Lerner seeks OK to boost stake in MNC past 25%


Alfred Lerner, the newly placed chairman and chief executive of MNC Financial Inc., has asked for federal approval to raise his stake in the region's largest banking company to just past 25 percent, a crucial threshold that would allow him to acquire the remainder of the company without further regulatory hurdles.

The application, part of a planned $180 million capital infusion by Mr. Lerner into MNC, is the first indication that the Cleveland investor might proceed with additional purchases of stock in the open market to bolster his stake in the company.

Mr. Lerner, who also is chairman of a Cleveland-based insurance company, Progressive Corp., disclosed in the filing that Progressive would be participating in the equity infusion and could end up holding as many as 15.3 million MNC shares.

Analysts said the news of the application with the Federal Reserve Board, which regulates bank holding companies, might provide much-needed comfort to investors who have suffered as MNC's stock has skidded to below $5.75 a share from a high of $29.25 a year ago. Traded on the New York Stock Exchange, MNC closed yesterday at $6 a share, up 12.5 cents.

"I think that's clearly a positive for this company in that a guy who is as smart as Al Lerner is willing to put as much of his money where his mouth is and even take his position over 25 percent," said David S. Penn, a banking analyst with Legg Mason Inc. in Baltimore.

Whether Mr. Lerner will pursue purchases in the open market to boost his stake beyond the 25 percent threshold remains unclear.

But, according to various sources, Mr. Lerner's intent was clearly to keep open a number of possibilities by obtaining Fed approval in case he wanted to increase his stake.

"He's simply opening up his options," said Kyle Prechtl Legg, an analyst with Alex. Brown Inc. "I think he will be pretty careful. He isn't committing to anything. He wants to have as many options available to him as he can."

Mr. Lerner already controls 8.8 percent of MNC, the parent of Maryland National Bank and American Security Bank in Washington.

The account of Mr. Lerner's intentions, contained in a document filed with the Fed, also sheds new light on earlier reports from the company that Mr. Lerner's position would increase to only 23.8 percent -- based on 84.5 million shares outstanding -- upon completion of the capital infusion.

Under the terms of that plan, Mr. Lerner agreed to provide the fresh equity in return for a new series of preferred stock that would be convertible into common shares.

When added to the stake already held by Mr. Lerner, his total holdings in MNC Financial would reach to slightly less than 24 percent, the company has said.

In addition, other MNC directors were given the option of buying up to $90 million of the newly issued shares, reducing Mr. Lerner's final stake to no less than half of the new shares.

But according to the Fed filing, dated Aug. 31 and obtained by The Sun late Friday, Mr. Lerner intends to make additional purchases, possibly in the open market, to assure that his stake in MNC would reach 25.1 percent.

The Fed filing makes it clear that any participation by other directors could be matched by an equal reaction by Mr. Lerner in the open market.

"To the extent that any purchases of Preferred Stock are made by the directors," the filing said, "Mr. Lerner intends to make additional purchases in the open market or otherwise to acquire approximately the same number of shares of Common Stock into which such shares of Preferred Stock are convertible."

Mr. Lerner's application also presented for the first time his intention to have Progressive participate in the purchase of the new MNC preferred stock.

Under Fed rules, Mr. Lerner must control the additional MNC preferred shares to reach the 25 percent mark and thereby be free to increase his stake to 100 percent without further regulatory approval.

Depending on the approval of the Fed, Progressive could end up with 4.9 percent, 9.9 percent or 14.9 percent of MNC's common stock. The determining factor is at what level regulators believe Progressive -- and not Mr. Lerner -- controls the shares.

If regulators determine that a company controls the shares, it is deemed to be a bank holding company, by definition, when it owns more than 25 percent of a banking company's stock.

It then would have to apply for approval each time it purchased ad

ditional shares up to the 50 percent level, above which it is free to buy any amount it wants.

Mr. Lerner has argued in the filing that as chairman of Progressive Partners, a company that manages Progressive Corp.'s investments, he ultimately controls the MNC stock that may become part of the insurance company's portfolio.

"Progressive should not be deemed to be in control of MNC; if control of MNC exists, that control resides with Mr. Lerner and not with Progressive," the filing said.

Upon completion of the proposed transaction, if approved by the Federal Reserve Board, a company controlled by Mr. Lerner, the Maybaco Co., would continue to hold 7,552,775 MNC shares, or an 8.8 percent stake of the company.

Assuming that directors do not participate in the preferred stock transaction, Mr. Lerner and Progressive would pay $183.8 million for the additional shares.

In that case, Mr. Lerner would acquire 1,783,295 to 12,061,822 MNC shares and the Progressive Corp. would purchase 5,036,477 to 15,315,004 shares, depending on the Fed's ruling.

Further purchases in the open market or elsewhere would increase Mr. Lerner's stake to at least 25.1 percent, the filing said.

The Fed is expected to issue its decision within a month, according to a Fed official.

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