<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D/A
Under the Securities Exchange Act of 1934
(Amendment No. 1)*
REYNOLDS METALS COMPANY
- --------------------------------------------------------------------------------
(Name of issuer)
COMMON STOCK, no par value
- --------------------------------------------------------------------------------
(Title of class of securities)
761763 101
-------------------------------------------------------
(CUSIP number)
Highfields Capital Management LP
Attention: Kenneth H. Colburn
200 Clarendon Street
51st Floor
Boston, MA 02117
(617) 850-7500
- --------------------------------------------------------------------------------
(Name, address and telephone number of person authorized to receive notices and
communications)
June 23, 1999
- -------------------------------------------------------------------------------
(Date of event which requires filing of this statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(b)(3) or (4), check the following box [_].
(Continued on the following pages)
(Page 1 of 11 Pages)
__________________________
*The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 or otherwise subject to the liabilities of that section of the Act but
shall be subject to all other provisions of the Act.
<PAGE>
SCHEDULE 13D/A
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CUSIP NO. 761763 101 PAGE 2 OF 11 PAGES
- ----------------------- ---------------------
- ------------------------------------------------------------------------------
NAME OF REPORTING PERSON
1 S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Highfields Capital Management LP
- ------------------------------------------------------------------------------
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
2 (a) [_]
(b) [_]
- ------------------------------------------------------------------------------
SEC USE ONLY
3
- ------------------------------------------------------------------------------
SOURCE OF FUNDS*
4
WC
- ------------------------------------------------------------------------------
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(d) or 2(e) [_]
5
- ------------------------------------------------------------------------------
CITIZENSHIP OR PLACE OF ORGANIZATION
6
Delaware
- ------------------------------------------------------------------------------
SOLE VOTING POWER
7
NUMBER OF
3,945,500
SHARES -----------------------------------------------------------
SHARED VOTING POWER
BENEFICIALLY 8
OWNED BY None
-----------------------------------------------------------
EACH SOLE DISPOSITIVE POWER
9
REPORTING
3,945,500
PERSON -----------------------------------------------------------
SHARED DISPOSITIVE POWER
WITH 10
None
- ------------------------------------------------------------------------------
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
11
3,945,500
- ------------------------------------------------------------------------------
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
12
[_]
- ------------------------------------------------------------------------------
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
13
6.1%
- ------------------------------------------------------------------------------
TYPE OF REPORTING PERSON*
14
PN
- ------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7
(INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION.
<PAGE>
SCHEDULE 13D/A
- ----------------------- ---------------------
CUSIP NO. 761763 101 PAGE 3 OF 11 PAGES
- ----------------------- ---------------------
- ------------------------------------------------------------------------------
NAME OF REPORTING PERSON
1 S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Highfields GP LLC
- ------------------------------------------------------------------------------
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
2 (a) [_]
(b) [_]
- ------------------------------------------------------------------------------
SEC USE ONLY
3
- ------------------------------------------------------------------------------
SOURCE OF FUNDS*
4
AF
- ------------------------------------------------------------------------------
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(d) or 2(e) [_]
5
- ------------------------------------------------------------------------------
CITIZENSHIP OR PLACE OF ORGANIZATION
6
Delaware
- ------------------------------------------------------------------------------
SOLE VOTING POWER
7
NUMBER OF
3,945,500
SHARES -----------------------------------------------------------
SHARED VOTING POWER
BENEFICIALLY 8
OWNED BY None
-----------------------------------------------------------
EACH SOLE DISPOSITIVE POWER
9
REPORTING
3,945,500
PERSON -----------------------------------------------------------
SHARED DISPOSITIVE POWER
WITH 10
None
- ------------------------------------------------------------------------------
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
11
3,945,500
- ------------------------------------------------------------------------------
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
12
[_]
- ------------------------------------------------------------------------------
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
13
6.1%
- ------------------------------------------------------------------------------
TYPE OF REPORTING PERSON*
14
OO
- ------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7
(INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION.
<PAGE>
SCHEDULE 13D/A
- ----------------------- ---------------------
CUSIP NO. 761763 101 PAGE 4 OF 11 PAGES
- ----------------------- ---------------------
- ------------------------------------------------------------------------------
NAME OF REPORTING PERSON
1 S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Jonathon S. Jacobson
- ------------------------------------------------------------------------------
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
2 (a) [_]
(b) [_]
- ------------------------------------------------------------------------------
SEC USE ONLY
3
- ------------------------------------------------------------------------------
SOURCE OF FUNDS*
4
AF
- ------------------------------------------------------------------------------
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(d) or 2(e) [_]
5
- ------------------------------------------------------------------------------
CITIZENSHIP OR PLACE OF ORGANIZATION
6
United States
- ------------------------------------------------------------------------------
SOLE VOTING POWER
7
NUMBER OF
3,945,500
SHARES -----------------------------------------------------------
SHARED VOTING POWER
BENEFICIALLY 8
OWNED BY None
-----------------------------------------------------------
EACH SOLE DISPOSITIVE POWER
9
REPORTING
3,945,500
PERSON -----------------------------------------------------------
SHARED DISPOSITIVE POWER
WITH 10
None
- ------------------------------------------------------------------------------
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
11
3,945,500
- ------------------------------------------------------------------------------
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
12
[_]
- ------------------------------------------------------------------------------
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
13
6.1%
- ------------------------------------------------------------------------------
TYPE OF REPORTING PERSON*
14
IN
- ------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7
(INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION.
<PAGE>
SCHEDULE 13D/A
- ----------------------- ---------------------
CUSIP NO. 761763 101 PAGE 5 OF 11 PAGES
- ----------------------- ---------------------
- ------------------------------------------------------------------------------
NAME OF REPORTING PERSON
1 S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Richard L. Grubman
- ------------------------------------------------------------------------------
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
2 (a) [_]
(b) [_]
- ------------------------------------------------------------------------------
SEC USE ONLY
3
- ------------------------------------------------------------------------------
SOURCE OF FUNDS*
4
AF
- ------------------------------------------------------------------------------
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(d) or 2(e) [_]
5
- ------------------------------------------------------------------------------
CITIZENSHIP OR PLACE OF ORGANIZATION
6
United States
- ------------------------------------------------------------------------------
SOLE VOTING POWER
7
NUMBER OF
3,945,500
SHARES -----------------------------------------------------------
SHARED VOTING POWER
BENEFICIALLY 8
OWNED BY None
-----------------------------------------------------------
EACH SOLE DISPOSITIVE POWER
9
REPORTING
3,945,500
PERSON -----------------------------------------------------------
SHARED DISPOSITIVE POWER
WITH 10
None
- ------------------------------------------------------------------------------
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
11
3,945,500
- ------------------------------------------------------------------------------
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
12
[_]
- ------------------------------------------------------------------------------
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
13
6.1%
- ------------------------------------------------------------------------------
TYPE OF REPORTING PERSON*
14
IN
- ------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7
(INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION.
<PAGE>
Cusip No. 761763 101 Page 6 of 11 pages
This Amendment No. 1 to Schedule 13D (this "Amendment No. 1") should be read in
conjunction with the Schedule 13D filed with the Securities and Exchange
Commission on March 17, 1999 (the "Schedule 13D") by Highfields Capital
Management LP, Highfields GP LLC, Jonathon S. Jacobson and Richard L. Grubman
relating to the shares of common stock, no par value, of Reynolds Metals Company
(the "Shares"). This Amendment No. 1 amends and restates the Schedule 13D with
respect to Items 3, 5, 6 and 7. All other information in the Schedule 13D shall
remain in effect. All capitalized terms used herein and not otherwise defined
shall have the meanings ascribed thereto in the Schedule 13D.
Item 3. Source and Amount of Funds or Other Consideration.
-------------------------------------------------
The aggregate purchase price of the 382,644 Shares owned by Highfields
I was $18,988,489.93, inclusive of brokerage commissions.
The aggregate purchase price of the 729,528 Shares owned by Highfields
II was $35,864,652.85, inclusive of brokerage commissions.
The aggregate purchase price of the 2,833,328 Shares owned by
Highfields Ltd. was $141,225,818.76, inclusive of brokerage commissions.
Each of Highfields I, Highfields II and Highfields Ltd. used their own
assets to purchase such Shares, which may at any given time include funds
borrowed in the ordinary course in their margin accounts.
Item 5. Interest in Securities of Issuer.
--------------------------------
(a) and (b) As of June 22, 1999, Highfields I, Highfields II and
Highfields Ltd. owned beneficially 382,644, 729,528 and 2,833,328 Shares,
respectively, representing approximately 0.6%, 1.1% and 4.4%, respectively, of
the 64,507,259 Shares outstanding as reported in the Company's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1999 (the "Form 10-Q").
As of June 22, 1999, Highfields Capital Management in its capacity as
investment manager of the Funds, had sole voting and dispositive power with
respect to all 3,945,500 Shares owned beneficially by the Funds, representing
approximately 6.1% of the 64,507,259 Shares outstanding as reported in the Form
10-Q.
As of June 22, 1999, Highfields GP, through its control of Highfields
Capital Management, had sole voting and dispositive power with respect to all
3,945,500 Shares owned beneficially by Highfields Capital Management,
representing approximately 6.1% of the 64,507,259 Shares outstanding as reported
in the Form 10-Q.
As of June 22, 1999, Mr. Grubman, as a Managing Member of Highfields
GP, had sole voting and dispositive power with respect to all 3,945,500 Shares
owned beneficially by Highfields GP, representing approximately 6.1% of the
64,507,259 Shares outstanding as reported in the Form 10-Q.
As of June 22, 1999, Mr. Jacobson, as a Managing Member of Highfields
GP, had sole voting and dispositive power with respect to all 3,945,500 Shares
owned beneficially by Highfields GP, representing approximately 6.1% of the
64,507,259 Shares outstanding as reported in the Form 10-Q.
<PAGE>
Cusip No. 761763 101 Page 7 of 11 pages
(c) Information with respect to all transactions in the Shares
beneficially owned by the Reporting Persons which were effected during the past
sixty days is set forth in Schedule A hereto and incorporated herein by
reference.
(d) None.
(e) Not applicable.
Item 6. Contracts, Arrangements, Understandings or Relationships With
-------------------------------------------------------------
Respect to Securities of the Issuer.
-----------------------------------
Except as set forth in Item 4 of the Schedule 13D, as amended, none of
the Reporting Persons has any contract, arrangement, understanding or
relationship (legal or otherwise) with any person with respect to any securities
of the Company including, but not limited to, any contract, arrangement,
understanding or relationship concerning the transfer or the voting of any
securities of the Company, joint ventures, loan or option arrangements, puts or
calls, guaranties of profits, division of profits or losses, or the giving or
withholding of proxies, other than various agreements arising from customary
investment practices relating to the Funds' investments in portfolio securities,
including securities lending and swap transactions.
Item 7. Material to be Filed as Exhibits.
--------------------------------
Exhibit 99.1* - Letters from Highfields to the Company, dated
-------------
February 16, 1999.
Exhibit 99.2* - Letter from the Company to Highfields, dated
-------------
February 25, 1999.
Exhibit 99.3* - Letter from the Company to the Securities and Exchange
-------------
Commission, dated March 1, 1999.
Exhibit 99.4* - Letter from Highfields to the Company, dated
-------------
March 1, 1999.
Exhibit 99.5* - Letter from Highfields to the Company, dated
-------------
March 5, 1999.
Exhibit 99.6 - Letter from Highfields to the Company dated June 23,
------------
1999.
*As previously filed in Schedule 13D dated March 17, 1999
<PAGE>
Cusip No. 761763 101 Page 8 of 11 pages
SIGNATURES
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.
Dated: June 23, 1999 HIGHFIELDS CAPITAL MANAGEMENT LP
By: Highfields GP LLC, its General Partner
By: /s/ Kenneth H. Colburn
--------------------------------------
Kenneth H. Colburn
Authorized Signatory
HIGHFIELDS GP LLC
By: /s/ Kenneth H. Colburn
--------------------------------------
Kenneth H. Colburn
Authorized Signatory
RICHARD L. GRUBMAN
By: /s/ Kenneth H. Colburn/1/
--------------------------------------
Kenneth H. Colburn
Attorney-In-Fact
JONATHON S. JACOBSON
By: /s/ Kenneth H. Colburn/2/
--------------------------------------
Kenneth H. Colburn
Attorney-In-Fact
- -----------------
/1/ See Note 1 attached hereto
/2/ See Note 2 attached hereto
<PAGE>
Cusip No. 761763 101 Page 9 of 11 pages
Schedule A
----------
INFORMATION WITH RESPECT TO TRANSACTIONS
OF THE REGISTRANT'S COMMON STOCK
BY HIGHFIELDS I DURING THE PAST SIXTY DAYS
Number of Shares of
Common Stock
Date Purchased/(Sold)/3/ Price Per Share
---- ------------------- ---------------
4/23/99 5,091 59.2825
4/23/99 1,461 59.7383
5/18/99 1,072 61.0030
5/18/99 1,053 60.4050
5/27/99 10,647 54.4556
5/28/99 8,127 52.9253
Total: 27,451 ---
<PAGE>
Cusip No. 761763 101 Page 10 of 11 pages
INFORMATION WITH RESPECT TO TRANSACTIONS
OF THE REGISTRANT'S COMMON STOCK
BY HIGHFIELDS II DURING THE PAST SIXTY DAYS
Number of Shares of
Common Stock
Date Purchased/(Sold)/3/ Price Per Share
---- ------------------- ---------------
4/23/99 9,854 59.2825
4/23/99 2,784 59.7383
5/18/99 2,043 61.0030
5/18/99 1,856 60.4050
5/27/99 20,278 54.4556
5/28/99 12,686 52.9253
Total: 49,501 ---
<PAGE>
Cusip No. 761763 101 Page 11 of 11 pages
INFORMATION WITH RESPECT TO TRANSACTIONS
OF THE REGISTRANT'S COMMON STOCK
BY HIGHFIELDS LTD. DURING THE PAST SIXTY DAYS
Number of Shares of
Common Stock
Date Purchased/(Sold)/3/ Price Per Share
---- ------------------- ---------------
4/23/99 12,787 59.2825
4/23/99 32,892 59.2825
4/23/99 4,476 59.2825
4/23/99 2,049 59.7383
4/23/99 2,145 59.7383
4/23/99 6,561 59.7383
5/18/99 4,816 61.0030
5/18/99 1,541 61.0030
5/18/99 1,528 61.0030
5/18/99 1,791 60.4050
5/18/99 1,000 60.4050
5/18/99 4,300 60.4050
5/27/99 47,808 54.4556
5/27/99 30,000 54.3221
5/27/99 15,299 54.4556
5/27/99 15,168 54.4556
5/28/99 26,187 52.9253
Total: 210,348 ---
/3/ All transactions were effected through open market or privately negotiated
purchases
<PAGE>
Note 1
LIMITED POWER OF ATTORNEY
FOR FILINGS UNDER THE
SECURITIES EXCHANGE ACT OF 1934
-------------------------------
Know all by these presents, that the undersigned hereby constitutes and
appoints Kenneth H. Colburn as the undersigned's true and lawful attorney-in-
fact to:
(1) execute for and on behalf of the undersigned, in the undersigned's
capacity as a Managing Member of Highfields GP LLC, the General
Partner of Highfields Capital Management LP ("Highfields"), or as an
individual, filings in accordance with the Securities Exchange Act of
1934 (the "Act") and the rules thereunder;
(2) do and perform any and all acts for and on behalf of the undersigned
which may be necessary or desirable to complete and execute any such
form and timely file such form with the United States Securities and
Exchange Commission (the "SEC") and any stock exchange or similar
authority; and
(3) take any other action of any type whatsoever which, in the opinion of
such attorney-in-fact, may be necessary or desirable in connection
with the foregoing authority, it being understood that the documents
executed by such attorney-in-fact on behalf of the undersigned
pursuant to this Power of Attorney shall be in such form and shall
contain such terms and conditions as such attorney-in-fact may
approve.
The undersigned hereby grants to such attorney-in-fact full power and
authority to do and perform any and every act and thing whatsoever requisite,
necessary, or proper to be done in the exercise of any of the rights and powers
herein granted, as fully to all intents and purposes as the undersigned might or
could do if personally present, with full power of substitution or revocation,
hereby ratifying and confirming all that such attorney-in-fact, or such
attorney-in-fact's substitute or substitutes, shall lawfully do or cause to be
done by virtue of this Power of Attorney and the rights and powers herein
granted. The undersigned acknowledges that the foregoing attorney-in-fact, in
serving in such capacity at the request of the undersigned, is not assuming,
any of the undersigned's responsibilities to comply with the Act.
This Power of Attorney shall remain in full force and effect until the
undersigned is no longer required to file forms under the Act with respect to
securities held by the undersigned or Highfields, unless earlier revoked by the
undersigned in a signed writing delivered to the foregoing attorney-in-fact.
This Power of Attorney may be filed with the SEC as a confirming statement of
the authority granted herein.
<PAGE>
IN WITNESS WHEREOF, the undersigned has caused this Power of Attorney to
be executed as of this 16th day of June, 1999.
Richard L. Grubman
---------------------------
Print Name of Reporting
Person or Entity
/s/ Richard L. Grubman
---------------------------
Signature
<PAGE>
Note 2
LIMITED POWER OF ATTORNEY
FOR FILINGS UNDER THE
SECURITIES EXCHANGE ACT OF 1934
-------------------------------
Know all by these presents, that the undersigned hereby constitutes and
appoints Kenneth H. Colburn as the undersigned's true and lawful attorney-in-
fact to:
(1) execute for and on behalf of the undersigned, in the undersigned's
capacity as a Managing Member of Highfields GP LLC, the General
Partner of Highfields Capital Management LP ("Highfields"), or as an
individual, filings in accordance with the Securities Exchange Act of
1934 (the "Act") and the rules thereunder;
(2) do and perform any and all acts for and on behalf of the undersigned
which may be necessary or desirable to complete and execute any such
form and timely file such form with the United States Securities and
Exchange Commission (the "SEC") and any stock exchange or similar
authority; and
(3) take any other action of any type whatsoever which, in the opinion of
such attorney-in-fact, may be necessary or desirable in connection
with the foregoing authority, it being understood that the documents
executed by such attorney-in-fact on behalf of the undersigned
pursuant to this Power of Attorney shall be in such form and shall
contain such terms and conditions as such attorney-in-fact may
approve.
The undersigned hereby grants to such attorney-in-fact full power and
authority to do and perform any and every act and thing whatsoever requisite,
necessary, or proper to be done in the exercise of any of the rights and powers
herein granted, as fully to all intents and purposes as the undersigned might or
could do if personally present, with full power of substitution or revocation,
hereby ratifying and confirming all that such attorney-in-fact, or such
attorney-in-fact's substitute or substitutes, shall lawfully do or cause to be
done by virtue of this Power of Attorney and the rights and powers herein
granted. The undersigned acknowledges that the foregoing attorney-in-fact, in
serving in such capacity at the request of the undersigned, is not assuming,
any of the undersigned's responsibilities to comply with the Act.
This Power of Attorney shall remain in full force and effect until the
undersigned is no longer required to file forms under the Act with respect to
securities held by the undersigned or Highfields, unless earlier revoked by the
undersigned in a signed writing delivered to the foregoing attorney-in-fact.
This Power of Attorney may be filed with the SEC as a confirming statement of
the authority granted herein.
<PAGE>
IN WITNESS WHEREOF, the undersigned has caused this Power of Attorney to be
executed as of this 16th day of June, 1999.
Jonathon S. Jacobson
-----------------------------
Print Name of Reporting
Person or Entity
/s/ Jonathon S. Jacobson
______________________________
Signature
<PAGE>
Exhibit 99.6
[HIGHFIELDS CAPITAL MANAGEMENT LETTERHEAD APPEARS HERE]
June 23, 1999
Jeremiah J. Sheehan
Chairman and Chief Executive Officer
Reynolds Metals Company
6601 West Broad Street
Richmond, VA 23261-7003
Dear Jerry,
We are writing to discuss recent comments you have made publicly and to a number
of shareholders and industry sources with whom we have spoken. Their feedback
has been very specific and consistent.
Your recent speeches and the company's June 1 press release indicate a
willingness to pursue "M&A opportunities" including a "merger of equals." We
believe this constitutes a public commitment to explore all alternatives to
maximize shareholder value and are encouraged to see that the company is finally
acknowledging that it needs to participate in the consolidation of the aluminum
industry. Therefore, the time has come for the Board to form a committee of
independent directors to whom the investment bankers working on this assignment
report directly. Furthermore, the committee should have its own counsel to
advise it of its fiduciary obligations to shareholders as various proposals are
solicited, received and evaluated.
However, in contrast, in recent meetings with some of your larger shareholders,
you have said Reynolds is only interested in merging with another company,
possibly European, provided that Reynolds' management runs the combined entity.
Apparently such a merger would rely on future synergies to create value for
Reynolds' shareholders. Interested industry sources corroborate your
unwillingness to consider transactions with them where you would risk ceding
management control. We do not believe that you have the right nor the
shareholder support to pursue such a pre-conditioned transaction. Furthermore,
we believe that, by not simultaneously considering all alternatives to maximize
value, you are putting your interests ahead of ours. As such, we believe that
the Board needs to take control of this process to ensure that the interests of
the owners of the company are placed ahead of those of management. Reynolds has
a poor track record of managing its own assets, and shareholders believe that
dismissing an attractive transaction simply because it would not afford you
continued control is unacceptable.
Reynolds has neither the stock price nor the debt capacity to make a significant
acquisition. Both businesses, base materials and packaging, are worth
considerably more
<PAGE>
to larger, more efficient consolidators who can pay a premium and run them
better. To this end, we are deeply disturbed by your comment at the annual
meeting that Reynolds' role in the consolidation of the aluminum industry is
analogous to that of International Paper in the paper industry. IP, a company
where you now serve as a director, has paid questionable prices for acquisitions
and as a result, its shares have consistently underperformed. We have heard from
numerous shareholders who were also very offended by this comment.
As we now know, approximately 20% of the shares that voted at the recent annual
meeting withheld support for the incumbent directors. We believe that an
additional 10% either abstained or intended to withhold authority for their re-
election but inadvertently miscast their votes. We think you will agree that,
in the face of no alternative choice, this negative vote represents a very high
level of dissatisfaction with the job the Board has done to enhance shareholder
value and to critically evaluate management's performance. The feedback we have
received from shareholders after their recent conversations with you
corroborates this view.
By now it should be clear that your shareholders expect you to participate in
industry consolidation through an extraordinary transaction, but only one that
delivers them a premium value for their interests in Reynolds, in addition to
any longer-term synergy values a business combination with another company might
create. Any transaction you propose to the contrary will not be approved.
Reynolds' management has provided no historical evidence to support the view
that it should be the steward of growth, either in base materials or packaging.
While we believe the packaging business has great growth prospects, the best
owner/operator of those assets is not Reynolds and its current management team
but a large consumer products company with a proven track record of exploiting
brands and maximizing synergies.
We have heard first hand that a number of industry and financial buyers
interested in acquiring Reynolds' assets have approached you or your advisors.
As we noted earlier, these parties have been either rebuffed or informed that
you are only interested in a business combination in which Reynolds' management
would run the combined company. Again, such a pre-condition may be in your best
interests but is not in the best interests of your shareholders.
To date, we have no evidence that the Board is fulfilling its fiduciary duty by
exploring all alternatives, including a sale of the company. One need only
review the reactions of Wall Street firms to the June 1 press release -- some
think you are doing nothing, some think you are trying to buy something, some
think you are trying to engineer a sweetheart merger with no premium afforded
the Reynolds shareholders and some think you are trying to maximize value by
selling the company. This level of confusion is inappropriate and disruptive.
We think it is unprecedented for a major public company to put out a press
release which appears to commit it to explore alternatives to maximize value and
yet seems to be so subject to interpretation that it can actually mean nothing
at all.
<PAGE>
Furthermore, the press release said you "hope between now and the end of the
year to provide [shareholders] with more specifics on where we are going." The
deadline for specifics is already long overdue and this is an unacceptably vague
commitment to provide the timely specifics that your owners are demanding. We
believe that you are trying to buy time to execute a transaction best for you
before being forced to pursue one that is best for us. Such a state of affairs
is unfair to both your shareholders and your employees. If the purpose of the
June 1 press release was merely to mollify your dissatisfied shareholders and
dissuade us from taking further action to protect our investment, it will not
work.
Sincerely,
/s/ Richard L. Grubman
Richard L. Grubman
Managing Director
cc: Board of Directors
