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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(d)(4) OF THE
SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. 1)
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ARCO CHEMICAL COMPANY
(NAME OF SUBJECT COMPANY)
ARCO CHEMICAL COMPANY
(NAME OF PERSON(S) FILING STATEMENT)
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COMMON SHARES, PAR VALUE $1.00 PER SHARE
(TITLE OF CLASS OF SECURITIES)
001920 10 7
(CUSIP NUMBER OF CLASS SECURITIES)
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Robert J. Millstone, Esq.
Vice President and General Counsel
ARCO Chemical Company
3801 West Chester Pike
Newtown Square, Pennsylvania 19073
(610) 359-2000
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE
NOTICES AND COMMUNICATIONS ON BEHALF OF THE PERSON(S) FILING STATEMENT)
This Amendment No. 1 amends and supplements the
Solicitation/Recommendation Statement on Schedule 14D-9 (the "Schedule
14D-9") filed with the Securities and Exchange Commission on June 25, 1998
by ARCO Chemical Company, a Delaware corporation (the "Company"), relating
to the offer (the "Offer") by Lyondell Acquisition Corporation, a Delaware
corporation ("Purchaser") and a wholly-owned subsidiary of Lyondell
Petrochemical Corporation, a Delaware corporation ("Lyondell"), to purchase
for cash all outstanding shares, par value $1.00 per share, of the Company.
The Offer by Purchaser was made pursuant to the terms of an Agreement and
Plan of Merger, dated as of June 18, 1998, between the Company, Lyondell
and Purchaser (the "Merger Agreement").
1. Item 8. ADDITIONAL INFORMATION TO BE FURNISHED
Item 8 is hereby amended and supplemented by adding the following:
CERTAIN LITIGATION
On or about June 29, 1998, Mary E. McMullin, a purported shareholder
of the Company, filed a complaint (the "Complaint") in the Court of
Chancery in the State of Delaware against each of the members of the Board
of Directors of the Company, the Company, Atlantic Richfield Company
("ARCO") and Lyondell. The complaint purportedly is brought on behalf of a
class of all common stockholders of the Company other than the defendants
and their affiliates. The complaint alleges that ARCO and the individual
defendants breached fiduciary duties owed to the Company's public
shareholders in connection with approval of the merger agreement. Among
other things, the complaint seeks preliminary and permanent injunctive
relief against the consummation of the proposed transaction and unspecified
damages.
The above summary is qualified in its entirety by reference to the
Complaint. Attached is an exhibit hereto.
2. Item 9. MATERIAL TO BE FILED AS EXHIBITS
Item 9 is hereby amended and supplemented to add the following:
Exhibit 47 Class Action Complaint filed in Mary E. McMullin v. Walter F.
Beran et. al., C.A. No. 16493, Court of Chancery in the State of
Delaware in and for New Castle County, on or about June 29, 1998.
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete
and correct.
By: /s/ Robert J. Millstone
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Name: Robert J. Millstone
Title: Vice President and General Counsel
Dated: July 1, 1998
IN THE COURT OF CHANCERY IN THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
- ----------------------------------------------------x
:
MARY E. MCMULLIN :
:
Plaintiff, :
v. :
:
WALTER F. BERAN, ANTHONY G. FERNANDES, : C.A. No. 16493
MARK L. HAZELWOOD, ALAN R. HIRSIG, JOHN :
H. KELLEY, MARIE L. KNOWLES, JAMES A. :
MIDDLETON, STEPHEN R. MUT, FRANK SAVAGE, :
MARVIN B. SCHLANGER, WALTER J. :
TUSINSKI, DONALD R. VOELTE, Jr., ARCO :
CHEMICAL COMPANY, ATLANTIC RICHFIELD :
COMPANY and LYONDELL PETROCHEMICAL :
COMPANY, :
:
Defendants. :
:
- ----------------------------------------------------x
CLASS ACTION COMPLAINT
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Plaintiff alleges upon information and belief, except for
paragraph 1 hereof, which is alleged upon knowledge, as follows:
1. Plaintiff has been the owner of the common stock of ARCO
Chemical Company ("ARCO Chemical" or the "Company") since prior to the
transaction herein complained of and continuously to date.
2. ARCO Chemical is a corporation duly organized and existing
under the laws of the State of Delaware. The Company is a leading worldwide
manufacturer and marketer of propylene oxide and derivatives and other
intermediate chemicals. Its products are used in a wide range of consumer
and industrial goods, including automotive components, cushioning, paints
and coatings, plastics, home furnishings, engine coolants, and reformulated
gasoline. The Company maintains its headquarters it 3801 West Chester Pike,
Newton Square, Pennsylvania.
3. Defendant Atlantic Richfield Company. ("ARCO") is a Delaware
corporation located at 515 S. Flower Street, Los Angeles, California. ARCO
explores for, develops, and produces crude oil, condensate natural gas
liquids and natural gas, refines and transports petroleum products and
makes chemicals used in consumer products. ARCO owns or controls 82.3
percent of ARCO Chemical's outstanding common stock.
4. Defendant Lyondell Petrochemical Company ("Lyondell") is a
Delaware Corporation located at 1221 McKinney Street, Houston, Texas.
Lyondell was controlled by ARCO until September 1997 when ARCO divested its
49% ownership stake in Lyondell.
5. Defendant Anthony G. Fernandes is Chairman of the Board of
Directors of the Company and is an Executive Vice President and Director of
ARCO.
6. Defendant Marie L. Knowles is a Director of the Company and an
Executive Vice President, Chief Financial Officer and a Director of ARCO.
7. Defendant Marvin O. Schlanger is Chief Operating Officer and a
Director of the Company. Previously, he served in a number of senior
executive positions with various ARCO subsidiaries.
8. Defendant Walter F. Tusinski is Chief Financial Officer and a
Director of the Company. Previously, he held a number of senior executive
positions with various ARCO subsidiaries.
9. Defendant Alan R. Hirsig is President, Chief Executive officer
and Director of the Company.
10. Defendant John H. Kelley is a Director of the Company and a
Senior Vice President of ARCO.
11. Defendant Mark L. Hazelwood is a Director of the Company and
Senior Vice President of ARCO.
12. Defendant Stephen R. Mut is a Director of the Company and
Senior Vice President of ARCO.
13. Defendant Donald R. Voelte, Jr. is a Director of the Company
and Senior Vice President of ARCO.
14. Defendants Walter R. Beran, James A. Middleton, and Frank
Savage are Directors of the Company.
15. Arco and the Individual Defendants are in a fiduciary
relationship with Plaintiff and the other public stockholders of ARCO
Chemical and owe them the highest obligations of good faith and fair
dealing.
CLASS ACTION ALLEGATIONS
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16. Plaintiff brings this action on her own behalf and as a class
action, pursuant to Rule 23 of the Rules of the Court of Chancery, on
behalf of all common stockholders of the Company (except the defendants
herein and any person, firm, trust, corporation, or other entity related to
or affiliated with any of the defendants) and their successors in interest,
who are or will be threatened with injury arising from defendants' actions
as more fully described herein.
17. This action is properly maintainable as a class action
because:
(a) The class is so numerous that joinder of all members is
impracticable. As of April 14, 1998, there were approximately 97,276,339
shares of ARCO Chemical common stock outstanding owned by hundreds, if not
thousands, of record and beneficial holders;
(b) There are questions of law and fact which are common to
the class including, inter alia, the following: (i) whether defendants have
breached their fiduciary and other common law duties owed by them to
plaintiff and the members of the class; and (ii) whether the class is
entitled to injunctive relief or damages as a result of the wrongful
conduct committed by defendants.
(c) Plaintiff is committed to prosecuting this action and
has retained competent counsel experienced in litigation of this nature.
The claims of the plaintiff are typical of the claims of other members of
the class and plaintiff has the same interests as the other members of the
class. Plaintiff will fairly and adequately represent the class.
(d) Defendants have acted in a manner which affects
plaintiff and all members of the class alike, thereby making appropriate
injunctive relief and/or corresponding declaratory relief with respect to
the class as a whole.
(e) The prosecution of separate actions by individual
members of the Class would create a risk of inconsistent or varying
adjudications with respect to individual members of the Class, which would
establish incompatible standards of conduct for defendants, or
adjudications with respect to individual members of the Class which would,
as a practical matter, be dispositive of the interests of other members or
substantially impair or impede their ability to protect their interests.
SUBSTANTIVE ALLEGATIONS
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18. On or about May 4, 1998, ARCO announced that it had agreed to
acquire Union Texas Petroleum Holdings ("UTP") for $29 per share or $3.3
billion in cash. In order to fund the purchase without sacrificing its
single-A credit rating according to PLATT'S OILGRAM NEWS, "ARCO said it
will quickly move to sell $1-bil to $2-bil of non strategic assets.
Analysts immediately suspected that probably meant ARCO's 82.3 stake in
ARCO Chemical."
19. On June 31 1998, BLOOMBERG reported that ARCO intended to
reduce its stake in ARCO Chemical to 50 percent and to raise $2.15 billion
by selling shares back to ARCO Chemical and to the public. At that time,
the two companies anticipated ARCO would sell about 24 million of its 80
million shares to the public in a secondary offering and ARCO Chemical
would spend up to $850 million to buy approximately 15 million shares from
ARCO, to reduce ARCO's stake in the Company to 50 percent. This
transaction, which was expected to be completed in July 1998, would have
enabled ARCO to pay off $1.4 billion in short-term debt from the $3.3
billion buy-out of UTP.
20. The FINANCIAL TIMES reported on June 4, 1998 that ARCO said
"other companies had shown an interest in buying all or part of its
chemical assets, but none had been prepared to pay what it considered a
high enough price, and ITS STRONG PREFERENCE FOR CASH HAD EXCLUDED
POTENTIAL BIDDERS WANTING TO OFFER ONLY STOCK." (emphasis added) Similarly,
the Houston Chronicle reported that "Atlantic Richfield officials said
companies were interested in buying all or part of its ARCO Chemical stake,
but no one made an offer that was both high enough and all in cash, as the
Los Angeles-based oil company preferred." The article continued "'We had a
strong preference for cash,' said Dennis Schiffel, vice president of
investor relations."
21. On June 18, 1998, ARCO Chemical and Lyondell announced that
they had entered into a definitive merger agreement whereby Lyondell will
acquire ARCO Chemical in a transaction valued at approximately $1.15
billion. Under the term of the transaction as presently proposed, Lyondell
will commence a cash tender offer for all of ARCO Chemical's outstanding
common shares at a price of $57.75 per share. ARCO has agreed to tender all
the shares that it owns. The previously announced secondary offering and
share buyback were terminated.
22. Lyondell was a wholly-owned subsidiary of ARCO until 1989,
when ARCO sold it in an initial public offering. ARCO sold its remaining
49.9 percent stake in Lyondell in September 1997. However, there are
numerous business relationships between and among the Company, ARCO and
Lyondell. Effective July 1, 1987, the companies entered into purchase,
exchange and processing agreements, product sales agreements, operational
services agreements, and an administrative services agreement. The
purchase, exchange and processing agreements, are principally for methanol,
benzene, ethylene, propylene, and MTBE. The Company also purchases butane
and butane products from ARCO and Lyondell. The Company sells MBTE and
propane to ARCO and Lyondell, including long-term sales agreements with
ARCO and MBTE. Additionally, the operational services agreements are for
various plant services performed by ARCO and Lyondell at the Company's
plants. ARCO also provides the Company with leased office space, insurance
and other financial, legal and administrative services and the Company
provides ARCO with various technical and legal services under the
administrative services agreement.
23. By entering into the agreement with Lyondell, the ARCO
Chemical Board has initiated a process to sell the Company which imposes
heightened fiduciary responsibilities and requires enhanced scrutiny by the
Court. However, the terms of the proposed transaction were not the result
of an auction process or active market check; they were arrived at without
a full and thorough investigation by the Individual Defendants; and they
are intrinsically unfair and inadequate from the standpoint of the ARCO
Chemical shareholders.
24. The Individual Defendants failed to make an informed
decision, as no market check of the Company's value was obtained. In
agreeing to the merger, the Individual Defendants failed to properly inform
themselves of ARCO Chemical's highest transactional value.
25. ARCO and the Individual Defendants have violated the
fiduciary duties they owe to the public shareholders of ARCO Chemical. ARCO
and the Individual Defendants have failed to maximize shareholder value by
excluding potential bidders for the Company who did not offer all cash for
the Company, but were willing and able to offer the public shareholders
more valuable consideration in the form of stock. Indeed, defendant
Lyondell had early on in the negotiations submitted an offer to acquire
ARCO Chemical for a combination of cash, together with stock valued at $5
per share more than the cash component, but was forced to submit an
all-cash bid as a condition to further negotiations. Defendants' failure to
consider all potential offers for the Company, even offers from Lyondell,
demonstrate a clear violation of defendants' duties to maximize shareholder
value and failure to exercise due care and loyalty on behalf of ARCO
Chemical's public shareholders.
26. Defendants, fiduciary obligations under these circumstances
require them to:
(a) Undertake an appropriate evaluation of ARCO Chemical's
net worth as a merger/acquisition candidate; and
(b) Engage in a meaningful auction with third parties in an
attempt to obtain the best value for ARCO Chemical's public shareholders;
and
(c) Protect and enhance the interests of ARCO Chemical's
public shareholders and if there is a conflict between the interests of
ARCO and the Company's public shareholders to resolve those conflicts in
the best interests of the Company's public shareholders.
27. ARCO and the Individual Defendants, who are dominated and
controlled by ARCO, have breached their fiduciary duties by placing the
interests of ARCO ahead of those of ARCO Chemical's public shareholders, by
permitting the Company to be acquired by Lyondell without making the
requisite effort to obtain the best offer possible, whether in cash or
stock or a combination thereof. ARCO has placed its need for cash to pay
down its short-term debt and maintain its credit rating ahead of its
obligation to the public shareholders of ARCO Chemical to maximize
shareholder value.
28. Plaintiff and other members of the Class have been and will
be damaged in that they have not and will not receive their fair proportion
of the value of ARCO Chemical's assets and business, and will be prevented
from obtaining fair and adequate consideration for their shares of ARCO
Chemical common stock.
29. The consideration to be paid to class members in the proposed
merger is unfair and inadequate because, among other things:
(a) The intrinsic value of ARCO Chemical's common stock is
materially in excess of the amount offered for those securities in the
merger giving due consideration to the anticipated operating results, net
asset value, cash flow, and profitability of the Company;
(b) The merger price is not the result of an appropriate
consideration of the value of ARCO Chemical because the ARCO Chemical Board
approved the proposed acquisition without undertaking steps to accurately
ascertain ARCO Chemical's value through open bidding or at least a "market
check mechanism"; and
(c) By entering into the agreement with Lyondell, the
Individual Defendants have allowed the price of ARCO Chemical stock to be
capped, thereby depriving plaintiff and the Class of the opportunity to
realize any increase in the value of ARCO Chemical stock.
30. By reason of the foregoing, each member of the Class will
suffer irreparable injury and damages absent injunctive relief by this
Court.
31. Lyondell has knowingly aided and abetted the breaches of
fiduciary duty committed by ARCO and the Individual Defendants in order to
permit it to acquire the assets and business of ARCO Chemicals at the
lowest price possible and to help ARCO satisfy its immediate need for cash.
Indeed, the proposed transaction could not take place without the knowing
participation of Lyondell.
32. Plaintiff and all other members of the Class have no adequate
remedy at law.
WHEREFORE, plaintiff and members of the Class demand judgment
against defendants as follows:
a. Declaring that this action is properly maintainable as a class
action and certifying plaintiff as the representative of the Class;
b. Preliminarily and permanently enjoining defendants and their
counsel, agents, employees and all persons acting under, in concert with,
or for them, from proceeding with, consummating, or closing the proposed
transaction;
c. In the event that the proposed transaction is consummated,
rescinding it and setting it aside, or awarding rescissory damages to the
Class;
d. Awarding compensatory damages against defendants, individually
and severally, in an amount to be determined at trial, together with
pre-judgment and post-judgment interest at the maximum rate allowable by
law, arising from the proposed transaction;
e. Awarding plaintiff its costs and disbursements and reasonable
allowances for fees of plaintiff's counsel and experts and reimbursement of
expenses; and
f. Granting plaintiff and the Class such other and further relief
as the Court may deem just and proper.
ROSENTHAL, MONHAIT, GROSS &
GODDESS, P.A.
By: /s/ Joseph Rosenthal
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Suite 1401, Mellon Bank Center
P.O. Box 1070
Wilmington, DE 19899-1070
(302) 656-4433
Attorneys for Plaintiff
OF COUNSEL:
BERNSTEIN LIEBHARD & LIFSHITZ
274 Madison Avenue
New York, NY 10016
(212) 779-1414
