Some Du Pont shareholders see wrong mix in merger

When E. I. du Pont de Nemours & Co. asks its shareholders next Monday to approve the stock portion of its $7.84 billion merger with Conoco, it may receive a surprise or two. Some rather substantial shareholders are not happy that Du Pont ended up the winner in the bidding game for Conoco.

One of those shareholders is the Fidelity Group of mutual funds in Boston. Frank Parrish, vice-president of Fidelity Management and Research, a part of the Fidelity Group, says Fidelity, which owns 290,000 shares of Du Pont, intends to vote against the merger. In an interview, he said the funds are invested in Du Pont because they wanted to own shares in a specialty chemical company.

"Now a much bigger percentage of the company will be involved in oil, gas, and coal production, and this will depress the price-to-earnings ratio of the company, since chemical companies usually have higher PEs [price/earnings ratios ]."

Mr. Parrish also notes, "The company is absorbing tons of bank credit at a time when credit is tight." Du Pont is borrowing at least $3 billion for the $7. 84 billion takeover. The stock will be diluted, too, since the company is offering 1.7 shares of Du Pont for 45 percent, or 40 million shares, of Conoco stock.

Another disparaging eye is cast on the new marriage by Anita Iannone, an analyst at T. Rowe Price Growth Stock Fund, part of the Baltimore-based T. Rowe Price Associates. Miss Iannone says that Du Pont management could have "done far better for the amount of money spent," She says the acquisition moves the company away from its strategy of diversifying into being a high-technology and science-oriented company. In the past, Du Pont has been viewed primarily as a supplier fo bulk chemicals and fibers. With the merger, she would consider Du Pont a diversified chemical and energy company.

Miss Iannone would view the merger in a different light if Du Pont were to sell Conoco's coal subsidiary, Consolidation Coal Company. Consolidation has been appraised at about $3 billion. "It would be a staggering coup to sell the coal company . . . the oil and gas would be a ral bargain," she says. Conoco's chairman, Ralph E. Bailey, told a press conference on Thursday, however, that speculation that the coal company might be sold was "utter nonsense."

Although Miss Iannone views the takeover as a "mediocre deal for the Du Pont shareholder," she declined to say how her company would vote the 430,900 shares of Du Pont in its Growth Stock Fund.

Even though Mr. Parrish intends to vote the mutual fund's shares against the proposed takeover, he considers his action more or less a lost cause.

"Who will organize the dissidents?" He asks, adding, "More shareholders vote with management, unless something is wrong or there is some kind of flagrant abuse."

Also, at least 50 percent of Du Pont's 146 million shares are held by large institutions, and 30 percent is held by the Du Pont family. Most of these shares are likely to be voted in favor of management.

Some Du Pont shareholders have already voted, in a manner of speaking. Du Pont shares have shrunk from $51.25 when the bidding began to a current price of stock has a yield of 5.2 percent and is selling at 9 times current earnings. But she thinks many people have now lowered their premerger selling target by at least 20 percent.

Not all analysts believe the merger is bad. James Burkart of Interstate Securites Corporation, a Charlotte, N.C.-based brokerage house, says that "the wisdom of this acquisition will be more apparent to shareholders in the middle 1980s," when oil and gas will once again be in short supply. Mr. Burkart also holds that Du Pont is committed to becoming a specialty chemical company and that this acquisition will not stop this move.

The market ended the week on a disappointing note, even though interest rates declined slightly. Bond dealers were particularly relieved that the Treasury had little difficulty in selling $2.25 billion in 10-year notes, yielding a record 14.98 percent. Analysts said the market remained skittish because of some concern over the effect of the air traffic controllers strike and uncertainty in the Middle East and Poland. For the week, the Dow Jones industrial average fell 9.80 points, closing at 942.54.