NationsBank Corp. and First Union Corp. have reduced their equity and loan commitments in Delcor Inc.'s newest bid for National Gypsum Co..
This week, the privately held Delcor, run by Gypsum chairman C.D. Spangler, offered to purchase a majority of the construction products manufacturer's shares for $46 per share - or $600 million.
On Dec. 12, Delcor offered $43.50 a share for the company, but was rebuffed. The new offer is designed to increase the share price, while keeping leverage in check.
The deal would increase Delcor's holding to 55% from 19%, and give each bank 6% instead of the original 15%.
The number of shares of common stock held by each bank will remain the same in the new deal, but those shares will increase in value from $34.1 million for each bank to $36.1 million because of the higher stock price. The amount of preferred stock held by each bank, however, will be reduced to $50 million from $100 million.
The banks have also reduced the loan to a $325 million five-year revolving credit facility from a $375 million senior term debt and revolving credit package. The loan would supply recapitalization funds and provide for future working capital needs.
"The decision to shift from a merger to a recapitalization was to accommodate (National Gypsum's) need for a higher price without overleveraging the business," said Barnes Hauptfuhrer, a managing director at First Union Capital Partners.
First Union and NationsBank would serve as co-agents on the syndicated loan.
Even though the banks' commitments have been reduced, their equity positions remain unusually large.
Mr. Hauptfuhrer acknowledged that First Union's investment in National Gypsum is higher than other equity positions taken by the bank. However, he pointed out that equity investments are a growing bank business.
"Equity investing is something a lot of bank holding companies have started doing," Mr. Hauptfuhrer said.
Equity holdings have generated attractive profits, but Mr. Hauptfuhrer said that these ventures still represent a very small percentage of a bank's assets. "The reality is that even transactions like this are small in terms of total asset size," he said.
The transaction is a significant one for the town of Charlotte, which is home to both banks and to National Gypsum. "This transaction is largely a tribute to Mr. Spangler and the reputation he has in North Carolina," said Mr. Hauptfuhrer.
The new offer cuts the combined stakes of National Gypsum - the second- largest wallboard maker in the United States - that Delcor and the regional rival banks will hold from 100% to approximately 67%, leaving a third of the company to shareholders.
Though the latest offer reduces each of the banks' equity holdings, Mr. Hauptfuhrer said: "There was no conscious desire to take that equity down, as much as a conscious desire to allow public shareholders to retain ownership."
Unlike the first offer, the new one is not contingent on the outcome of an NGC Settlement Trust's recent motions in bankruptcy court. The Trust held asbestos obligations that National Gypsum shed when it came out of bankruptcy. The trustees claim that the assets held against the claims are worth less than anticipated, and are seeking an additional $160 million over the next eight years.
The removal of the settlement stipulation from Delcor's latest offer "indicates that there is not as much there (problems with the Trust) as people had thought," said David Lee Smith, a senior vice president at Southcoast Capital.
