BORG-WARNER AGREES TO BUYOUT BY MERRILL LYNCH FIRM
Borg-Warner <BOR> Corp, facing an
unwanted offer from GAF Corp <GAF>, agreed to a 4.23 billion
dlr buyout offer from a company to be formed by <Merrill Lynch
Capital Partners Inc>.
    Borg-Warner and Merrill said yesterday they entered a
definitive merger agreement, under which a subsidiary of the
new company, <AV Holdings Corp>, will begin a 48.50 dlr per
share cash tender offer today for 77.6 mln shares or 89 pct of
Borg-Warner common stock.
    The offer will be followed by a merger in which each
remaining share will be converted into 19.75 dlrs cash and
54.25 dlrs principal amount of AV Holdings junior subordinated
discount debentures.
    As a result of the merger, Borg-Warner will become a wholly
owned subsidiary of AV Holdings. A Borg-Warner spokeswoman said
members of management do not plan to participate in the
transaction, but they will retain their positions with the
company.
    A spokesman for GAF was unavailable for comment. GAF holds
19.9 pct of Borg-Warner's shares.
    GAF had said it would offer 46 dlrs per share.
    Borg-Warner's spokeswoman said the company still plans to
sell its financial services unit, which includes Wells Fargo
security guards, and the Chilton Corp, a credit rating service.
    Borg-Warner has been the focus of takeover speculation for
about a year. Corporate raider Irwin Jacobs last year proposed
a takeover of the firm and until recently held 10 pct of the
stock. Following the GAF offer, analysts had calculated breakup
values for the company in the low 50 dlrs per share range and
speculated an offer would have to be sweetened.
    In its statement, Borg-Warner said its board endorsed the
Merrill offer and it recommended that shareholders tender their
shares. The board received opinions on the offer from its
advisors, First Boston Corp and Goldman, Sachs and Co.
    James Burke, president of Merrill Lynch Capital Partners,
said, "We are very pleased to have entered into this transaction
with Borg-Warner. We are looking forward to working with the
employees of Borg-Warner and to Borg-Warner maintaining its
strong presence in the Chicago community."
    Merrill Lynch will be the dealer-manager for the offer,
which expires at midnight EDT May 8 (0400 GMT, May 9), subject
to conditions, including the completion of necessary financing
arrangements.
    The offer is also subject to a minimum 44.25 mln shares, or
51 pct of the outstanding shares, being tendered.
    Merrill Lynch and certain affiliates have committed to
provide 200 mln dlrs in AV Holdings equity and 870 mln in
subordinated financing and forward underwriting commitments.
    Merrill Lynch said that following discussions with
commercial banks it is confident it can obtain the rest of the
financing required to complete the transaction.
    The junior subordinated discount debentures to be issued in
the merger will carry a 13 pct coupon and will begin paying
cash interest after five years.
    The debentures will be redeemable at the company's option
for the first six years at 105 pct, during the seventh year at
102.5 pct and after that at 100 pct of the principal amount.
    The junior subordinated discount debentures have a maturity
of 20 years and are entitled to a sinking fund commencing in
the 16th year designed to retire 60 pct of the issue before
maturity.
    Borg-Warner will also redeem all of its outstanding 4.50
dlrs cumulative preferred stock, series A, for 100 dlrs per
share. Holders who wish to participate in the offer must first
convert their preferred stock into Borg-Warner common stock.
    The board of Borg-Warner has also taken steps to redeem its
poison pill or share purchase rights for five cents per right,
effective immediately.
 REUTER
