Bearing up at McGill.

BEARING UP AT MCGILL

Hostile takeover attempts & a white knight for the 86-year-old McGill Manufacturing Co.

Strolling around the Valparaiso neighborhood that McGill Manufacturing Co., Inc., calls home is a walk back in time. Century-old oak trees and Victorian homes with huge porches line picturesque streets.

The homes, which date back to the turn of the century, were there in 1905 when James H. McGill moved his company from Chicago to Valparaiso. It turned out to be a good move because very quickly the company began to expand. By 1919, McGill had acquired a second building and the company continues growing today with construction of a $14.5 million bearing plant at the east edge of the city.

Through it all, McGill has become one of the steadiest, and the largest, of employers in this county seat of 22,000 people. In Valparaiso and Porter counties, 900 people depend on McGill for a living--1,400 do worldwide. The company manufactures specialty bearings and electronic switches.

In fiscal 1989, McGill earned $8.67 million on sales of $110.54 million. That was up more than 155 percent from 1988, and a vast improvement over 1986 when the company earned $2.1 million. The company has four plants in Porter County, a plant in Monticello and facilities in Illinois, Texas and Taiwan.

But behind the Norman Rockwell-like facade and the strong bottom line, a textbook example of a hostile takeover has been taking place. Although the battle is winding down, three hostile suitors and the eventual sale of the firm to a so-called white knight have shaken company officials, employees and community leaders.

When the bidding started in August, McGill officials vowed to remain an independent company. The company was still run by members of the McGill family, who controlled 21 percent of the common stock. Its wish to remain independent was a dream that did not come true.

When the dust settled on Dec. 12, Emerson Electric Co. of St. Louis--a $7 billion Fortune 100 company--had bought McGill for $93 a share, or more than $137 million in cash. It had bested two other cash-rich companies--one U.S. and one Swedish.

Throughout the battle, McGill officials had little to say publicly. James C. McGill, grandson of the founder and chairman of the company since 1976, made only a few public statements. His last was at the company's annual meeting in October. What comment there has been has come from Walter A. Ailes, McGill's vice president and treasurer. And his comments were mostly short news releases reiterating McGill's no-comment position on the takeover fight.

The company was first put in play on Aug. 10, when a Los Angeles investment firm, BroadBeach Associates, offered a highly leveraged $90 million bid. BroadBeach offered $62 a share for some 1.45 million shares of McGill's common stock. McGill rejected the offer, but shortly before the October annual meeting, AB SKF, Inc., of Goteborg, Sweden, the world's largest bearing manufacturer, presented a $72 a share tender offer worth $109 million.

As McGill's stock price climbed from the $50 a share range to the mid-$70 range, BroadBeach sold out, but the battle was on.

On Nov. 17, Banner Industries, Inc., of Cleveland upped the ante to $84 a share, an offer worth an estimated $122 million. McGill rejected it, too. Ironically, early on Banner was viewed as a potential white knight to fend off SKF.

Through it all, Ailes continued to issue statements saying McGill's officers and its board of directors refused to meet with representatives of either company unless they signed a stand-still agreement. That would have prevented either suitor from buying stock in McGill until April 1991. SKF and Banner refused to sign.

Banner, which owns 9 percent of McGill's stock (SKF never acquired a stake in the company), upped the ante even further on Nov. 29 when it renewed its $84 a share offer and announced it would field a slate of its own candidates for McGill's board next October. That announcement came one day after SKF let its original tender offer expire. Just before SKF's tender offer expired, a lawsuit the company had filed in U.S. District Court challenging Indiana's anti-takeover law was thrown out on a technicality.

Because of McGill's silence, most of what happened next is conjecture. One thing, however, is clear: McGill found the white knight it wanted in Emerson Electric Co. Earlier last year, Emerson did virtually the same thing for Vermont American Tools of Louisville, Ky.

Early in December, Emerson's chairman, Charles F. Knight, visited Valparaiso, toured McGill's plants and then made his move. As that behind-the-scenes maneuvering was taking place, McGill publicly announced an auction of the company to the highest bidder. The deadline was Dec. 15, but it was moved up suddenly to Dec. 10, a day when all of McGill's top executives were in New York meeting with Emerson executives and bankers. That was the first hint something definitive was in the works.

That day, McGill announced it had received bids in excess of $90 a share, including one from Banner of $91.50. But Emerson, McGill's largest customer, bid $93 to top them all.

When the Emerson Electric deal was announced, neither Banner nor SKF was willing to throw in the towel. Federal regulations require Emerson's bid to remain open for 25 days, and neither Banner nor SKF would rule out submitting a higher bid.

"Emerson is a very good, solid company," says Ailes. "They are well-respected in the industrial markets that they operate. They are very interested and very excited about operating both of McGill's operations. We found that to be very attractive."

But while the sale may be attractive to McGill executives and major shareholders--some of whom could collect an aggregate $41.8 million if all stock options are exercised--it remains the prime topic of conversation among the people of Valparaiso.

John Schnurlein, president of the Greater Valparaiso Chamber of Commerce, says he is concerned because of the prominent role McGill always has played in the community. McGill has been an eminent supporter of civic causes, such as United Way, has contributed significantly to local projects (two McGill executives have gone on to head the chamber) and has helped with Valparaiso University's ongoing fund-raising efforts. Schnurlein says he hopes this community support doesn't end with absentee ownership.

"If this had not been billed as a hostile takeover, I guess we would have been meeting with the prospective buyers," adds Schnurlein. Officials from SKF's U.S. subsidiary, SKF Bearings, Inc., of King of Prussia, Pa., met with chamber and city officials, but that was before things turned ugly in November.

The chamber has been sitting on the sidelines throughout the maneuvering, but Schnurlein's mixed emotions about the takeover are apparent. He lives four blocks from McGill and calls the company a good neighbor. But as the chamber director, he must weigh all the options affecting the local economy.

And Schnurlein is not a novice when it comes to dealing with takeovers. Within the past two years, a Japanese company took over Titan Industries of Valparaiso, now known as PowderTech, and a French company acquired IG Technologies, Inc., also of Valparaiso. "We have good relations with both those companies and they have taken care of their community responsibilities," he says.

But that is not good enough for longtime McGill employee Mike Cairns. The tool-and-die maker has been with the company for 31 years. "It doesn't make any sense," Cairns said the day before the company was sold. "A company without any debt and they are forced to sell?" Cairns said that he, as everyone else, must wait and see what happens. But, he added, "I'd sure rather have the status quo."

PHOTO : McGill, a manufacturer of specialty bearings and electronic switches, is the largest

PHOTO : employer in Valparaiso.