The Chicago-based food and consumer products company entered a definitive agreement after New York-based KKR sweetened its offer, raising it to $50 a share--$43 in cash and $7 in preferred stock--from its previous offer of $47 a share in cash and securities.
The offer, based on Beatrice's 109 million shares outstanding, is worth $5.45 billion. However, if KKR purchased all outstanding Beatrice preferred stock, warrants and options--the equivalent of 11 million shares--it would push the price up to $6 billion.
The deal included so-called lock-up options designed to discourage competing offers for the company. The options give the investment firm the right to buy the "crown jewels" of Beatrice's diverse operations in case the deal is not consummated.
No Suitor Expected
Analysts doubted, however, that after so long a time another bidder would surface to jeopardize the buy-out.
"The chances are very good that this deal will go through," said Marvin B. Roffman, an analyst with Janney Montgomery Scott in Philadelphia. "Shareholders will be happy with the price . . . and management also has put its kiss of approval on it."
William W. Granger Jr., chairman and chief executive of Beatrice, said in a statement: "I believe this is an excellent transaction for our shareholders. At the same time, we are mindful of KKR's intentions to keep Beatrice as a major and growing enterprise headquartered in Chicago."
Beatrice's current management, however, will be changed. Henry Kravis, managing partner of KKR, told the Associated Press in a telephone interview that Donald P. Kelly, former chairman of Esmark (which was acquired by Beatrice last year), would be named chairman and chief executive.
Kelly, in his first public statement since being identified with the KKR group, told AP that he intended to keep Beatrice in its present form. He also said his management team would include three former Esmark managers: Frederick B. Rentschler, who will run the general food and beverage divisions; Joel Smilow, head of general non-food operations, and Roger T. Briggs, in charge of finances.
Beatrice observers, however, believe the new KKR company that will own Beatrice will begin selling off such major non-food businesses as Playtex to help reduce its high debt level.
Since Beatrice acquired Esmark for $2.7 billion in August, 1984, it has been shedding some of its less profitable non-food operations. In early October, it disclosed plans to put four more on the block, including it Avis and Danskin units.
The leveraged buy-out, in which investors purchase a company by borrowing heavily against the target company's assets as collateral, adds yet another layer of debt to the company's structure.
Observers have believed it was unlikely that Beatrice could remain independent once takeover rumors began inflating its stock. KKR first made a $45-a-share offer in mid-October that Beatrice's board rejected as "inadequate." Since July, Beatrice's stock has risen about 50%, and KKR's initial offer, although spurned, put pressure on Beatrice management to obtain a more attractive alternative.
Beatrice stock closed Thursday on the New York Stock Exchange at $46.25 a share, up 75 cents, and was the most active issue with a volume of 3.9 million shares.
KKR's lock-up options would allow it, under certain conditions, to purchase either Beatrice's grocery group and Tropicana subsidiary for $2.391 billion or Beatrice's Tropicana, meat, soft-drink and bottled water subsidiaries for $2.412 billion.
These businesses, which are considered among Beatrice's most desirable, include Hunt-Wesson Foods, Swift meats, Tropicana fruit juices, La Choy Chinese foods, Coca-Cola bottlers and Arrowhead bottled water.
The lock-up options, however, are clouded by the Delaware Supreme Court's recent ruling against Revlon's use of a similar defensive tactic to thwart a takeover by Pantry Pride.
Revlon had granted the investment firm of Forstmann, Little & Co. an option to buy two major Revlon divisions if an unwelcome suitor acquired 40% of Revlon's stock. The option, which Pantry Pride challenged, was designed to protect Forstmann's agreement to acquire all of Revlon's stock. After the court ruling, Revlon succumbed to the Pantry Pride takeover.
But analysts said KKR isn't likely to have competition for Beatrice, which has had only one other nibble, that from Dart Group Corp. of Landover, Md.