In the dog-eat-dog world of corporate takeovers, Gov. Parris N. Glendening says he wants to give Maryland-based businesses a fighting chance to avoid being gobbled up.
Only problem is, some home-grown firms think the state should stay out of the fray, and they accuse the governor of doing a favor for a few influential businessmen.
Citing the potential loss of jobs, taxes and charitable donations when locally owned companies are bought out, Glendening has pledged to introduce a bill in the General Assembly that would give in-state firms some help fending off hostile takeovers. It is one of the governor's top economic development priorities.
"We're worried about protecting Maryland communities, Maryland employees and Maryland corporations," said David Iannucci, deputy secretary of business and economic development.
But Edwin F. Hale Sr., a Baltimore shipping executive and bank chief who has made two takeover bids himself, contends that the governor is proposing legislation that would be bad for the state's overall business climate. He suggests that Glendening is acting largely at the behest of H. Furlong Baldwin, the outspoken and fiercely independent chairman of Mercantile Bankshares Corp.
"Who's this law for? It's for Merc," charged Hale, whose firm, First Mariner Bancorp, made an unsuccessful bid last year to take over Glen Burnie Bancorp.
Hale contended that raising more legal hurdles to acquisitions would simply shield inept managers from being removed, hurt shareholders' rights and damage the state's ability to attract new businesses. "This is a very anti-business state," he said.
Baldwin was out of town duck hunting last week and could not be reached for comment. But Iannucci said the governor was responding to requests from several Maryland corporations, including Mercantile, Provident Bankshares Corp. and Sylvan Learning Systems Inc., the for-profit education firm headquartered in Baltimore. The governor's economic development commission also has endorsed the idea.
"We're not trying to specifically identify one company to protect," said Joseph Haskins Jr., chairman of the governor's commission and president and chief executive officer of Harbor Bank. "There are other states that have this legislation in place. It's been beneficial to their local companies. We think it may be of benefit to some of our companies."
Takeovers, especially hostile ones, often result in wholesale purges of the target firm's management and consolidation of headquarters and other operations. Communities suffer from the loss of jobs and tax revenue, and even from declines in giving to charities.
Maryland has laws intended to discourage hostile takeovers, as do most states. But Iannucci said new measures are needed to counter the latest wrinkle -- the "tender offer," in which a hungry firm offers to buy a target company's stock at a premium price, well over its current trading value.
Under those circumstances, the target firm's board of directors has a fiduciary duty to present the offer to shareholders, who frequently jump at the chance to sell their stock at a huge profit.
"Right now, [company managers] couldn't consider the devastating effect closing a Maryland headquarters would have," Iannucci said.
The bill being drafted is modeled on anti-takeover laws adopted in Pennsylvania and would give directors of Maryland-based corporations some extra powers, should they choose to use them, to resist unwanted takeover bids.
Though details are being worked out, Iannucci said that under one provision, company directors would receive some legal protection from lawsuits if they chose to reject a buyout offer because of its impact on employees and local communities.
The bill also would raise requirements for calling a special stockholder meeting to vote on a takeover bid, and it would limit the number of directors that can be removed at any one time.
"If a company does not have its act together, all this legislation would do is delay the inevitable," Iannucci said. "But if it's able to prosper, work at a profit, provide good-paying jobs and the profits are returned to Maryland, from the governor's perspective, that's much better than those profits being diverted to an out-of-state headquarters."
Of the firms mentioned by Iannucci as wanting takeover protections, two don't want to talk about it.
Alan D. Yarbro, Mercantile's general counsel, said it was bank policy not to discuss takeover issues publicly. A Provident spokeswoman, after checking with bank Chairman Peter Martin, said, "We didn't instigate this bill. We weren't involved in it at all."
Sylvan spokeswoman Vicki Glazer said that while the company does not fear a takeover, she said Chief Executive Officer Doug Becker "believes that it is a measure that will make Maryland more business-friendly. He supports anything that will make corporations want to do business in Maryland, and make Maryland more competitive with surrounding states."
But other Maryland business executives contend that takeover restrictions will have just the opposite effect.
"It's a waste of time," said Arnold Danielson, chairman of Danielson Associates Inc., a bank consulting firm in Rockville. "This is a negative for businesses in general, though maybe a plus for a handful who want to protect their management."
Danielson noted that Pennsylvania's anti-takeover law, which Maryland apparently aims to copy, delayed but did not prevent the recent sale of AMP Inc., a connector manufacturer with deep roots in Harrisburg.
AMP's management fended off a hostile takeover last year by AlliedSignal of New Jersey, but ultimately negotiated the company's sale to a higher bidder, Tyco International Ltd. Tyco pledged to retain AMP's chairman and chief executive officer, Robert Ripp, but up to 4,900 employees are being laid off to boost the company's profit.
Jonathan Karpoff, professor of finance at the University of Washington who has studied takeover laws in states, said the measures have succeeded in some cases in delaying or even preventing hostile buyouts. But he contended that the laws also devalued the stock of all companies in those states slightly -- by a fraction of 1 percent -- because investors feared restrictions on takeovers would shield poor management.
"They should do their business, ply their trade, and let nature take its course," First Mariner's Hale said of companies fearing takeover. "If they can show their stockholders they're doing a good job, what do they have to fear?"
Pub Date: 1/17/99