Mesothelioma and Asbestos News
Owens Corning directors enter new worldBy GARY T. PAKULSKI It is known as a secretive, successful hedge fund management firm led by a former presidential science adviser whose staff has been compared to rocket scientists. It is D.E. Shaw & Co. Inc., which not only will be Owens Corning's biggest shareholder but also will be represented on the With its expected emergence from Chapter 11 bankruptcy this week after six years, metro One of the biggest changes involves the firm's board of directors, which will be larger, include many new faces, and confront a much different environment than when the building materials producer filed for bankruptcy on Oct. 5, 2000. "It's kind of a Rip Van Winkle thing," said Ralph Ward, editor of Boardroom Insider, a monthly online magazine that covers corporate governance. "This company is waking up to a whole new world of demands on boards." With 20,000 employees in 26 countries, $6.3 billion in annual sales,
and an iconic insulation brand known for its Pink Panther mascot, OC
has long been included in Fortune magazine's list of the 500 largest It filed for Chapter 11 six years ago to resolve multibillion-dollar asbestos liability. The role of corporate directors in When OC entered bankruptcy, a lawyer for a thriving company called Enron Corp. was appointed to the And a raft of scandals in executive suites has led to a renewed emphasis on the watchdog role of corporate directors. One major outcome: the gradual disappearance from many boards of uninvolved glad-handers. "I call them the 'passive congenials,' " said Roger Raber, president of the nonprofit National Association of Corporate Directors. "They're nice. They slap you on the back. They ask a prudent question, but never follow up. Now, we are seeing more engaged directors." And experts predict that the mix of backgrounds and interests on OC's 16-member board - expanded from 10 in recent years and 12 before bankruptcy- could lead to lively debate. A quarter of the board will be former creditors. The independent OC/Fibreboard Personal Injury Trust, which will absorb the firm's asbestos liability and hold 20 percent of the company's new stock, will get two seats. Representatives will include accountant and investment executive W. Howard Morris, a Wharton School of Finance MBA graduate who was on the faculty of Hillsdale College in the 1990s and later was emergency financial manager of Inkster Public Schools in suburban Detroit. He is a portfolio manager of the asset management division of Detroit-based Comerica Bank. The other representative will be James McMonagle, a They will join the board early next year. Former bond-holders also get two seats, both of which have been filled by men with links to D.E. Shaw & Co., Marc Sole has been a senior vice president at the firm since 2001 and formerly was a mergers and acquisitions lawyer in Daniel K.K. Tseung is affiliated with At Sun Hung Kai, Mr. Tseung is a managing director of the firm's private equity arm, according to OC security filings. A Hong Kong resident, his connection to D.E. Shaw is through RCN Corp., Two D.E. Shaw investment funds, Laminar Portfolios and Oculus Portfolios, hold 20.4 million shares of new OC stock, or 16 percent of the total, SEC filings show. The firm is part of an investment syndicate led by J.P. Morgan Securities Inc., which has agreed to buy more than half the new shares at $30 each. The syndicate includes 14 other investment firms, most of them hedge funds. Hedge funds are a kind of mutual fund for wealthy people that are lightly regulated and pursue unorthodox investments as a way to produce strong returns even in times that are tough for traditional investments like stocks and bonds. The presence of so many hedge funds among OC's shareholders could pose challenges for managers, said Mr. Raber, of the National Association of Corporate Directors. Hedge funds tend to be more actively involved in the companies in which they have an ownership interest and demand quicker results, he said. "If you have a plan in place to get to X profitability, you're good," he said. "If not, you're vulnerable. … There's going to be challenges going forward." Though unfamiliar with D.E. Shaw, Mr. Raber said hedge fund investors typically keep close tabs on staffing levels and management effectiveness. And when they don't like how things are going, they speak out. D.E. Shaw was founded in 1988 by David E. Shaw, a onetime computer science expert on the faculty of With $25 billion in investment capital, the Shaw firm advocates a theory of investment that relies heavily on mathematical models. The staff includes many people with PhDs. When drywall manufacturer USG Corp., another former asbestos producer, exited bankruptcy in June, the hedge fund held 9 percent of its stock. Shaw struck a deal last month to buy, with a partner, bankrupt tableware maker Oneida Ltd. An expert on investment firms said Shaw's interest in bankrupt firms
is not surprising. "Getting involved in distressed funds is a
relatively new ploy for hedge funds," said Ben Branch, a faculty member
at the Although Shaw is held in higher regard than others in the hedge fund industry, it isn't afraid of a scrap. When Stephen Krull, OC legal chief, said he didn't want to be seen as speaking for D.E. Shaw. "I think their intent, like all of our shareholders, is to invest in a company that is going to produce a positive return for their firm," Mr. Krull said. "They have not given us any indication their intent is to ultimately own the company." Asked about a possible takeover and other aspects of its strategy at OC, Shaw spokesman Kari Elassal declined to comment. "We are excited to be associated with Owens Corning and its terrific employees and we look forward to its continued success," she said. A takeover would be expensive. Even with 20 million shares, Shaw would have to spend at least $3.3 billion to acquire remaining stock. Also, OC's new bylaws include anti-takeover measures which, among other things, put restraints on unwanted mergers and other activities involving major shareholders for up to three years after they acquire the stock. And Shaw could merely be looking to make a quick buck on the stock. As a result of an SEC filing by the The influence of the new directors picked by former bond-holders for OC's board could be diluted by the addition of three directors elected by the firm's longtime directors. They are Ralph Hake, chief executive officer of Maytag Corp. before its merger with Whirlpool Corp.; Joseph Neely, CEO of sock-maker Gold Toe Brands Inc., Burlington, N.C.; and Philip Handy, a resident of Winter Park, Fla., who is CEO of service and manufacturing concern Strategic Industries Inc., chairman of the Florida board of education, and a close political ally of Gov. Jeb Bush and U.S. Sen. John McCain. OC pays non-employee directors $100,000 a year. Continuing as board chairman will be Michael Thaman, 42, OC's chief financial officer. Preserving an arrangement begun during Chapter 11, Dave Brown, 58, will be president and chief executive officer but won't receive the additional title of chairman as is typical at most companies. Experts describe the arrangement as unusual, but Mr. Brown said he has no objections. "Mike and I really run the business as partners," he said. "My request going forward is that we're going to leave it just the way it is." Directors will have the option of making changes. Mr. McMonagle, who will join the board in January as a representative of asbestos claimants, doesn't foresee early, major changes. "All of the parties want continuity and feel that management has a done a good job," he said. Contact Gary T. Pakulski at: gpakulski@theblade.com or 419-724-6082. |
