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CHANGE THE LAW TO PROTECT CONNECTICUT JOBS
Larry McCurdy
When John Blystone, chief executive officer of SPX Corporation,
announced its hostile takeover attempt on Echlin, he gloated that he would be
able to exploit a "hole" in Echlin's defenses based upon a current feature in
Connecticut's business statutes. He was right: He did find a weakness -- one
that we do not believe is consistent with the intent behind Connecticut's law.
Many in the legislature, in a bipartisan effort, have rallied to
support us and promote a narrow legislative change that will protect a thousand
Connecticut jobs. But now Mr. Blystone cries foul and berates Connecticut for
what he calls abusive corporate governance.
The fact is, supporters of the bill that would give Echlin protection
from a hostile takeover are merely seeking to implement a change to state law
that will preserve the integrity of legislation that has been on the books for
fully a decade.
We witnessed abuses during the go-go '80s, when many U.S. companies
were taken over by raiders who stripped them of assets and overloaded them with
debt. That left a wake of unemployment by cutting American business muscle, as
well as fat, under the banner of "Quick Gains Above All Else." Connecticut
determined that this extreme financial engineering was not healthy for our state
- -- that we needed some reasonable checks and balances.
In the realm of mergers and acquisitions, the State determined that a
corporation had to consider the impact of a business combination on all
constituents -- long-term and short-term shareholders, employees, customers,
suppliers and local communities. After all, the corporation is a creature
empowered by the state, and it cannot pretend to exist in a vacuum.
Connecticut's legislature determined that, because there was such
potential for abuse, business combinations first had to receive approval from
the target company's board of directors before receiving approval from
shareholders. The board was charged with evaluating the proposal in light of the
interests of all the company's constituents.
The new law does not prevent deals -- even hostile takeovers such as
the one SPX is pursuing -- nor does it keep shareholders from realizing the
highest value for their holdings. It does mean that a board independent of the
raider should evaluate the proposed takeover, as well as alternatives. That is
not an unreasonable request.
But SPX is taking advantage of another Connecticut law -- that a
special shareholder meeting can be called by 35 percent of a company's
shareholders, and at that meeting, if at least 50 percent of the company's
shares are represented, a majority vote can replace the board. Through that
mechanism, by garnering little more than 25 percent of the company's total
shareholder votes, SPX, or any other raider, can toss out a duly elected board
and replace it with one that is solely dedicated to rubber-stamping its pre-
ordained plan. With this conflict of interest, how can a takeover board carry
out what should be its proper duties under state law? This could not have been
what Connecticut business statutes originally intended.
I know that Mr. Blystone has made protestations that he is not a raider
and this is not a hostile offer. He can give himself whatever labels he likes,
but I don't find them very credible. He has also stated that he will cut 3,000
jobs from Echlin but maintain operations here in Connecticut. However, we have
run the numbers and we know that he cannot achieve the cost savings he is
trumpeting without slashing employment in Connecticut.
Just the other day, at public hearings in Hartford on the proposed
legislation, one legislator asked Mr. Blystone if he knew what Echlin makes at
our Connecticut manufacturing facility. He could not answer the question. That
was frightening, coming from someone who claims to understand how to improve
Echlin's performance. Worse, it spoke volumes for his credibility as to what his
plans are for Echlin's operations --either in Connecticut or anywhere else.
We believe the state is absolutely correct in insisting upon being
responsible to all constituencies. We are completely committed to growing our
business while respecting the law. Mr. Blystone's hostile efforts put that
commitment at extreme risk.
Larry McCurdy is chairman, president and chief operating officer of
Echlin Inc. in Branford
