USG Corporation was well known for it’s gypsum production, but also was very diverse in the amount of products they produced. Alongside with gypsum, they also were leaders in the respective industries of interior systems, wood fiber, and bathtub and shower enclosures. This exemplified USG’s core competency of product diversification. Their divisions were industry leaders in innovation, integration and low-cost advantage. Another one of USG’s core competencies was vertical integration within the company. Their stance on corporation structure would be a huge factor on how the company dealt with takeover offers in the future.
One of the earlier corporate restructuring programs took place in 1985 in order to allow vertical integration to flourish more in the company. It was beneficial in that it led to record profits for the company. Because of the high demand for USG stock and the large amount of public attention, USG received several takeover offers. The one that is the focus of this summary is the Desert Partners offer.
In 1987, Desert Partners began approaching USG in relation to purchasing outstanding shares. Desert Partners officially tendered an offer of $42.00 per share for 21.5 million shares. Sometime later they announced a proxy contest in which they would propose six new directors who could potentially replace the existing ones on the board. USG stood firm in its decisions to not sell their company and did not entertain any offers, either official or unofficial, from Desert Partners, regardless of the monetary increase in offer.
Instead of accepting or countering Desert Partner’s offer, USG decided to recapitalize their company by giving shareholders for each existing share: $37.00 in cash, one new recapitalized share, and $5.00 of the new junior subordinated pay-in-kind debentures. This would require a substantial amount of money and would put USG