Pa. is cool to hostile takeovers


T.ROWE PRICE is having trouble moving some money across the border. The government has erected capital controls and, as a result, Price can't sell securities it owns to an outside buyer who is willing, solvent and ready with a very nice offer.

"It's caveat emptor" for investors in this particular jurisdiction, said Stephen Jansen, a stock analyst for Baltimore mutual-fund house Price. "Let the buyer beware."

No, it's not Malaysia we're talking about, or Chile. The place with the exotic financial barricades is the Commonwealth of Pennsylvania, and word is getting out.

T. Rowe Price's contested piece of the Keystone State is 3.6 million shares of AMP Inc., the huge electrical-components maker with headquarters in Harrisburg. AlliedSignal Inc., based in New Jersey, has been trying to buy AMP since summer for $44.50 per share, cash.

AMP's board has refused, despite the fact that the stock sells only in the $40 range and traded as low as $28 in August.

In most states, the board's balk would simply be prelude to surrender. AlliedSignal would go straight o shareholders with a freelance tender offer. Shareholders would take the money.

AMP would melt into AlliedSignal, and hundreds or thousands of the 9,000 Pennsylvanians working for AMP would lose their jobs. Game over.

But Pennsylvania is not most states. Its laws give native corporations extra ammunition against hostile takeovers. Its code explicitly allows corporate directors weighing buyout offers account for the interests of employees and communities along with those of shareholders.

The state "has a more restrictive statutory regime against hostile takeovers than most states I know of," said Eric Orts, professor of corporate law at the University of Pennsylvania's Wharton School. Plus, "historically, the Pennsylvania legislature has been willing to change the law in order to protect the company" under assault.

Yes it has. Pennsylvania's Legislature is trying to lay new speed bumps before an AlliedSignal-AMP deal, and even the state's Republican, pro-business governor, Tom Ridge, has said he favors them.

Pennsylvania's anti-takeover laws were credited with repelling the Bank of New York earlier this year when it sought to buy Pittsburgh's Mellon Bank. And before that, they kept Norfolk Southern from buying Conrail for months, although Norfolk Southern mainly prevailed later on.

It's not hard to empathize with Pennsylvania. Its puzzle is xTC essentially the one faced by Maryland, Malaysia, Japan and other anxious governments around the planet. Who should affect local jobs and capital, and to what degree? Some financier in another time zone? Or the local sovereignty?

The friction-free fund flow that has so upset developing nations this year has also hollowed out traditional strongholds of American corporate management. Second-tier cities such as Baltimore, Philadelphia and Hartford, Conn., have lost tens of thousands of white-collar, Fortune 500 jobs through moves and mergers over the past 15 years, not to mention blue-collar jobs shipped overseas.

One reason Maryland's General Assembly is so reluctant to let Blue Cross and Blue Shield of Maryland issue stock is that the insurer would almost certainly be bought by a bigger financial services company and downsized.

So you're a Pennsylvania governor, a Maryland senator, an Indonesian strongman, a German Bundestag member. What do you do?

Control investment, preserve entrenched jobs and risk being labeled, as a Wall Street Journal editorial recently called Pennsylvania, "an industrial graveyard"?

Or woo the capitalists with liberal roaming rights and then hope for requital?

This is the dilemma the world will face in coming decades.

Right now in Pennsylvania, the AMP employees are winning. And T. Rowe Price's mutual funds are losing, to the tune of $16 million. But the global free-enterprise trend is not Pennsylvania's friend.

While Price's Jansen hasn't avoided Pennsylvania stocks because of the state's legal setup, "any time you make an investment in a Pennsylvania corporation, you probably have to take that into account," he added. "And that probably means you're not going to pay as much for companies that are based there."

Pub Date: 10/25/98


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