate BTR announced its intention to take over Norton Co., a leading manufacturer of abrasives. The only company on earth to call Worcester, Massachusetts, its world headquarters, Norton employed 16,000 workers around the globe, 3,000 of them in Massachusetts. Takeover quests are always big news locally, but this one just exploded. Anyone could have predicted the spit would hit the fan in Worcester, but who'd have imagined it would ultimately spatter Beacon Hill, Capitol Hill, and Precinct 19 of the New York Police Department?
BTR offered $75 a share for Norton stock, which was then trading at around $58. To calm at the outset any fears that BTR's intentions were malign, Chief Executive Officer John Cahill set down on paper a vow that "no Norton plants in the commonwealth [of Massachusetts] will be closed as a result of the transaction, and Norton's corporate headquarters will remain in Worcester."
The market was thrilled with BTR's offer. Overnight, the price of Norton stock jumped nearly 30 percent; in one day, more than 5 million shares were traded.
But Norton's officers, starting with Chairman John Nelson, were not so thrilled. After all, new owners would mean new management, and at the moment Norton's old management was being paid a combined salary of nearly $6 million a year. Nelson himself was making more than $13,800 a week. Not including perks. And now the British wanted to come in and ruin everything?
Hey, Nelson might have let his company's operating margins decline for the past three years while its stock price and profit margins remained flat; he might have invested precious little in new plant and equipment; hell, he might even have let Norton become what Finance Professor John Pound of Harvard University called "an overconservative company…failing to exploit available business opportunities"—but nobody ever said he was crazy.
And so it was war.
To the mayor of Worcester went the honor of sounding the first note of hysteria. "It absolutely scares me," quoth Jordan Levy, dismissing as worthless BTR's written pledge not to tamper with Norton's Massachusetts operations. "Once a takeover like this goes through, there's nothing to preclude the company from pulling out of the city." Next on line was Worcester's city manager. Norton was "a major corporate citizen," he said, underlining how "concerned" everyone should be at the "potential threat" the Britons' entry into Worcester would pose.
Norton's former chairman blackly intoned: "I've heard rumors that [BTR] may not be the kind of company that one would choose to take over Norton." Oooh, shiver.
But this was all kind of vague. Nelson and the Norton officers, conspiring in the War Room on the eighth floor of the Peoples Bank building, knew they needed something more nasty-sounding, something grim and painful (and preferably unprovable), something that would prevent any rational discussion of their own record or of the benefits of a BTR takeover.
That meant doing to BTR what Shakespeare did to King Richard III. Now, negative campaigning is a subject on which Bay Staters have a certain level of sophistication, but even John (Attack Video) Sasso must have marveled at the ease with which BTR was turned into a "poisonous hunchback'd toad," a "lump of foul deformity."
Within one day of the BTR announcement, the Worcester Telegram & Gazette was quoting:
• anonymous veterans of BTR takeovers with dire warnings that BTR was "heartless";
• Norton workers who had been primed to be frightened on cue ("I'm only 30 years old. Of course I'm concerned.…I've got a house. I've got a mortgage. I've got children."); and
• politicians ready to scramble the B-1s against what Kevin O'Sullivan, a Democratic state representative from Worcester, unblushingly called "the second coming of the British invasion in Massachusetts."
Another Worcester-area legislator, state Sen. John Houston, thundered that "if the law does not give sufficient protection [from unsolicited takeovers], then we will have to see if there is any other legislation that should be passed to help Norton."
By the end of Day 2, a bunch of Norton workers, galvanized by management's spooky hints that a BTR acquisition would mean massive layoffs, had formed a "Grassroots Action Committee" to fight for their bosses. By the end of Day 3, a crowd of 4,000 had massed on Worcester Common to torch a British flag, sing "God Bless America," and wave signs reading "John Bull Go Home," "Ban the Brits," and "Don't Sell Out America."
"You're doing just the right thing," yelled Milton Higgins, a former Norton chairman, as the aroma of barbecued Union Jack wafted across the green.
Well before Norton's scheduled April 26 annual meeting, 64 percent of the company's stock had been tendered to BTR. The institutional investors who held three-fourths of Norton's shares knew where their fiduciary interest lay, and in any state where some semblance of free-market economics was allowed to operate, BTR couldn't have lost. It would have nominated its own candidates for the board of directors, whipped Nelson's crew in a proxy fight, and brought Norton into the 1990s.
But this is Massachusetts, where the laws of Nature and of Nature's God don't always work the way they should.
On Beacon Hill, Sen. Houston made good his threat. Bellowing that BTR would "tear the heart out of…Massachusetts," he and the rest of the Worcester delegation came up with a novel anti-BTR plan—a law mandating staggered boards of directors for all public companies in the state. That would ensure that an incumbent slate of directors could not be voted out in one fell swoop, making it impossible for a would-be acquirer—any would-be acquirer—to gain immediate control.
Financial experts and securities analysts urgently warned that the measure would trample shareholder rights, entrench inefficient management, and make Massachusetts, whose economic miracle was already turning to mush, that much less attractive to any outside investor. The whole scheme, said a Dean Witter Reynolds vice president with a conciseness that got right to the heart of the matter, was "an absurdity."
But as Gov. Dukakis, in a spasm of unaccounted-for honesty, pointed out, nobody was interested in issues of "soundness." This was a lynchin', see, and the politicians meant to enjoy theirselves.
Remember: It had been two years since the political power structure of Massachusetts had enjoyed the pleasure of abasing itself en masse in the service of a grotesque but popular cause. The last such occasion—the Dukakis presidential campaign—ended in tears and ashes. This time, things would be different.
In just two hours on April 17, the bill was rushed through both houses of a legislature that hadn't managed to deal with a runaway state fiscal crisis in two years. There was, as the Boston Herald editorialized, "no floor debate, no roll call, no conference committee, no deliberation, no waiting."
The next morning, Dukakis sped with the bill to Worcester. There, surrounded by more than 1,000 Norton employees, he signed it into law, calling special attention to the date. It was April 18, the anniversary of Paul Revere's (botched) nocturnal ride to Lexington and Concord.
"Two hundred and fifteen years later," he cried, "another war of independence—another attempt by a foreign power to interfere with or attempt to shape our destiny—215 years later, and we won it again!"
Pathetic, fatuous, and mawkish? Oh, yes. But that wasn't the worst of it. As grown men winced in pain, he began…reciting…Longfellow:
Listen, my children, and you shall hear
Of the midnight ride of Paul Revere.
It was kind of astonishing, actually: Was this the governor who'd vetoed a law requiring teachers to lead schoolchildren in the Pledge of Allegiance?
On the eighteenth of April in Seventy-five
Hardly a man is now alive
Who remembers that famous day and year.…
Not all the action took place in Massachusetts. In New York, Norton hired a private detective to dig up dirt on BTR. That plan went slightly awry. A BTR executive got a phone call from one "Peter Riordan," who identified himself as a detective with the New York Police Department's 19th precinct and said he was trying to track down a former BTR officer, William Magazine by name, in connection with a five-year-old infraction. "Riordan" instructed the executive not to bring the information to the police station but to place it in an envelope and leave it to be picked up. He left the precinct phone number, in case there were any difficulties.
You know how this episode turns out: There is no "Peter Riordan" at Precinct 19. The phone number he left doesn't ring on any police department line. Impersonating a police officer is a crime in New York; at last report, BTR's attorneys were promising someone would be prosecuted.
In Washington, meanwhile, Rep. Joe Early (D–Mass.) and Sen. John Kerry (D–Mass.) shared a brainstorm: Norton does work for the Defense Department; BTR is a foreign corporation; ergo, BTR's takeover attempt must be—yes!—a threat to national security!
That logic, impeccable in theory, foundered on an awkward fact: BTR, which manufactures parts for the Stealth bomber, has security clearances higher than Norton's.
So Early and Kerry tried again: A foreign takeover of Norton would be a threat to America's economic national security. "The definition of national security," said Kerry, who took to walking around in a "No BTR" T-shirt, "is no longer just military might, but economic health."
So all-consuming was Kerry's concern, he said, that he'd written President Bush, pressing him to block a takeover of Norton by foreigners, lest Americans be "stripped of our technical superiority." Norton's chief products are sandpaper and grinding wheels. No wonder Kerry was worried. Just think what could happen if Maggie Thatcher got her hands on American sandpaper.
On April 19, Early held a press conference—his first in 28 years—to announce something he'd figured out. "This ain't just a takeover. This is a hostile takeover." He then introduced Sen. Edward Kennedy, who warned ominously that if the British weren't stopped, Norton would become a "subsidiar[y] of distant conglomerate owners who can only distinguish between a grinding wheel and a tennis racket by looking at a balance sheet."
Then Rep. Silvio Conte (R–Mass.) took his turn. "Today, we are standing up for more than 7,000 American employees whose jobs are in danger" because "BTR will do what is best for BTR." And when a London journalist finally asked just what it was that stirred up such anti-British sentiment in the Massachusetts delegation, it was Rep. Barney Frank (D–Mass.) who spoke up.
Speaking rapid-fire, with his customary lisp, in the thick Bayonne, New Jersey, accent that has prevented most New Englanders from making out most of anything he has ever said, Frank answered: "We don't like the way you talk."
The Brit bashing reached heights—or depths—not seen since the War of 1812, when at least there was a good excuse for it. But suddenly, with only 27 hours to go until the fateful stockholders' meeting, Chairman Nelson dropped a bombshell: Norton had agreed to be acquired by Cie. Saint-Gobain, a $14-billion French-based multinational conglomerate, which was willing to pay $90 a share for Norton stock, 20 percent more then BTR's offer.
Suddenly, the voices that had been bleating most earnestly about the evils of foreign raiders were singing hosannas in the street.
"This is great!" (state Sen. Thomas White, Worcester). "Good cause for optimism" (Kerry). "Now we can relax" (John Schaefer, head of the Grassroots Action Committee). "The first good news I've had in two months…almost like a miracle" (Worcester Mayor Levy).
But if they were delirious in Worcester, they were utterly baffled on Wall Street and the Paris Bourse. Ninety dollars a share was preposterously high, far beyond Norton's true worth.
"Saint Gobain's stock dropped 6½ percent after the deal was announced," noted business columnist David Warsh. "Apparently that's what you get when you pay 25 times earnings for a mature and highly-cyclical business, even in France." Standard & Poor's, the bond-rating agency, promptly put the Paris company on its Creditwatch list, with negative implications.
All the same, Nelson and his colleagues were more than pleased. Saint-Gobain's Frenchmen, it turned out, were foreigners the Norton honchos could do business with. Nelson and 12 other top Norton executives were given long-term contracts—Nelson's is for seven years—preserving their jobs, their headquarters offices, their salaries, and their benefits.
Nelson claimed to feel like "a condemned prisoner" who "received an 11th-hour pardon." He was too modest. It was his own brilliant strategy—flag burning, fearmongering, layoff talk, and all—that had protected just the thing he'd set out to save: more than $13,800 a week. Not including perks.
In the end, the April 26 shareholders' meeting was an anticlimax. Nelson got a couple of standing ovations and predicted that the acquisition by Saint-Gobain would spell more jobs at Norton.
"Obviously, depending on business and depending on investment and depending on growth, we will add workers or we will"—let's see, what would the opposite of "add workers" be?—"fluctuate our work force according to those conditions."
Interestingly, Jean-Louis Beffa, Saint-Gobain's chairman, had voiced precisely the same caveat the day before. Would he guarantee no layoffs? he was asked at a press conference in New York. "What company can promise not to fire anyone?" replied the man who had fired 30 percent of his own work force after taking over Saint-Gobain in 1982. "It depends on the business cycle."
So much for the rank-and-file's job security. And national security? Funny, nobody mentioned it.
Bruised, its name blackened, BTR left Massachusetts the loser in all this. But there was a consolation prize. After Saint-Gobain's offer jacked up the price of Norton stock to an all-time high, BTR sold its 325,000 shares to the market. Profit: $14 million.
And speaking of profit…A few days after l'affaire Norton subsided, it transpired that the bottom had fallen out of Norton's earnings in the first quarter of 1990. Measured against the same period in 1989, profits had plunged more than $9 million, a drop of 34.6 percent. Nelson, having mastered the technique of blaming foreigners for his company's problems, was ready with an interesting explanation.
He said it was the Brazilians' fault.
Jeff Jacoby is the Boston Herald's chief editorial writer.