But proxy fight threatens CEO's job


May 29, 1991|By Ted Shelsby

A year ago this week, directors of Baltimore-based Allied Research Corp. elected Reinald W. Carter chief executive and assigned him the task of turning around a company that had struggled much of the past decade to stay alive.

In the words of Marvin B. Ruffin, the small defense contractor's chairman who has since died, it was a case of "throw him to the wolves and hold him responsible."

Allied hadn't posted a profit since 1987 and had chalked up a string of eight red-ink quarters.

But that was then. Earlier this month, Allied reported its second consecutive quarterly profit and predicted that it would be in the black for the full year. Its business backlog has risen more than 500 percent, to $239 million, and its stock price has more than tripled when compared with this time last year.

It's enough to make you wonder why Mr. Carter is threatened with being fired.

He wonders himself.

The threat to his continued employment at Allied comes from the other side of the world, where a wealthy investor from Saudi Arabia who holds about a 15 percent interest in Allied has initiated a proxy fight for control of the company.

Kusai H. M. Al Azzawi, in a filing with the Securities and Exchange Commission on May 19, said that it is his intention to nominate three people to Allied's five-member board of directors.

That's not all. If he is successful in the proxy fight, Mr. Azzawi says he also will name one of the men on his own slate as the new president and chief executive, the slot currently held by Mr. Carter.

The showdown comes tomorrow morning when Allied holds its annual stockholders meeting at the Hyatt Regency Hotel.

Mr. Carter declined to comment on Mr. Azzawi's power play yesterday, noting that the company is collecting proxies for the meeting and that he would not want to say anything that violates SEC rules.

In his filing with the regulatory agency, Mr. Azzawi declared that he intended to nominate Walter E. Fairbanks, Jean-Francois Vezina and Mark A. Bely to the board. They are not strangers to the company. Each is on the payroll of Allied's MECAR S.A. subsidiary in Belgium.

Mr. Fairbanks is the managing director of the overseas complex that produces tank ammunition and artillery shells and accounts for the bulk of the parent's sales. He also is Mr. Azzawi's choice to become the new CEO.

Allied Research's turnaround comes at a time when other defense contractors are struggling to hold their own because of declining Pentagon spending.

Mr. Carter says that Allied has benefited from the purchase of a bankrupt weapons manufacturer in Belgium, a couple of major contracts in recent months and -- strange as it may seem -- Europe's own cutback in military operations.

In December, he says, Allied acquired the inventory of PRB S.A., a munitions-maker in Belgium that was being liquidated by a bankruptcy court.

While he declined to give the purchase price, Mr. Carter says the move has been "very successful" and has brought in about "$40 million worth of business -- profitable business."

Allied also had the contract to demilitarize the plant so that it could be used for a civilian operation. This involved removal of explosive materials as well as its inventory of munitions.

In late March, Allied reported that it had been awarded an $88 million contract -- one of the largest in its history -- to produce anti-armor ammunition for an unidentified "friendly" foreign country.

The award sent Allied stock soaring. In two days of heavy trading, Allied shares rose 55 percent, from $5 to $7.75 a share.

While the superpowers are cutting back on military spending, Mr. Carter says that there are a number of countries that are concerned about the possibility of threats to their security -- like Iraq's invasion of Kuwait.

This is the reason, he said, for increased sales of ammunition capable of destroying tanks. The situation in Kuwait shows "that these things can happen, and they can happen fast," Mr. Carter said. "There's a market out there for the things we make."

Earlier this month, Allied reported first-quarter earnings of $1.6 million, or 38 cents a share, on sales of $17.5 million. This compared with a loss of $2.1 million, or 52 cents a share, from sales of $8.4 million in the first quarter of last year.

The good news pushed Allied shares close to $13. It has fallen since; Allied, traded on the over-the-counter market, closed yesterday at $10.50, up 37 1/2 cents.

Mr. Carter, an accountant by trade, first joined Allied in 1972 as corporate controller following a short career as a cattle rancher in Australia's Northern Territory. He resigned from Allied in 1976 to set up his own consulting business, but he continued to serve as the company's principal financial consultant.

He became a full-time Allied employee again in 1984, when he took the posts of executive vice president and chief financial officer. He was named president early last year and took over as chief executive last May.

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