Analysts claim takeover bid for Lockheed is too low and would incur too much debt.

Analysts claim takeover bid for Lockheed is too low and would incur too much debt

Harold Simmons' latest takeover bid for Lockheed Corp. should be rejected because it would saddle the company with too much debt, industry analysts said.

In addition, the Texas investor's buyout proposal of $40 a share, or about $1.6 billion, is too low and does not include enough cash, they said.

"I don't think the Lockheed board is going to buy this, and I don't think they should because its not a straight cash deal and it would not be appropriate for the company to borrow more than $800 million to help finance the deal," said George Podrasky, an analyst with Duff & Phelps in Chicago. "Fifty percent of Lockheed's invested capital is already tied up in debt and this would increase that significantly."

Last week Simmons, chairman of Houston-based NL Industries Inc., met with Lockheed officials to study further details of his offer that was revealed on Nov. 12.

Under the buyout plan, half of the cost of the proposal would come from NL Industries and the rest would come through acquisition financing from Lockheed, the analysts said. In effect, that means that Lockheed would have to raise more than $800 million to finance the deal, they said.

NL Industries would fund its part of the transaction through cash, borrowing and selling off some company assets, the analysts said.

Lockheed officials would not comment on the meeting. The company issued a statement that said a formal response to the offer will be "made in due course."

Tassos Philippakos, vice president and senior defense and aerospace analyst for Moody's Investors Service in New York, said the offer should be rejected.

"I seriously doubt that this is an ideal proposal for Lockheed because it essentially is asking that the company significantly increase its debt. It already has about $2 billion in long-term debt. I feel this is not a good time to further leverage any defense company," said Philippakos.

Philippakos agreed with Podrasky's assessment that the offer is too low and should probably be rejected by the Lockheed board of directors.

"Such an acquisition would put too much pressure on the company's credit quality. The offer is not attractive enough to risk that," said Philippakos.

The analysts also said that if Lockheed's units were sold separately, the company would probably be worth twice what Simmons has offered.

Because the verdict is going to be appealed, the analysts said it is too early to say what affect a $45 million judgment against the company would have on the offer. Earlier this month, a jury in Los Angeles awarded more than $45 million to three former Lockheed employees for "wrongful termination."

Philippakos said if the judgment stands, Lockheed may have to borrow money to pay the award.

Simmons, who currently holds 19.8 percent of Lockheed stock, valued at about $500 million, could not be contacted. In September, Simmons said he wanted to buy 10 million shares from Lockheed's Employee Stock Ownership Plan at $35 a share, which would have increased his stake in the company to 35 percent.

Simmons also asked Lockheed to eliminate its so-called "poison-pill" provision that is designed to ward off unfriendly takeover attempts. The provision goes into effect when an outside party's stake in the company exceeds 20 percent.

Lockheed rejected the request.

Last March, Simmons lost a proxy battle for the control of the Lockheed board of directors.

After the Simmons offer was revealed on Nov. 12, the company's stock rose $2 to $31.75, but has since fallen back and has been trading on the New York Stock Exchanged at about $30 per share.