After flirting with a richer rival, Lukens Inc. on Monday reaffirmed its vow to its betrothed, pledging to go ahead with Bethlehem Steel Corp.’s merger proposal after the steelmaker boosted its takeover bid by 14 percent to $740 million.
But industry analysts predicted Lukens’ spurned suitor, Allegheny Teledyne Inc., will come back with an even sweeter offer and eventually will make Lukens its own.
Though Allegheny declined to comment on its next move, R. Wayne Atwell of Morgan Stanley, Dean Witter, Discover & Co. noted that in bidding last month to break up Bethlehem and Lukens, Allegheny said it would “bid whatever it takes” to acquire Lukens.
And Allegheny could afford to go higher and still make a reasonable offer, he said. Given its stronger balance sheet and higher market capitalization, Allegheny could bid $32 a share, or $775 million including assumed debt, Atwell said.
Investors also were betting that Allegheny would top Bethlehem Steel’s new $30-a-share cash-and-stock offer. Lukens shares jumped $2.06 to $30.44, pushing the stock up to another 52-week high and up 74 percent since Bethlehem made its first, $25-a-share offer on Dec. 15.
But the increasing cost of a takeover undermined the stock of Bethlehem and Allegheny. Bethlehem shares dropped 50 cents to $8.62, while shares in Pittsburgh-based Allegheny slipped 37 cents to $26.37.
Bethlehem and Allegheny Teledyne both want Lukens because the Coatesville, Pa.-based company would give each a larger share of its segment of the steel market and enable each to offer a wider product range.
In announcing its amended merger agreement with Lukens, Bethlehem cited “synergies” it expects from a merger.
Bethlehem said it would close two old, East Coast mills that make heavy-duty steel plate and shift the work to the combined company’s mills, including Bethlehem’s flagship plant, in Burns Harbor, Ind.
The Bethlehem, Pa.-based company said it also would sell Lukens’ Washington Specialty Metals unit, a Chicago-based distributor of stainless steel products, as well as two stainless steel sheet mills.
In addition, Bethlehem said it could shield Lukens’ profits from federal income taxes by using writeoffs called “tax-loss carryforwards” it accumulated in the 1980s when Bethlehem was losing money.
For its part, Allegheny wants to meld Lukens’ stainless-steel operations into those of its primary subsidiary, specialty-metals maker Allegheny Ludlum Corp.
Allegheny also offers a side benefit: With a surplus in its pension plan, it could clear away Lukens’ pension and retiree medical obligations.
Analysts said Lukens, which had been talking with Bethlehem and Allegheny simultaneously, initially preferred Bethlehem’s offer because Bethlehem promised jobs to its top managers, including Lukens chairman and chief executive, R.W. Van Sant, who would become president of Bethlehem’s steel plate division.
But after Allegheny topped Bethlehem’s bid on Dec. 22 with an all-cash offer of $28 a share, or $715 million including debt, Lukens’ board concluded that Allegheny’s proposal was superior. The board did not cancel its agreement with Bethlehem, however, preferring to renegotiate a higher price.
