Desert Partners Gives Up Quest for USG Corp.

NEW YORK —  After a long and bitter battle, Desert Partners L. P., led by oilmen Jack E. Brown and Cyril Wagner Jr., on Thursday ended its nine-month struggle to acquire USG Corp. for $1.64 billion.

Desert Partners said in a statement that it terminated its pending $42 cash tender offer for up to 39 million shares, or roughly 76%, of the outstanding shares of USG and would promptly return all shares tendered under the offer. The offer was due to expire today.

USG had rejected the hostile $42-a-share tender offer and in the face of pressure from Desert Partners proposed an extensive recapitalization and restructuring plan last month involving about $2.3 billion in financing.

The Midland, Tex., group, which owns nearly 10% of USG, still may continue to seek ways to acquire the nation’s largest gypsum maker, a spokesman said. “We are reviewing all of our options,” he said.

In New York Stock Exchange trading Thursday, USG’s shares closed unchanged at $46.

The statement from the partnership said the group will continue to evaluate its ownership position and “may at any time decide to purchase additional shares of common stock in the open market . . . or through another tender offer.”

The partnership also said it may decide at any time to sell all of its shares in USG.

Desert Partners had all but conceded defeat after it lost a highly charged proxy fight at USG’s May 11 annual meeting.

The group’s options also continued to dwindle after a federal court in Chicago upheld last month USG’s “poison pill” anti-takeover defense, which the group had challenged. Such defense plans are designed to make a company prohibitively expensive to a hostile suitor.

Desert Partners has been trying to acquire the Chicago-based building products company since last October. USG rejected the group’s formal $42-a-share proposal made in March and never came to the bargaining table.

The battle heated up considerably early last month when Desert Partners proposed to increase its offer to $45 a share if USG would negotiate a merger agreement and redeem its poison pill plan.

May Sell 2 Units

USG swiftly counterattacked with a bold recapitalization and restructuring plan that the company claimed was superior to Desert Partners offer of $45 a share.

Under the plan, USG holders would receive a combination of $37 a share in cash, $5 in debt and one new share in the recapitalized company. Some analysts said the plan could weaken the company.

USG never assigned a per-share value to the proposed recapitalization, but said the value was above Desert Partners’ proposed $45-a-share offer.

The recapitalization also placed an additional $2.3 billion of debt on the company’s balance sheets and requires USG to sell at least two profitable subsidiaries: Masonite Corp., a hardboard maker, and Kinkead, a maker of tub and shower enclosures.

Analysts estimate that Masonite could bring in as much as $750 million.

USG shareholders will vote on the restructuring at a special meeting June 24.

A spokesman for Desert Partners said the group had proposed another offer of cash and notes that was valued at about $50 a share of USG stock. “But they turned a deaf ear to that proposal,” the spokesman said.

In its statement Thursday, Desert Partners said its evaluation of its stake in USG depended on the terms and potential value of USG’s proposed recapitalization, the market price of USG’s common stock and the availability of financing.