<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
(Amendment No. __)*
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) 850-7570
______________________________________________________
(Name, address and telephone number of
person authorized to receive notices and
communications)
March 15, 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 14 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
- ----------------------- ---------------------
CUSIP No. 761763 101 Page 2 of 14 pages
- ----------------------- ---------------------
- ------------------------------------------------------------------------------
1 NAME OF REPORTING PERSONS
S.S. OR I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS
Highfields Capital Management LP
- ------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) [_]
(b) [_]
- ------------------------------------------------------------------------------
3 SEC USE ONLY
- ------------------------------------------------------------------------------
4 SOURCE OF FUNDS
WC
- ------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(d) or 2(e) [_]
- ------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
- ------------------------------------------------------------------------------
7 SOLE VOTING POWER
NUMBER OF 3,550,700
SHARES -----------------------------------------------------------
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY None
-----------------------------------------------------------
EACH 9 SOLE DISPOSITIVE POWER
REPORTING 3,550,700
PERSON -----------------------------------------------------------
10 SHARED DISPOSITIVE POWER
None
- ------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
3,550,700
- ------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
[_]
- ------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
5.5%
-----
- ------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON
PN
- ------------------------------------------------------------------------------
<PAGE>
SCHEDULE 13D
- ----------------------- ---------------------
CUSIP No. 761763 101 Page 3 of 14 pages
- ----------------------- ---------------------
- ------------------------------------------------------------------------------
1 NAME OF REPORTING PERSONS
S.S. OR I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS
Highfields GP LLC
- ------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) [_]
(b) [_]
- ------------------------------------------------------------------------------
3 SEC USE ONLY
------------------------------------------------------------------------------
4 SOURCE OF FUNDS
AF
- ------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(d) or 2(e) [_]
- ------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
- ------------------------------------------------------------------------------
7 SOLE VOTING POWER
NUMBER OF 3,550,700
SHARES -----------------------------------------------------------
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY None
-----------------------------------------------------------
EACH 9 SOLE DISPOSITIVE POWER
REPORTING 3,550,700
PERSON -----------------------------------------------------------
10 SHARED DISPOSITIVE POWER
None
- ------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
3,550,700
- ------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
[_]
- ------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
5.5%
-----
- ------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON
OO
- ------------------------------------------------------------------------------
<PAGE>
SCHEDULE 13D
- ----------------------- ---------------------
CUSIP No. 761763 101 Page 4 of 14 pages
- ----------------------- ---------------------
- ------------------------------------------------------------------------------
1 NAME OF REPORTING PERSONS
S.S. OR I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS
Jonathon S. Jacobson
- ------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) [_]
(b) [_]
- ------------------------------------------------------------------------------
3 SEC USE ONLY
- ------------------------------------------------------------------------------
4 SOURCE OF FUNDS
AF
- ------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(d) or 2(e) [_]
- ------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
United States
- ------------------------------------------------------------------------------
7 SOLE VOTING POWER
NUMBER OF 3,550,700
SHARES -----------------------------------------------------------
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY None
-----------------------------------------------------------
EACH 9 SOLE DISPOSITIVE POWER
REPORTING 3,550,700
PERSON -----------------------------------------------------------
10 SHARED DISPOSITIVE POWER
None
- ------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
3,550,700
- ------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
[_]
- ------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
5.5%
-----
- ------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON
IN
- ------------------------------------------------------------------------------
<PAGE>
SCHEDULE 13D
- ----------------------- ---------------------
CUSIP No. 761763 101 Page 5 of 14 pages
- ----------------------- ---------------------
- ------------------------------------------------------------------------------
1 NAME OF REPORTING PERSONS
S.S. OR I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS
Richard L. Grubman
- ------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) [_]
(b) [_]
- ------------------------------------------------------------------------------
3 SEC USE ONLY
- ------------------------------------------------------------------------------
4 SOURCE OF FUNDS
AF
- ------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(d) or 2(e) [_]
- ------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
United States
- ------------------------------------------------------------------------------
7 SOLE VOTING POWER
NUMBER OF 3,550,700
SHARES -----------------------------------------------------------
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY None
-----------------------------------------------------------
EACH 9 SOLE DISPOSITIVE POWER
REPORTING 3,550,700
PERSON -----------------------------------------------------------
10 SHARED DISPOSITIVE POWER
None
- ------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
3,550,700
- ------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
[_]
- ------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
5.5%
-----
- ------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON
IN
- ------------------------------------------------------------------------------
<PAGE>
Page 6 of 14 pages
Item 1. Security and Issuer.
-------------------
The securities to which this statement relates are the shares of common
stock, no par value (the "Shares"), of Reynolds Metals Company, a Delaware
corporation (the "Company"). The principal executive offices of the Company are
located at 6601 West Broad Street, P.O. Box 27003, Richmond, Virginia 23261-
7003.
Item 2. Identity and Background.
-----------------------
(a), (b) and (c) This statement is being filed by the following
persons: Highfields Capital Management LP, a Delaware limited partnership
("Highfields Capital Management"), Highfields GP LLC, a Delaware limited
liability company ("Highfields GP"), Jonathon S. Jacobson and Richard L.
Grubman. Highfields Capital Management, Highfields GP, Mr. Jacobson and Mr.
Grubman are sometimes individually referred to herein as a "Reporting Person"
and collectively as the "Reporting Persons" or "Highfields."
Highfields Capital Management is principally engaged in the business of
providing investment management services to the following investment funds:
Highfields Capital I LP, a Delaware limited partnership ("Highfields I"),
Highfields Capital II LP, a Delaware limited partnership ("Highfields II"), and
Highfields Capital Ltd., a company organized under the laws of the Cayman
Islands, B.W.I. ("Highfields Ltd." and, together with Highfields I and
Highfields II, the "Funds"). The business address and principal executive
offices of Highfields Capital Management are 200 Clarendon Street, 51st Floor,
Boston, Massachusetts 02117.
Highfields GP is the General Partner of Highfields Capital Management.
Highfields GP's principal business is serving as General Partner of Highfields
Capital Management. The business address and principal executive offices of
Highfields GP are 200 Clarendon Street, 51st Floor, Boston, Massachusetts 02117.
Mr. Jacobson is a Managing Member of Highfields GP and his business address
is 200 Clarendon Street, 51st Floor, Boston, Massachusetts 02117. Mr. Jacobson
also is a Managing Director of Highfields Capital Management and in such
capacity acts as a portfolio manager of the Funds.
Mr. Grubman is a Managing Member of Highfields GP and his business address
is 200 Clarendon Street, 51st Floor, Boston, Massachusetts 02117. Mr. Grubman
also is a Managing Director of Highfields Capital Management and in such
capacity acts as a portfolio manager of the Funds.
The Shares to which this Schedule 13D relates are owned directly by the
Funds.
(d) and (e) During the last five years, none of the persons identified in
this Item 2 has been convicted in any criminal proceeding (excluding traffic
violations or similar misdemeanors), or has been a party to any civil proceeding
of a judicial or administrative body of
<PAGE>
Page 7 of 14 pages
competent jurisdiction and as a result of such proceeding was or is subject to a
judgment, decree or final order enjoining future violations of, or prohibiting
or mandating activities subject to, federal or state securities laws or finding
any violations with respect to such laws.
(f) Each natural person identified in this Item 2 is a citizen of the
United States.
Item 3. Source and Amount of Funds or Other Consideration.
-------------------------------------------------
The aggregate purchase price of the 344,754 Shares owned by Highfields I
was $16,996,455.91, inclusive of brokerage commissions.
The aggregate purchase price of the 660,043 Shares owned by Highfields II
was $32,213,446.65, inclusive of brokerage commissions.
The aggregate purchase price of the 2,545,903 Shares owned by Highfields
Ltd. was $125,996,342.20, 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 4. Purpose of Transaction.
----------------------
From time to time, each of the Funds has acquired Shares in the ordinary
course of business for investment purposes and has held Shares in such capacity.
On February 16, 1999, representatives of Highfields met with management of
the Company to discuss the Company's performance since the initiation in late
1996 of management's portfolio review of the Company's businesses. In
particular, Highfields expressed its views concerning potential alternatives
that it believed management should consider to maximize value for all
shareholders of the Company. Following this meeting, by a letter dated February
16, 1999 (a copy of which is attached as an exhibit to this Schedule 13D)
Highfields notified the Company in accordance with the Company's By-laws of its
intent to present a proposal (the "Proposal") at the Company's 1999 Annual
Meeting of Stockholders (the "1999 Annual Meeting"). The Proposal requests that
the Company retain an investment banking firm to explore strategic alternatives
for maximizing shareholder value. Highfields also requested that the Proposal
be included in the Company's proxy statement for the 1999 Annual Meeting and the
accompanying proxy card.
By a letter dated February 25, 1999 (a copy of which is attached as an
exhibit to this Schedule 13D), the Company informed Highfields that the Company
would not include the Proposal in the proxy statement for the 1999 Annual
Meeting and the accompanying proxy card, and, pursuant to a letter dated March
1, 1999 (a copy of which is attached as an exhibit to this Schedule 13D), the
Company so informed the Securities and Exchange Commission (the "Commission").
However, based on conversations with the Company's management, Highfields was
informed that the Company would permit it to present the Proposal at the 1999
Annual
<PAGE>
Page 8 of 14 pages
Meeting in accordance with the Company's By-laws. Pursuant to a letter dated
March 1, 1999 (a copy of which is attached as an exhibit to this Schedule 13D),
Highfields responded to the Company's February 25, 1999 letter to confirm that
the Company would permit Highfields to present the Proposal at the 1999 Annual
Meeting, consistent with the conversations between Highfields and the Company's
management. In its March 1, 1999 letter, Highfields also sought to confirm that
disclosure of the Proposal would be contained in the Company's proxy statement
for the 1999 Annual Meeting in accordance with the anti-fraud provisions of the
Securities Exchange Act of 1934. In its March 1, 1999 letter to the Commission,
the Company represented to the Commission that the Company's proxy statement
relating to the 1999 Annual Meeting would contain certain disclosure regarding
the Proposal.
Pursuant to a letter dated March 5, 1999 (a copy of which is attached as an
exhibit to this Schedule 13D), Highfields expressed additional views concerning
the commitment of the Company's management to maximizing shareholder value.
However, to date, Highfields believes that management of the Company has not
indicated a willingness to follow Highfields' suggestions or recommendations.
Accordingly, Highfields currently intends to attend and present the Proposal at
the 1999 Annual Meeting.
Highfields believes that the Company has not been fully committed to
maximizing shareholder value. Beginning in late 1996, the Company initiated a
portfolio review of all of its businesses and hired Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("Merrill Lynch") as its financial advisor for that
process. Highfields believes that management of the Company should now
explicitly commit to the shareholders to direct Merrill Lynch (or retain another
investment banking firm) to explore all alternatives to maximize shareholder
value, including without limitation, a sale, spin-off or split-off of some or
all of the Company's business units or assets, with no prejudice for or against
any particular alternative. In addition, Highfields believes that the Company
should establish an independent committee of the Board of Directors of the
Company to assist management in monitoring Merrill Lynch's (or such other
investment banking firm's) progress.
In addition to the foregoing, Highfields may consider the feasibility and
advisability of various alternative courses of action with respect to its
investment in the Company, and Highfields reserves the right, subject to
applicable law, (i) to hold its Shares as a passive investor or as an active
investor (whether or not as a member of a "group" with other beneficial owners
of Shares or otherwise), (ii) to acquire beneficial ownership of additional
Shares in the open market, in privately negotiated transactions or otherwise,
(iii) to dispose of all or part of its holdings of Shares, (iv) to take other
actions which could involve one or more of the types of transactions or have one
or more of the results described in Item 4 of this Schedule 13D, or (v) to
change its intention with respect to any or all of the matters referred to in
this Item 4. Highfields' decisions and actions with respect to such
possibilities will depend upon a number of factors, including, but not limited
to, the actions of the Company, market activity in the Shares, an evaluation of
the Company and its prospects, general market and economic conditions,
conditions specifically affecting Highfields and other factors which Highfields
may deem relevant to its investment decisions.
Except as set forth herein, no contract, arrangement, relationship or
understanding (either oral or written) exists among the Reporting Persons as to
the acquisition, disposition, voting or holding of Shares. Except as set forth
herein, no Reporting Person has any present plan or proposal that would result
in or relate to any of the transactions required to be described in Item 4 of
Schedule 13D.
<PAGE>
Page 9 of 14 pages
Item 5. Interest in Securities of Issuer.
--------------------------------
(a) and (b) As of March 16, 1999, Highfields I, Highfields II and
Highfields Ltd. owned beneficially 344,754, 660,043 and 2,545,903 Shares,
respectively, representing approximately 0.5%, 1.0% and 4.0%, respectively, of
the 64,456,697 Shares outstanding as of October 30, 1998, as reported in the
Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998
(the "Form 10-Q").
As of March 16, 1999, Highfields Capital Management in its capacity as
investment manager of the Funds, had sole voting and dispositive power with
respect to all 3,550,700 Shares owned beneficially by the Funds, representing
approximately 5.5% of the 64,456,697 Shares outstanding as of October 30, 1998,
as reported in the Form 10-Q.
As of March 16, 1999, Highfields GP, through its control of Highfields
Capital Management, had sole voting and dispositive power with respect to all
3,550,700 Shares owned beneficially by Highfields Capital Management,
representing approximately 5.5% of the 64,456,697 Shares outstanding as of
October 30, 1998, as reported in the Form 10-Q.
As of March 16, 1999, Mr. Grubman, as a Managing Member of Highfields GP,
had sole voting and dispositive power with respect to all 3,550,700 Shares owned
beneficially by Highfields GP, representing approximately 5.5% of the 64,456,697
Shares outstanding as of October 30, 1998, as reported in the Form 10-Q.
As of March 16, 1999, Mr. Jacobson, as a Managing member of Highfields GP,
had sole voting and dispositive power with respect to all 3,550,700 Shares owned
beneficially by Highlands GP, representing approximately 5.5% of the 64,456,697
Shares outstanding as of October 30, 1998, as reported in the Form 10-Q.
(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 this Schedule 13D, 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.
<PAGE>
Page 10 of 14 pages
Item 7. Material to be Filed as Exhibits.
--------------------------------
The following documents are filed as exhibits to this Schedule 13D:
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.
------------
<PAGE>
Page 11 of 14 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: March 17, 1999 By: Highfields Capital Management LP
By: Highfields GP LLC, as General Partner
By: /s/ Richard L. Grubman
-------------------------------------
Richard L. Grubman,
Managing Member
By: Highfields GP LLC
By: /s/ Richard L. Grubman
--------------------------------------
Richard L. Grubman,
Managing Member
By: /s/ Richard L. Grubman
-------------------------------------------
Richard L. Grubman, individually
By: /s/ Jonathon S. Jacobson
----------------------------------------
Jonathon S. Jacobson, individually
<PAGE>
Page 12 of 14 pages
Schedule A
----------
INFORMATION WITH RESPECT TO TRANSACTIONS
OF THE REGISTRANT'S COMMON STOCK
BY HIGHFIELDS I DURING THE PAST SIXTY DAYS
<TABLE>
<CAPTION>
Number of Shares
of Common Stock Price
Date Purchased/(Sold)/1/ Per Share
---- ------------------- ---------
<S> <C> <C>
1/19/1999 9,353.00 $52.8694
1/19/1999 460.00 53.1025
1/20/1999 17,143.00 52.4961
1/20/1999 726.00 51.9254
1/21/1999 851.00 52.0500
1/22/1999 4,981.00 49.9365
1/22/1999 2,418.00 49.9750
1/25/1999 2,418.00 49.2844
1/25/1999 12,090.00 49.0500
1/25/1999 8,463.00 49.4480
1/26/1999 6,173.00 49.6125
1/26/1999 1,852.00 49.2900
1/27/1999 2,418.00 48.4025
1/27/1999 484.00 48.0300
2/03/1999 2,000.00 45.9633
2/04/1999 47,975.00 47.5500
2/10/1999 3,212.00 46.8319
2/10/1999 1,515.00 46.8942
2/11/1999 2,020.00 46.5459
2/11/1999 11,363.00 46.5611
3/11/1999 780.00 44.0500
3/11/1999 7,661.00 44.0576
3/12/1999 12,129.00 43.8006
3/12/1999 15,722.00 43.7557
3/12/1999 492.00 43.7388
3/15/1999 4,855.00 43.3478
3/15/1999 8,144.00 43.4250
3/15/1999 2,874.00 43.2573
3/16/1999 4,360.00 43.4250
3/16/1999 10.00 43.3640
3/16/1999 6,797.00 43.3836
3/16/1999 9,710.00 43.4352
Total: 211,449.00
</TABLE>
/1/ All transactions were effected through open market or privately negotiated
purchases.
<PAGE>
Page 13 of 14 pages
INFORMATION WITH RESPECT TO TRANSACTIONS
OF THE REGISTRANT'S COMMON STOCK
BY HIGHFIELDS II DURING THE PAST SIXTY DAYS
<TABLE>
<CAPTION>
Number of Shares
of Common Stock Price
Date Purchased/(Sold)/1/ Per Share
---- ------------------ ---------
<S> <C> <C>
1/19/1999 3,945.00 52.8694
1/19/1999 194.00 53.1025
1/20/1999 11,465.00 52.4961
1/20/1999 485.00 51.9254
1/21/1999 3,184.00 52.0500
1/22/1999 3,331.00 49.9365
1/22/1999 1,617.00 49.9750
1/25/1999 8,085.00 49.0500
1/25/1999 5,660.00 49.4480
1/25/1999 1,617.00 49.2844
1/26/1999 9,499.00 49.6125
1/26/1999 2,849.00 49.2900
1/27/1999 323.00 48.0300
1/27/1999 1,617.00 48.4025
1/28/1999 19,000.00 48.5500
1/29/1999 23,963.00 48.3000
2/02/1999 9,000.00 46.0285
2/03/1999 9,435.00 45.9633
2/04/1999 91,058.00 47.5500
2/10/1999 2,876.00 46.8942
2/10/1999 6,096.00 46.8319
2/11/1999 21,566.00 46.5611
2/11/1999 3,834.00 46.5459
3/11/1999 2,752.00 44.0500
3/11/1999 22,624.00 44.0576
3/12/1999 30,628.00 43.8006
3/12/1999 34,988.00 43.7557
3/12/1999 1,084.00 43.7388
3/15/1999 9,295.00 43.3478
3/15/1999 16,389.00 43.4250
3/15/1999 5,503.00 43.2573
3/16/1999 8,347.00 43.4250
3/16/1999 19.00 43.3637
3/16/1999 13,013.00 43.3836
3/16/1999 18,590.00 43.4352
Total: 403,941.00
</TABLE>
/1/ All transactions were effected through open market or privately negotiated
purchases.
<PAGE>
Page 14 of 14 pages
INFORMATION WITH RESPECT TO TRANSACTIONS
OF THE REGISTRANT'S COMMON STOCK
BY HIGHFIELDS LTD. DURING THE PAST SIXTY DAYS
<TABLE>
<CAPTION>
Number of Shares
of Common Stock Price
Date Purchased/(Sold)/1/ Per Share
---- ------------------- ---------
<S> <C> <C>
1/19/1999 11,102.00 52.8694
1/20/1999 32,260.00 52.4961
1/20/1999 1,365.00 51.9254
1/20/1999 10,032.00 52.4961
1/20/1999 424.00 51.9254
1/21/1999 1,415.00 52.0500
1/21/1999 4,550.00 52.0500
1/22/1999 9,373.00 49.9365
1/22/1999 4,550.00 49.9750
1/22/1999 1,415.00 49.9750
1/22/1999 2,915.00 49.9365
1/25/1999 22,750.00 49.0500
1/25/1999 15,925.00 49.4480
1/25/1999 4,550.00 49.2844
1/25/1999 4,952.00 49.4480
1/25/1999 1,415.00 49.2844
1/25/1999 7,075.00 49.0500
1/26/1999 8,001.00 49.6125
1/26/1999 2,400.00 49.2900
1/26/1999 26,327.00 49.6125
1/26/1999 7,899.00 49.2900
1/27/1999 910.00 48.0300
1/27/1999 4,550.00 48.4025
1/27/1999 1,415.00 48.4025
1/27/1999 283.00 48.0300
1/28/1999 16,000.00 48.5500
1/28/1999 65,000.00 48.5500
1/29/1999 31,612.00 48.3000
1/29/1999 69,425.00 48.3000
2/02/1999 42,000.00 46.0285
2/02/1999 9,000.00 46.0285
2/03/1999 7,831.00 45.9633
2/03/1999 24,734.00 45.9633
2/04/1999 79,752.00 47.5500
2/04/1999 256,215.00 47.5500
2/10/1999 8,091.00 46.8942
2/10/1999 17,153.00 46.8319
2/10/1999 5,339.00 46.8319
2/10/1999 2,518.00 46.8942
2/11/1999 3,358.00 46.5459
2/11/1999 18,889.00 46.5611
2/11/1999 10,788.00 46.5459
2/11/1999 60,682.00 46.5611
3/11/1999 6,468.00 44.0500
3/11/1999 44,915.00 44.0576
3/12/1999 43,990.00 43.7557
3/12/1999 49,243.00 43.8006
3/12/1999 1,324.00 43.7388
3/15/1999 15,482.00 43.4250
3/15/1999 4,277.00 43.2573
3/15/1999 7,225.00 43.3478
3/15/1999 21,840.00 43.3478
3/15/1999 12,929.00 43.2573
3/15/1999 8,637.00 43.4250
3/15/1999 6,785.00 43.3478
3/15/1999 4,017.00 43.2573
3/15/1999 6,348.00 43.4250
3/16/1999 43,680.00 43.4352
3/16/1999 19,612.00 43.4250
3/16/1999 44.00 43.3639
3/16/1999 30,576.00 43.3836
3/16/1999 14.00 43.3636
3/16/1999 9,499.00 43.3836
3/16/1999 6,093.00 43.4250
3/16/1999 13,570.00 43.4352
3/16/1999 13.00 43.3638
3/16/1999 10,115.00 43.3836
3/16/1999 14,450.00 43.4352
3/16/1999 6,488.00 43.4250
Total: 1,303,874.00
</TABLE>
/1/ All transactions were effected through open market or privately negotiated
purchases.
<PAGE>
[HIGHFIELDS CAPITAL LETTERHEAD APPEARS HERE]
Exhibit 99.1
Tuesday, February 16, 1999
By Personal Delivery
- --------------------
Mr. Jeremiah J. Sheehan
Chairman of the Board and
Chief Executive Officer
Reynolds Metals Company
6601 West Broad Street
Richmond, Virginia 23230
Dear Jerry:
As we mentioned to you at our meeting today, Highfields Capital is
submitting the attached written notice of a stockholder proposal in order to
preserve our flexibility to present it at the 1999 Annual Meeting. As you are
aware, we need to submit this proposal today to be sure to make the deadline for
submitting such a proposal under the Company's By-Laws. We look forward to
having further discussions with you in the weeks ahead and hope that our
concerns as investors in the Company can be addressed. Again, thank you for
taking the time to meet with us today.
Sincerely,
/s/ Richard L. Grubman
Richard L. Grubman
Managing Director
<PAGE>
[HIGHFIELDS CAPITAL LETTERHEAD APPEARS HERE]
Tuesday, February 16, 1999
By Personal Delivery
- --------------------
Ms. Donna C. Dabney
Secretary
Reynolds Metals Company
6601 West Broad Street
Richmond, Virginia 23230
Dear Ms. Dabney:
In accordance with Article II, Section 4 of the by-laws of Reynolds Metals
Company (the "Company"), Highfields Capital I LP ("Highfields"), the record
owner of 100 shares of the Company's common stock as of the date hereof, is
hereby furnishing written notice of business to be brought before the Company's
1999 Annual Meeting. Highfields Capital Management LP, the investment advisor
to Highfields, is the beneficial owner of 2,926,300 shares of the Company's
common stock.
In accordance with clause (iii) of Article II, Section 4 of the Company's
by-laws, Highfields' notice hereby sets forth the following information:
(a) Business Proposed to be Brought Before the Meeting. Highfields hereby
--------------------------------------------------
submits the following proposal for presentation at the 1999 Annual Meeting:
"Resolved, that shareholders ask the Board of Directors of the Company
to retain an investment banking firm to explore strategic alternatives for
maximizing shareholder value."
Supporting statement:
"Notwithstanding the Company's operational improvements since the
initiation of management's portfolio review restructuring program in
October 1996, the Company's stock has remained depressed and has been
dramatically underperforming the stock of other aluminum companies for a
significant period of time. Over the past five years the Company's stock
has fallen approximately 11%; since October 1996, it has fallen
approximately 17%. The Company's current share price does not reflect the
substantial value that we believe could be realized by separating the
Company's Packaging and Consumer business unit from its Base Materials and
other business units.
Comparable packaging and consumer companies currently trade at
valuations which we believe imply that a conservative value of this
business unit represents at least $35 per share of Company common stock.
Alternatively, we believe that current valuations of comparable alumina and
aluminum production capacity imply a conservative valuation for the
<PAGE>
Ms. Donna C. Dabney
February 16, 1999
Page 2
Company's Base Materials business unit, net of the Company's debt and based
on the current price and outlook for aluminum, of at least $60 per share.
In addition, the Company operates business units in Construction and
Distribution and Transportation. In summary, based on a sum of the parts
analysis, we believe that the total value of the Company's business units
net of debt exceeds its current market capitalization by over one hundred
percent.
Because maintaining the status quo has not and is unlikely to unlock
this value, the Board of Directors should retain an investment banking firm
to explore all strategic alternatives for maximizing shareholder value,
including, but not limited to, a sale, spin-off or split-off of some or all
of the Company's business units or assets."
(b) Person Proposing to Bring Such Business Before the Meeting.
----------------------------------------------------------
Highfields Capital I LP
200 Clarendon Street
Boston, MA 02117
Attention: Richard Grubman
(c) Class and Number of Shares Held. Highfields is the record owner of 100
-------------------------------
shares and the beneficial owner of 271,220 shares of the Company's common
stock as of the date of this notice, representing approximately .00016% and
0.42%, respectively, of the outstanding shares of the Company's common
stock/1/. Highfields does not have the right to vote any other shares of
the Company's common stock pursuant to a proxy or other voting arrangement.
The following table sets forth the beneficial ownership of the Company's
common stock by Highfields and its affiliates.
<TABLE>
<CAPTION>
Percentage
Name Amount of Class/1/
---- ------ -----------
<S> <C> <C>
Highfields Capital I LP 271,220 0.42%
Highfields Capital II LP 496,811 0.77%
Highfields Capital Ltd. 2,158,269 3.35%
---------- ----
Highfields Capital 2,926,300/2/ 4.54%
Management LP
</TABLE>
Highfields is not aware of any announcement by the Company of a record date
for the 1999 Annual Meeting.
(d) Information Regarding Director Nominees(s). Not applicable.
------------------------------------------
(e) Other Information. Highfields, Highfields Capital II LP and Highfields
-----------------
Capital Ltd. (collectively, the "Funds") are investment funds, and
Highfields Capital Management LP, the investment advisor to the Funds (the
"Investment Advisor"), is primarily engaged in the business of investment
management. The principal business address of the Investment Advisor and
each of the
- ------------------
/1/ Based on 64,456,697 total shares outstanding as reported in the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1998.
/2/ Represents shares beneficially owned by Highfields, Highfields Capital II LP
and Highfields Capital Ltd. Highfields Capital Management LP is the
investment advisor to Highfields, Highfields Capital II LP and Highfields
Capital Ltd.
<PAGE>
Ms. Donna C. Dabney
February 16, 1999
Page 3
Funds, except Highfields Capital Ltd., is 200 Clarendon Street, Boston,
Massachusetts 02117, and the telephone number there is (617) 850-7500. The
principal business address of Highfields Capital Ltd. is c/o Goldman Sachs
(Cayman) Trust Limited, Harbor Center, 2nd Floor, P.O. Box 896, George
Town, Grand Cayman, Cayman Islands, B.W.I., and the telephone number there
is 345-949-6770. As of the date of this notice, each of the Funds and the
Investment Advisor beneficially owned the shares of Company common stock
set forth in paragraph (c) above.
Except as set forth in this notice, to the best knowledge of each of the
Funds and the Investment Advisor, none of such persons or any associate of any
of the foregoing persons (i) has a substantial interest, direct or indirect, by
security holdings or otherwise, in any matter to be acted upon at the 1999
Annual Meeting, (ii) owns beneficially, directly or indirectly, or has the right
to acquire, any securities of the Company or any parent or subsidiary of the
Company, (iii) owns any securities of the Company of record but not
beneficially, (iv) has incurred indebtedness for the purpose of acquiring or
holding securities of the Company, (v) is or has been a party to any contract,
arrangement or understanding with respect to any securities of the Company
within the past year, (vi) has been indebted to the Company or any of its
subsidiaries since the beginning of the Company's last fiscal year or (vii) has
any arrangement or understanding with respect to future employment by the
Company or with respect to any future transactions to which the Company or any
of its affiliates will or may be a party. In addition, except as set forth in
this notice, to the best knowledge of each of the Funds and the Investment
Advisor, none of such persons or any associate or immediate family member of any
of the foregoing persons has had or is to have a direct or indirect material
interest in any transaction with the Company since the beginning of the
Company's last fiscal year, or any proposed transaction, to which the Company or
any of its affiliates was or is a party.
Highfields presently does not intend to solicit proxies relating to the
aforementioned business proposed to be brought before the Company's 1999 Annual
Meeting and therefore is not filing a proxy statement. Accordingly, we
respectfully request that the Company include with its proxy statement for the
1999 Annual Meeting Highfields' proposal as presented above and boxes on the
accompanying proxy card to permit stockholders of the Company to express their
approval or disapproval for this proposal.
Thank you for your assistance.
Sincerely,
/s/ Kenneth H. Colburn
Kenneth H. Colburn
Chief Operating Officer
<PAGE>
Exhibit 99.2
[REYNOLDS METALS COMPANY LETTERHEAD]
February 25, 1999
By DHL
- ------
Mr. Kenneth H. Colburn
Chief Operating Officer
Highfields Capital I LP
200 Clarendon Street
Boston, Massachusetts 02117
Dear Mr. Colburn:
This is in reference to your letter dated February 16, 1999 to Donna C.
Dabney, furnishing written notice of business to be brought before Reynolds
Metals Company's 1999 Annual Meeting of Stockholders by Highfields Capital I LP
("Highfields" or "you").
In accordance with Rule 14a-8(f) under the Securities Exchange Act of 1934,
Reynolds notifies you of the following:
1. Your letter did not indicate that Highfields had continuously held
Reynolds common stock for at least one year as of February 16, 1999. Reynolds'
stock records show that Highfields became a holder of record on February 11,
1999. Please provide appropriate evidence that Highfields has continuously held
Reynolds shares for at least one year before Highfields' submission of the
proposal, as required under Rule 14a-8(b).
2. Your letter did not indicate that Highfields intends to continue to
hold shares of Reynolds common stock through the date of Reynolds' 1999 Annual
Meeting. Please provide an appropriate written statement that Highfields intends
to continue ownership of Reynolds shares through the date of Reynolds' 1999
Annual Meeting as required under Rule 14a-8(b).
3. Reynolds has determined that your proposal was not timely received for
purposes of Rule 14a-8. Under Rule 14a-8(e)(2), the deadline for receipt of
stockholder proposals to be included in Reynolds' proxy materials for its 1999
Annual Meeting was November 18, 1998. This deadline was stated in Reynolds' 1998
proxy statement and in its Form 10-Q for the quarter ended June 30, 1998.
Reynolds intends to exclude your proposal and supporting
<PAGE>
Highfields Capital I LP
February 25, 1999
Page 2
statement from its proxy materials on this basis. Reynolds also reserves the
right to exclude your proposal to the extent it is permitted to do so under any
other provision of Rule 14a-8.
Reynolds would appreciate receiving Highfields' response to Items 1 and 2
above by March 12, 1999.
Very truly yours,
/s/ Brenda Hart
Brenda A. Hart
<PAGE>
Exhibit 99.3
[REYNOLDS METALS COMPANY LETTERHEAD]
March 1, 1999
By DHL
- ------
Mr. Kenneth H. Colburn
Chief Operating Officer
Highfields Capital I LP
200 Clarendon Street
Boston, Massachusetts 02117
Dear Mr. Colburn:
Enclosed is a copy of a letter mailed today to the Securities and Exchange
Commission on behalf of Reynolds Metals Company in accordance with Rule 14a-8(j)
under the Securities Exchange Act of 1934.
Very truly yours,
/s/ Brenda Hart
-------------------------
Brenda A. Hart
Enclosure
<PAGE>
[REYNOLDS METALS COMPANY LETTERHEAD]
March 1, 1999
By DHL
- ------
Securities and Exchange Commission 1934 Act/Rule 14a-8
Office of Chief Counsel 1934 Act/Rule 14a-4
Division of Corporation Finance
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Reynolds Metals Company
1999 Annual Meeting of Stockholders
Stockholder Proposal Submitted by Highfields Capital I LP
Ladies and Gentlemen:
On behalf of Reynolds Metals Company, a Delaware corporation (the
"Company"), I respectfully request that the Commission staff concur in my
opinion that:
1. the Company may properly exclude a stockholder proposal submitted by
Highfields Capital I LP (the "Proponent") from the Company's proxy
statement and form of proxy for the Company's 1999 Annual Meeting of
Stockholders, on the bases discussed below under Rule 14a-8 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"); and
2. if the proposal is excluded under Rule 14a-8, the Company's proxy statement
and form of proxy for the 1999 Annual Meeting may confer discretionary
authority to vote with respect to the proposal, should it be presented at
the 1999 Annual Meeting, in reliance on Rule 14a-4(c)(2) under the Exchange
Act, so long as the Company advises stockholders of the nature of the
proposal and how the Company intends to vote with respect to such proposal.
STOCKHOLDER PROPOSAL
--------------------
The Company received a letter dated February 16, 1999 from the Proponent
"furnishing written notice of business to be brought before the Company's 1999
Annual Meeting." The letter stated that the Proponent was submitting the
following proposal for presentation at the 1999 Annual Meeting:
<PAGE>
Securities and Exchange Commission
Office of Chief Counsel
March 1, 1999
Page 2
"Resolved, that shareholders ask the Board of Directors of the Company to
retain an investment banking firm to explore strategic alternatives for
maximizing shareholder value."
The letter further stated that:
"Highfields presently does not intend to solicit proxies relating to the
aforementioned business proposed to be brought before the Company's 1999
Annual Meeting and therefore is not filing a proxy statement. Accordingly,
we respectfully request that the Company include with its proxy statement
for the 1999 Annual Meeting Highfields' proposal as presented above and
boxes on the accompanying proxy card to permit stockholders of the Company
to express their approval or disapproval for this proposal."
THE COMPANY'S POSITION
----------------------
I. The Company believes that the proposal may be properly excluded from its
proxy statement and form of proxy on each of the separately sufficient bases
under Rule 14a-8 discussed below.
A. THE PROPOSAL WAS NOT TIMELY RECEIVED UNDER QUESTION 5,
------------------------------------------------------
RULE 14a-8(e)(2).
- -----------------
Under Question 5, Rule 14a-8(e)(2), for a company to be required to include
a stockholder proposal in its proxy materials, "[t]he proposal must be received
at the company's principal executive offices not less than 120 calendar days
before the date of the company's proxy statement released to shareholders in
connection with the previous year's annual meeting." As noted in Rule
14a-8(e)(1), the deadline for submission in most cases appears in a company's
prior year's proxy statement for the prior year's annual meeting.
The Company's proxy statement for its 1998 Annual Meeting stated that
stockholder proposals "must be received by November 18, 1998 in order to be
included in the proxy materials for the 1999 Annual Meeting." As the date of the
Company's 1998 proxy statement was March 18, 1998, the proper deadline for
submission of a proposal for the 1999 Annual Meeting was November 18, 1998. The
Company also disclosed this deadline in its Form 10-Q for the quarter ended
June 30, 1998.
<PAGE>
Securities and Exchange Commission
Office of Chief Counsel
March 1, 1999
Page 3
The Company received the Proponent's proposal on February 16, 1999, a date
well beyond the November 18, 1998 deadline for submitting a proposal under Rule
14a-8(e)(2). As the Proponent has failed to submit the proposal by the Company's
properly determined deadline, the proposal is properly excludable from the
Company's proxy statement and form of proxy for the 1999 Annual Meeting under
Rule 14a-8(e)(2).
B. THE PROPONENT HAS NOT COMPLIED WITH THE ELIGIBILITY REQUIREMENTS UNDER
----------------------------------------------------------------------
QUESTION 2, RULE 14a-8(b).
- --------------------------
Under Question 2, Rule 14a-8(b), to be eligible to submit a proposal, a
proponent must furnish the company with appropriate evidence that it has
continuously held the company's securities for at least one year by the date it
submits the proposal and a written statement that it intends to continue to hold
the securities through the date of the meeting of shareholders. Here, the
Proponent has not complied with these requirements. The Company has notified the
Proponent of these deficiencies in its proposal under Rule 14a-8(b) and
requested its response by March 12, 1999.
C. THE PROPOSAL MAY BE OMITTED UNDER QUESTION 9, RULE 14a-8(i)(3),
---------------------------------------------------------------
BECAUSE IT CONTAINS STATEMENTS THAT ARE CONTRARY TO THE COMMISSION'S
- --------------------------------------------------------------------
PROXY RULES.
- ------------
Under Question 9, Rule 14a-8(i)(3), a company may exclude a stockholder
proposal if the proposal or supporting statement is contrary to any of the
Commission's proxy rules, including Rule 14a-9, which prohibits materially false
or misleading statements in proxy soliciting materials.
The Company believes the following portions of the supporting statement,
which contain predictions of future market values, are potentially false and
misleading in contravention of Rule 14a-9:
Supporting Statement (second paragraph)
"Comparable packaging and consumer companies currently trade at valuations
which we believe imply that a conservative value of this business unit
represents at least $35 per share of Company common stock. Alternatively,
we believe that current valuations of comparable alumina and aluminum
production capacity imply a conservative valuation for the Company's Base
Materials business unit, net of the Company's debt and based on the current
price and outlook for aluminum, of at least $60 per share. In addition, the
Company operates business units in Construction and Distribution and
Transportation. In
<PAGE>
Securities and Exchange Commission
Office of Chief Counsel
March 1, 1999
Page 4
summary based on a sum of the parts analysis, we believe that the total
value of the Company's business units net of debt exceeds its current
market capitalization by over one hundred percent."
The above statements suggest that the Company's packaging and consumer
business unit and its base materials business unit would have future market
values of at least $35 and $60 per share, respectively, if such business units
were separated from each other and from the Company's other business operations
and traded separately. While these values may represent a good faith opinion of
the Proponent, the Company believes such values are potentially misleading in
this context. Specifically, the Proponent fails to provide information necessary
to enable stockholders to judge the validity of the Proponent's valuations. For
example, no statement is given of the methodology used by the Proponent in
valuing the business units, nor is any basis provided for the assertion that the
Proponent's value estimates are "conservative." Further, the supporting
statement fails to identify the companies comprising the "[c]omparable packaging
and consumer companies" or the "comparable alumina and aluminum production
capacity." Also, the supporting statement fails to disclose any limitations on,
or qualifications to, the Proponent's value estimates that might indicate that
such values may not represent realizable values, except for the clause stating
that the value of the base materials business unit is "net of the Company's debt
and based on the current price and outlook for aluminum."
In Exchange Act Release No. 16833 (May 23, 1980), the Commission cited the
risk of misleading disclosure in situations where "those sponsoring the proposal
have projected the dollar amount per share to be available to shareholders if
such proposal is effected." The use of such valuation estimates was found to be
"only appropriate and consonant with Rule 14a-9... when made in good faith and
on a reasonable basis and where accompanied by disclosure which facilitates
shareholders' understanding of the basis for and the limitations on the
projected realizable values."
The Commission has consistently maintained this view for valuations
presented in connection with stockholder proposals to sell or merge the
corporation or to consider strategic options such as divesting business units.
See First Bell Bancorp, Inc. (January 28, 1999) (supporting statement which
- ----------------------------
included the proponent's appraisal of the company's stock price after a sale or
merger must be deleted or revised); SL Industries, Inc. (September 3, 1997)
-------------------
(supporting statement which included the proponent's valuation of the company
and projection of the company's price per share in connection with a sale or
spinoff of certain businesses must be deleted or revised); Portsmouth Bank
----------------
Shares, Inc. (February 24, 1993) (supporting statement which included the
- ------------
proponent's appraisal of the price per share of the company's stock in
connection with a proposal to sell, merge or liquidate the company must be
deleted or revised); and P&F Industries, Inc. (March 19, 1991) (supporting
--------------------
statement which included the proponent's
<PAGE>
Securities and Exchange Commission
Office of Chief Counsel
March 1, 1999
Page 5
assertions regarding the book value of the company's common stock in connection
with a proposal to sell certain subsidiaries must be deleted or revised).
Accordingly, the Company believes the proposal is properly excludable under
Rule 14a-8(i)(3) because it contains statements that are contrary to the
Commission's proxy rules.
D. THE PROPOSAL MAY BE OMITTED UNDER QUESTION 9, RULE 14a-8(i)(10),
----------------------------------------------------------------
BECAUSE THE COMPANY HAS ALREADY SUBSTANTIALLY IMPLEMENTED THE PROPOSAL.
- -----------------------------------------------------------------------
Under Question 9, Rule 14a-8(i)(10), a company may omit a proposal from its
proxy materials if the company has already substantially implemented the
proposal. The proposal here asks the Board of Directors of the Company to retain
an investment banking firm to explore strategic alternatives for maximizing
shareholder value. As explained below, the Company has already retained an
investment banking firm to evaluate various business alternatives to enhance
shareholder value, including those suggested by the Proponent.
The Company began a "portfolio review" of all of its businesses in late
1996. In that connection, on December 2, 1996, the Company retained the
investment banking firm of Merrill Lynch, Pierce, Fenner & Smith Incorporated
("Merrill Lynch") as its financial advisor to undertake a comprehensive study
and analysis of the Company's businesses and strategic alternatives, including
recapitalizations, spin-offs, split-offs, tracking stock, dispositions,
acquisitions or other similar transactions. Pursuant to its engagement, Merrill
Lynch made a full presentation to the Company's Board of Directors in February
1997 regarding the advantages and disadvantages of spinning off portions of the
Company's business, including its packaging and consumer business unit. After
due consideration of the presentation, the Board of Directors-- which is
composed of a majority of "non-employee" or "outside directors"-- ultimately
decided to approve the sale of the Company's North American can business, along
with certain other underperforming and non-core assets. The Board determined,
however, that it was in the Company's best interests to retain its other
businesses as a unit. Since that time, the Company has been implementing the
restructuring plan approved by the Board. The Company's filings under the
Exchange Act have described in detail the Company's progress to date in that
regard. In late 1998, the issue of spinning off portions of the Company's
business was re-examined by the Board at a strategic planning meeting, and the
decision remained unchanged.
Merrill Lynch is continuing to advise the Company in 1999 in connection
with the Company's current strategic planning process.
<PAGE>
Securities and Exchange Commission
Office of Chief Counsel
March 1, 1999
Page 6
The Company believes that the above facts demonstrate that the Company has
already taken the specific action called for by the proposal. Requiring the
Board to repeat the process with the assistance of other or additional
investment bankers would be a waste of corporate assets.
The circumstances in this case are analogous to those in other recent cases
in which the Division has granted no-action relief. See Baldwin Piano and Organ
---------------------------
Company (March 27, 1997) (proposal for company to hire an investment banker to
- -------
explore all alternatives to enhance shareholder values, including a sale, merger
or other business combination, excludable where company had already retained
Lehman Brothers Inc. to assist in the review, development and implementation of
its strategic plan, with the focus on maximizing shareholder value); Bindley
-------
Western Industries, Inc. (February 21, 1997) (proposal for company to hire an
- ------------------------
investment banker to explore all alternatives to enhance the value of the
company, including a sale of merger, excludable where the company had already
retained Salomon Brothers Inc and Smith Barney Inc. to assist it in evaluating
various business alternatives, including those suggested by the proponent);
Stone & Webster, Incorporated (February 22, 1996) (proposal for company to
- -----------------------------
retain an investment banking firm to explore alternatives, including a sale or
merger, excludable where company had already retained Goldman, Sachs & Co. as
its financial advisor to review and evaluate the company); and Borden, Inc.
------------
(February 23, 1994) (proposal for company to undertake an investment banking
study to determine company's value if non-food businesses were divested
excludable where company had already retained investment banking firms to
evaluate various business alternatives, including the one suggested by the
proponent).
The circumstances in this case are distinguishable from the situations where the
Division has not agreed that the company had already substantially implemented a
proposal to hire an investment banking firm. See Kiddie Products, Inc.
---------------------
(February 9, 1989) (where board of directors had recently twice considered the
hiring of an investment banker, but never made a determination to so retain
one); and EDO Corporation (February 16, 1995) (where company would consult with
---------------
investment bankers when it deemed it appropriate to explore business
alternatives for the company). Unlike the facts in those cases, the Company has
not merely considered hiring an investment banking firm or occasionally
consulted with such a firm, but instead has actually engaged an investment
banking firm.
Accordingly, the Company believes the proposal is properly excludable under
Rule 14a-8(i)(10) because the Company has already substantially implemented the
proposal.
<PAGE>
Securities and Exchange Commission
Office of Chief Counsel
March 1, 1999
Page 7
II. The Company's proxy statement and form of proxy for the 1999 Annual Meeting
may confer discretionary authority to vote with respect to the proposal should
it be presented at the 1999 Annual Meeting, in reliance on Rule 14a-4(c)(2)
under the Exchange Act.
Rule 14a-4(c) provided that a proxy may confer discretionary authority upon
the proxy holders to vote on certain matters, including:
"(2) In the case in which the registrant has received timely notice in
connection with an annual meeting of shareholders (as determined under
paragraph (c)(1) of this Rule 14a-4), if the registrant includes, in the
proxy statement, advice on the nature of the matter and how the registrant
intends to exercise its discretion to vote on each matter..."
[and]
"(6) Any proposal omitted from the proxy statement and form of proxy
pursuant to Rule 14a-8 or 14a-9;"
It is my opinion that the Company may exercise discretionary authority to
vote under Rule 14a-4(c) with respect to the Proponent's proposal should it be
presented at the 1999 Annual Meeting, so long as the Company advises
stockholders of the nature of the proposal and how the Company intends to vote
with respect to such proposal. My opinion is based on the following:
1. The Proponent's notice to the Company of its intention to bring business
before the Company's 1999 Annual Meeting was "timely received" by the
Company for purposes of Rule 14a-4(c), as determined under paragraph Rule
14a-4(c)(1). As discussed above, the Proponent submitted the proposal to
the Company on February 16, 1999. The deadline imposed by the Company's
advance notice By-Law for receipt of notice of business to be brought
before the Company's 1999 Annual Meeting was February 19, 1999. (This
deadline had been disclosed in the Company's March 18, 1998 proxy statement
and Form 10-Q for the quarter ended June 30, 1998.)
2. The Proponent stated in its letter that it does not intend to solicit
proxies relating to the proposal and is not filing a proxy statement.
3. The Company intends to include in its proxy statement disclosure
substantially to the following effect:
<PAGE>
Securities and Exchange Commission
Office of Chief Counsel
March 1, 1999
Page 8
"We have been advised that a stockholder wishes to present a proposal at
the annual meeting asking that the Board of Directors "retain an investment
banking firm to explore strategic alternatives for maximizing shareholder
value." This proposal was not included in the proxy statement because it
was not received within the time limits prescribed by SEC rules. If this
proposal is presented, the holders of the proxies will use their
discretionary authority to vote against it.
We believe this proposal serves no purpose. We have already retained
investment bakers to assist in considering alternatives during our
portfolio review process and their analyses have been presented to the
Board. We are continuing to consult with them during our strategic planning
process this year.
The Board of Directors does not know of any other matters to be presented
at the annual meeting. If any matter is properly presented for a vote at
the meeting, your shares will be voted in accordance with the discretion of
the holders of the proxies."
4. The Commission staff has in the past permitted companies to use their
discretionary voting authority on matters as to which they have received
adequate notice, if the proponent has not provided the company as part of its
notice with a statement that the proponent intends to solicit the percentage of
shareholder votes required to carry the proposal, followed with specified
evidence that the stated percentage had actually been solicited. See
---
Borg-Warner Security Corp. (March 14, 1996); and Idaho Power Co. (March 13,
- -------------------------- ---------------
1996). The staff's position in these letters with respect to Rule 14a-4 was
recently confirmed in the Commission's final release adopting amendments to the
rules on shareholder proposals (Exchange Act Release No. 40018).
REQUEST FOR PERMISSION TO FILE THIS REQUEST UNDER QUESTION 10, RULE 14a-8(j),
-----------------------------------------------------------------------------
NOTWITHSTANDING 80-DAY FILING REQUIREMENT
-----------------------------------------
Under Question 10, Rule 14a-8(j), if a company intends to exclude a
stockholder proposal from its proxy materials, it must file its reasons with the
Commission no later than 80 calendar days before it files its definitive proxy
statement and form of proxy with the Commission. Rule 14a-8(j) further provides
that the Commission staff may permit a later submission if the company
demonstrates good cause for missing the deadline.
Because the Company received the Proponent's proposal on February 16,
1999-- a date 39 days before March 26, 1999, the contemplated date of filing by
the Company of its proxy materials in definitive form with the Commission-- is
impossible for the Company to comply with the 80-day requirement in
Rule 14a-8(j). The Company hereby respectfully requests that the
<PAGE>
Securities and Exchange Commission
Office of Chief Counsel
March 1, 1999
Page 9
Commission staff permit the Company to file reasons for excluding the
Proponent's proposal as stated in this letter, notwithstanding the 80-day filing
requirement of Rule 14a-8(j).
CONCLUSION
----------
For the foregoing reasons, I respectfully request that the Commission staff
not recommend any enforcement action if the proposal is excluded from the
Company's proxy statement and form of proxy relating to its 1999 Annual Meeting.
I further request that the Commission staff concur in my opinion that the
Company may exercise discretionary voting authority in accordance with
Rule 14a-4(c)(2).
In accordance with Rule 14a-8(j)(2), six copies of each of (i) the
Proponent's proposal, (ii) the Company's reply dated February 25, 1999 and (iii)
this letter are enclosed. To the extent the Company's reasons for excluding the
proposal are based on matters of law, this letter also constitutes the opinion
of counsel required by Rule 14a-8(j)(2)(iii). A copy of this letter is also
being sent to the Proponent in accordance with Rule 14a-8(j)(i).
The Company intends to file its proxy materials in definitive form with the
Commission on March 26, 1999. If the Commission staff has any questions with
respect to the foregoing, or if for any reason does not agree that the Company
may exclude the proposal from its proxy materials, please contact the
undersigned at (804) 281-3879.
Very truly yours,
/s/ Brenda Hart
----------------------------------
Brenda A. Hart
Enclosures
<PAGE>
PROPONENT'S PROPOSAL
<PAGE>
[HIGHFIELDS CAPITAL LETTERHEAD APPEARS HERE]
Tuesday, February 16, 1999
By Personal Delivery
- --------------------
Ms. Donna C. Dabney
Secretary
Reynolds Metals Company
6601 West Broad Street
Richmond, Virginia 23230
Dear Ms. Dabney:
In accordance with Article II, Section 4 of the by-laws of Reynolds Metals
Company (the "Company"), Highfields Capital I LP ("Highfields"), the record
owner of 100 shares of the Company's common stock as of the date hereof, is
hereby furnishing written notice of business to be brought before the Company's
1999 Annual Meeting. Highfields Capital Management LP, the investment advisor
to Highfields, is the beneficial owner of 2,926,300 shares of the Company's
common stock.
In accordance with clause (iii) of Article II, Section 4 of the Company's
by-laws, Highfields' notice hereby sets forth the following information:
(a) Business Proposed to be Brought Before the Meeting. Highfields hereby
--------------------------------------------------
submits the following proposal for presentation at the 1999 Annual Meeting:
"Resolved, that shareholders ask the Board of Directors of the Company
to retain an investment banking firm to explore strategic alternatives for
maximizing shareholder value."
Supporting statement:
"Notwithstanding the Company's operational improvements since the
initiation of management's portfolio review restructuring program in
October 1996, the Company's stock has remained depressed and has been
dramatically underperforming the stock of other aluminum companies for a
significant period of time. Over the past five years the Company's stock
has fallen approximately 11%; since October 1996, it has fallen
approximately 17%. The Company's current share price does not reflect the
substantial value that we believe could be realized by separating the
Company's Packaging and Consumer business unit from its Base Materials and
other business units.
Comparable packaging and consumer companies currently trade at
valuations which we believe imply that a conservative value of this
business unit represents at least $35 per share of Company common stock.
Alternatively, we believe that current valuations of comparable alumina and
aluminum production capacity imply a conservative valuation for the
<PAGE>
Ms. Donna C. Dabney
February 16, 1999
Page 2
Company's Base Materials business unit, net of the Company's debt and based
on the current price and outlook for aluminum, of at least $60 per share.
In addition, the Company operates business units in Construction and
Distribution and Transportation. In summary, based on a sum of the parts
analysis, we believe that the total value of the Company's business units
net of debt exceeds its current market capitalization by over one hundred
percent.
Because maintaining the status quo has not and is unlikely to unlock
this value, the Board of Directors should retain an investment banking firm
to explore all strategic alternatives for maximizing shareholder value,
including, but not limited to, a sale, spin-off or split-off of some or all
of the Company's business units or assets."
(b) Person Proposing to Bring Such Business Before the Meeting.
----------------------------------------------------------
Highfields Capital I LP
200 Clarendon Street
Boston, MA 02117
Attention: Richard Grubman
(c) Class and Number of Shares Held. Highfields is the record owner of 100
-------------------------------
shares and the beneficial owner of 271,220 shares of the Company's common
stock as of the date of this notice, representing approximately .00016% and
0.42%, respectively, of the outstanding shares of the Company's common
stock/1/. Highfields does not have the right to vote any other shares of
the Company's common stock pursuant to a proxy or other voting arrangement.
The following table sets forth the beneficial ownership of the Company's
common stock by Highfields and its affiliates.
<TABLE>
<CAPTION>
Percentage
Name Amount of Class/1/
---- ------ -----------
<S> <C> <C>
Highfields Capital I LP 271,220 0.42%
Highfields Capital II LP 496,811 0.77%
Highfields Capital Ltd. 2,158,269 3.35%
---------- ----
Highfields Capital 2,926,300/2/ 4.54%
Management LP
</TABLE>
Highfields is not aware of any announcement by the Company of a record date
for the 1999 Annual Meeting.
(d) Information Regarding Director Nominees(s). Not applicable.
------------------------------------------
(e) Other Information. Highfields, Highfields Capital II LP and Highfields
-----------------
Capital Ltd. (collectively, the "Funds") are investment funds, and
Highfields Capital Management LP, the investment advisor to the Funds (the
"Investment Advisor"), is primarily engaged in the business of investment
management. The principal business address of the Investment Advisor and
each of the
- ------------------
/1/ Based on 64,456,697 total shares outstanding as reported in the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1998.
/2/ Represents shares beneficially owned by Highfields, Highfields Capital II LP
and Highfields Capital Ltd. Highfields Capital Management LP is the
investment advisor to Highfields, Highfields Capital II LP and Highfields
Capital Ltd.
<PAGE>
Ms. Donna C. Dabney
February 16, 1999
Page 3
Funds, except Highfields Capital Ltd., is 200 Clarendon Street, Boston,
Massachusetts 02117, and the telephone number there is (617) 850-7500. The
principal business address of Highfields Capital Ltd. is c/o Goldman Sachs
(Cayman) Trust Limited, Harbor Center, 2nd Floor, P.O. Box 896, George
Town, Grand Cayman, Cayman Islands, B.W.I., and the telephone number there
is 345-949-6770. As of the date of this notice, each of the Funds and the
Investment Advisor beneficially owned the shares of Company common stock
set forth in paragraph (c) above.
Except as set forth in this notice, to the best knowledge of each of the
Funds and the Investment Advisor, none of such persons or any associate of any
of the foregoing persons (i) has a substantial interest, direct or indirect, by
security holdings or otherwise, in any matter to be acted upon at the 1999
Annual Meeting, (ii) owns beneficially, directly or indirectly, or has the right
to acquire, any securities of the Company or any parent or subsidiary of the
Company, (iii) owns any securities of the Company of record but not
beneficially, (iv) has incurred indebtedness for the purpose of acquiring or
holding securities of the Company, (v) is or has been a party to any contract,
arrangement or understanding with respect to any securities of the Company
within the past year, (vi) has been indebted to the Company or any of its
subsidiaries since the beginning of the Company's last fiscal year or (vii) has
any arrangement or understanding with respect to future employment by the
Company or with respect to any future transactions to which the Company or any
of its affiliates will or may be a party. In addition, except as set forth in
this notice, to the best knowledge of each of the Funds and the Investment
Advisor, none of such persons or any associate or immediate family member of any
of the foregoing persons has had or is to have a direct or indirect material
interest in any transaction with the Company since the beginning of the
Company's last fiscal year, or any proposed transaction, to which the Company or
any of its affiliates was or is a party.
Highfields presently does not intend to solicit proxies relating to the
aforementioned business proposed to be brought before the Company's 1999 Annual
Meeting and therefore is not filing a proxy statement. Accordingly, we
respectfully request that the Company include with its proxy statement for the
1999 Annual Meeting Highfields' proposal as presented above and boxes on the
accompanying proxy card to permit stockholders of the Company to express their
approval or disapproval for this proposal.
Thank you for your assistance.
Sincerely,
/s/ Kenneth H. Colburn
Kenneth H. Colburn
Chief Operating Officer
<PAGE>
COMPANY'S REPLY DATED FEBRUARY 25, 1999
<PAGE>
[REYNOLDS METALS COMPANY LETTERHEAD]
February 25, 1999
By DHL
- ------
Mr. Kenneth H. Colburn
Chief Operating Officer
Highfields Capital I LP
200 Clarendon Street
Boston, Massachusetts 02117
Dear Mr. Colburn:
This is in reference to your letter dated February 16, 1999 to Donna C.
Dabney, furnishing written notice of business to be brought before Reynolds
Metals Company's 1999 Annual Meeting of Stockholders by Highfields Capital I LP
("Highfields" or "you").
In accordance with Rule 14a-8(f) under the Securities Exchange Act of 1934,
Reynolds notifies you of the following:
1. Your letter did not indicate that Highfields had continuously held
Reynolds common stock for at least one year as of February 16, 1999. Reynolds'
stock records show that Highfields became a holder of record on February 11,
1999. Please provide appropriate evidence that Highfields has continuously held
Reynolds shares for at least one year before Highfields' submission of the
proposal, as required under Rule 14a-8(b).
2. Your letter did not indicate that Highfields intends to continue to
hold shares of Reynolds common stock through the date of Reynolds' 1999 Annual
Meeting. Please provide an appropriate written statement that Highfields intends
to continue ownership of Reynolds shares through the date of Reynolds' 1999
Annual Meeting as required under Rule 14a-8(b).
3. Reynolds has determined that your proposal was not timely received for
purposes of Rule 14a-8. Under Rule 14a-8(e)(2), the deadline for receipt of
stockholder proposals to be included in Reynolds' proxy materials for its 1999
Annual Meeting was November 18, 1998. This deadline was stated in Reynolds' 1998
proxy statement and in its Form 10-Q for the quarter ended June 30, 1998.
Reynolds intends to exclude your proposal and supporting
<PAGE>
Highfields Capital I LP
February 25, 1999
Page 2
statement from its proxy materials on this basis. Reynolds also reserves the
right to exclude your proposal to the extent it is permitted to do so under any
other provision of Rule 14a-8.
Reynolds would appreciate receiving Highfields' response to Items 1 and 2
above by March 12, 1999.
Very truly yours,
/s/ Brenda Hart
Brenda A. Hart
<PAGE>
Exhibit 99.4
Highfields Capital I LP
200 Clarendon Street
Boston, MA 02117
March 1, 1999
Ms. Brenda Hart
Chief Securities/Finance Counsel
Reynolds Metals Company
6601 West Broad Street
Richmond, VA 23230
Dear Ms. Hart:
Thank you for your letter of February 25. Please be advised that our proposal
was purposefully submitted in a manner whereby Rule 14a-8 of the Securities
Exchange Act of 1934 would not be applicable. Rather, we complied with the
requirements of Section 4 of Article II of Reynolds' By-Laws for providing
written notice of business to be brought before the 1999 Annual Meeting. You
will recall that the deadline in Reynolds' 1998 proxy for the delivery of such
notice was February 19, 1999 and our written proposal was delivered several days
prior to that date.
We have complied with the requirements of Section 4 of Article II and intend on
presenting our proposal at the 1999 Annual Meeting. Furthermore, we believe
that the anti-fraud provisions of the 1934 Act require Reynolds to disclose in
its proxy statement the existence of our proposal and all material information
concerning our proposal. In this regard, Mr. Sheehan has already represented to
my partner, Mr. Grubman, that our proposal would be included in the 1999 proxy,
albeit not in the form presented in our written notice.
Therefore we believe that answers to your questions in items 1. and 2. of your
February 25 letter are not necessary since that information bears no relevance
to the validity of our proposal. We would appreciate it if you would confirm
Mr. Sheehan's representations that our proposal will be considered at the 1999
Annual Meeting and that disclosure of our proposal will be contained in
Reynolds' forthcoming proxy statement.
Sincerely,
/s/ Kenneth H. Colburn
- -------------------------------
Kenneth H. Colburn
Chief Operating Officer, Highfields Capital Management LP
<PAGE>
Exhibit 99.5
[Highfields Capital Letterhead]
By Fax : 804-281-4775
- ---------------------
March 5, 1999
Mr. Jeremiah J. Sheehan
Chairman of the Board and
Chief Executive Officer
Reynolds Metals Company
6601 West Broad Street
Richmond, Virginia 23230
Dear Jerry,
Thank you very much for taking the time to meet with us on February 16. Given
the events of the last few weeks, I feel compelled to write you a follow-up
letter. There are two significant events which have occurred since our meeting.
First, Reynolds, in its March 1 letter to the SEC, claims that our proposal
asking that the company hire an investment banker to explore all strategic
alternatives for maximizing shareholder value is excludable because (1) Reynolds
has already engaged Merrill Lynch and (2) the methodology used in valuing
Reynolds' main business units was not provided with the summary valuation
numbers we presented with our proposal. Second, on March 3 the Company pre-
announced disappointing results for the first quarter of 1999 and, by inference,
for the balance of the year. We would like to address both of these points.
In our recent meeting and conversations, you have said that Merrill Lynch has
been retained to explore strategic alternatives to maximize shareholder value.
Our concern is that this statement is merely a confirmation of Merrill's
existing role as your advisor in connection with the ongoing portfolio review
restructuring program begun in late 1996. Supporting this concern is the
following statement in Reynolds' March 1 letter to the SEC: "Merrill Lynch is
continuing to advise the Company in 1999 in connection with the Company's
strategic planning process." As you know, we continue to take issue with the
results of that review i.e., we continue to question why the packaging business
has not been spun off or sold. We believe that you need to openly commit to a
more expanded course of action with Merrill, and that Reynolds' depressed share
price in large part reflects the market's lack of confidence in management's
commitment to create shareholder value. Reynolds shares are currently at a ten-
year low -- everyone who bought the stock during this period (the biggest bull
market in history) has lost money, while Alcoa's shares have appreciated over
150%. Portfolios managed by my partner, Jonathon Jacobson, have been
significant owners of Reynolds' stock since late 1996 and have suffered
accordingly. We believe that no amount of operating improvement will be able to
create the amount of value in the short or intermediate term that a sale or
spin-off would create today.
<PAGE>
We do not believe that the depressed share price is entirely a function of low
aluminum prices. In our view, the company's two primary business units are
extremely different in terms of operations and valuation methodologies.
Obviously the market has not liked the combination for some time. We believe
that the packaging business, with its stable cash flows, high market shares and
very strong brand name, is worth at least $2.2 billion, or about $35 per share,
based on an eleven times multiple on estimated trailing annual EBITDA of over
$200 million. This is a consumer-oriented business for which the currently low
price of aluminum is largely irrelevant. In base materials, Reynolds' 1.1
million tons of low-cost smelting capacity are worth at least $3,500 per ton by
our estimation, equating to $3.9 billion, or about $60 per share. The company's
2.9 million tons of low-cost alumina capacity we believe to be worth over $650
per ton, equating to $1.9 billion, or about $30 per share. These three
operations alone, net of the company's debt and other liabilities of
approximately $2.0 billion (about $30 per share), we believe imply a share
valuation for RLM of $95. You will recall that when we reviewed these
valuations with you and suggested that Reynolds' net asset value is at least
twice its market valuation, you did not disagree, and shared our frustration
with the excessive discount reflected in the current share price ($41 as of
today, which is about 10% lower than on the date of our February meeting).
Given the persistent poor share performance and valuation discount, we do not
believe that it is appropriate at this time for you to be considering growth
initiatives in hopes that they and a more favorable aluminum market will improve
the company's results and valuation. We recognize that aluminum is at severely
depressed levels and that your management team has executed the portfolio
review, selling assets, reducing debt and shares outstanding and lowering the
company's operating costs. However, as you have acknowledged, tremendous
unrealized value remains in Reynolds' market valuation. Continued operations in
the present format may never cause the stock to reflect on a present value
basis, the values that may be achievable today through a sale or spin-off. This
is certainly the consensus view among Wall Street analysts, several of whom
acknowledge the company's huge asset values along the lines outlined above but
nevertheless rate the company an underperformer based on their skepticism that
you will not take the decisive steps necessary to quickly unlock this value. If
analysts and shareholders truly believed in your commitment to act specifically
and swiftly to realize value, Reynolds' shares would be trading at significantly
higher levels.
Today's news that Reynolds is considering building a smelter with Bechtel in
Turkmenistan highlights a very significant problem. The effective reinvestment
of valuable free cash flows from the company's packaging business to build more
aluminum assets is a mistake. This news sends your shareholders the message
that you are willing to add to assets whose economic viability is subject to the
vagaries of commodities prices in places with significant political and
operating risks. We consider this a value-destroying exercise. The world is
awash in smelting capacity. The last thing we as shareholders want to see is
the use of stable cash flows to fund more investments in a low-multiple business
that is not even EVA positive. Therefore it is with good reason that Wall
Street will not efficiently value Reynolds on a sum-of-the-parts basis. The
problem with the combination of the two main
<PAGE>
business units is your ability to allocate capital away from the highly valued
one and to the low-valued one.
The vast majority of our fellow shareholders must share our extreme
frustration -- not with the price of aluminum and not with the company's
operating improvements -- but with the lack of visible evidence of your
conviction to maximize shareholder value through whatever means necessary. We
strongly urge you to openly commit to your shareholders to direct Merrill Lynch
to explore all alternatives to maximize shareholder value, with no prejudice for
or against any option (sale, spin-off, etc.). Furthermore, we recommend that a
special committee of independent Directors of the Board be formed to assist you
in monitoring Merrill's progress. Although you might be reluctant to take any
action that might jeopardize your independence to operate the business and
pursue the growth objectives you think are achievable, the time has come to put
the shareholders' wishes and interests first. As owners we expect you to
exercise your duty of exclusive loyalty to Reynolds' shareholders by taking
quick and decisive action to immediately enhance the value of our shares.
Sincerely,
/s/ Richard L. Grubman
- -----------------------------
Richard L. Grubman
cc: Board of Directors
