Word: kennecott
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Dates: during 1970-1979
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...Kennecott executives say they cannot discuss their Peabody problems because of this pending suit. Yet they previously made no secret of the fact that they have talked to "more than 200 parties" interested in buying at least part of Peabody. Of these, only five seemed able to pay the full sale price-reportedly a cool $1 billion. So far, however, Cities Service Corp., the Tennessee Valley Authority and a privately owned coal-exporting firm called ICM-Carbomin International have either formally or informally dropped out of contention. While the other two-both syndicates of electric utilities-keep on negotiating...
Alternatively, Kennecott can declare a stock dividend of its Peabody holdings and so set up the coal company as an independent entity once again. Kennecott shareholders seem to favor such a spin-off scheme and may sue if it does not come about; their expectation is that the Kennecott and Peabody shares they would have as a result of a spin-off might fare better in the stock market than Kennecott alone. Trouble is, Kennecott has acted as if the divestiture order did not exist. The company lavished management time on running Peabody and spent $532 million to buy equipment...
...Considerations. What Kennecott needs to return its copper business to health is the money it put into Peabody. Unfortunately, the only way to recoup the $532 million in a spin-off would be to have Peabody borrow the money. But that would saddle the coal company with such an onerous debt that its future growth would be imperiled...
...Kennecott's final option is to sell 20% of Peabody and spin off the remaining 80% to shareholders. (These proportions would be dictated by complicated tax considerations.) Though this would provide some of the needed cash and probably please many stockholders, like all compromises it falls well short of what managers and shareholders hoped...
Given these gloomy alternatives, it is little wonder that Kennecott badly wants to keep Peabody. But that is prevented by a narrow reading by the FTC and the courts of a much debated section of antitrust law; this is the concept that mergers can be stopped not because they reduce competition but because they eliminate "potential" sources of competition. Back in the mid-1960s Kennecott decided that it would make a major attempt to diversify out of copper. Among other things, it bought a small coal field for the purpose, according to Kennecott, of assuring its own fuel supplies...