March 20, 2006

Pirate, GenCorp, and an Ohio Statute

NORWALK, Conn. (HedgeWorld.com)--Pirate Capital LLC filed its proxy solicitation with the Securities and Exchange Commission Monday [March 13] in connection with the annual meeting of the technology holding company GenCorp Inc., Sacramento, Calif.

GenCorp's board of directors responded Tuesday [March 14], with the definitive form of its own proxy solicitation.

The annual meeting, scheduled for March 31, will consider the election of three members of the GenCorp board, a resolution for the declassification of the board so that all directors hereafter will stand for election annually, and the appointment of PricewaterhouseCoopers LLP as GenCorp's independent auditors for fiscal 2006.

Pirate and the incumbent board agree on the appointment of Pricewaterhouse Coopers, but disagree on the agenda's other items.

Pirate has nominated David A. Lorber, Todd R. Snyder and Robert C. Woods for the board seats at stake. The GenCorp board, on the other hand, supports the re-election of three incumbents whose terms are expiring--J. Gary Cooper, Steven G. Rothmeier and R. Franklin Balotti.

Pirate maintains that the elimination of a classified board "is one step toward improved corporate governance at GenCorp" because it would "keep directors closely focused on performance" and the maximization of shareholder value. The board contends, though, that with a classified board, "the likelihood of continuity and stability in the Board's business strategies is enhanced, since generally two-thirds of the directors at all times will have had prior experience and familiarity with the business and the affairs of the company."

The board also has expressed the view that Pirate's criticisms of recent performance are misdirected. For example, board members contend that their efforts to maximize the value of GenCorp's real estate holdings are "on course but are not likely to be realized with the sale of residential lots before 2008."

The board's definitive proxy expressed the view that Pirate's board nominees have substantially less experience in relevant fields of business than do the incumbents. It made a partial exception in this charge for Robert Woods, who has been an investment banker at a real-estate investment bank since 1983. Even so, it said, "Pirate Capital's three nominees' relative lack of experience in, and knowledge of, the Company's businesses could be detrimental to the Company's current strategic plan, which has contributed to a significant increase in stockholder value over the past three years."

Pirate's filing on Monday reiterated the fund's earlier criticisms of certain recent actions by the GenCorp board, actions Pirate described as "value-destroying."

For example, in the second quarter of 2004, GenCorp announced its intention to sell its GDX automotive business unit and, in connection with this sale, wrote down the value of the related assets by US$261 million. In the following quarter, GenCorp announced that it had sold this asset, but had to take an additional US$18 million write-down on the basis of the sale price.

In October 2005, the company sold its Aerojet Fine Chemicals business for US$114 million and recorded a US$28 million loss on the sale, including the write-off of a US$25 million note received in the transaction.

Both parties' proxy filings this week mentioned a lawsuit that Pirate has filed in an Ohio state court seeking declaratory and injunctive relief on the ground that GenCorp may seek to invoke the Ohio Control Share Acquisition Act in an effort to defeat Pirate's proxy solicitation. The two sides disagree here on who said what to whom. According to Pirate's filing, "GenCorp has indicated to Pirate Capital Group that it may invoke this statute."

But GenCorp's solicitation states that it doesn't believe "and has not asserted, that the Act prohibits the solicitation of proxies and accordingly intends to vigorously defend this lawsuit."

CFaille@HedgeWorld.com

Contact Bob Keane with questions or comments at bkeane@investmentadvisor.com.

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