Crown Central Petroleum Corp., a publicly traded Baltimore company since 1935, said yesterday its board of directors has approved a deal to take the oil refiner private, putting it solely in the hands of the family that built it.
Pending shareholder approval, the refiner will become a wholly owned subsidiary of Rosemore Inc., a holding company run by the Rosenberg family, which controls Crown. And there is a possibility Rosemore will relocate outside Maryland, taking Crown and its 180 Baltimore jobs with it.
Rosemore, which controls 11 percent of Crown's Class B stock and 49 percent of the Class A stock, will pay $9.50 for each share it does not own, a 12 percent premium over the closing price Friday -- the day the board approved the offer.
Its Class A shares, which carry 10 times the voting power of the Class B shares, have fallen from more than $40 10 years ago to less than $5 in December. Class B shares showed a similar decline. The free fall tracked Crown's dismal earnings. It posted losses in eight of the past 11 years, and last year lost $30 million, or $3.04 per share, on sales of $1.27 billion.
In February 1999, Crown hired Credit Suisse First Boston to find "strategic alternatives," which could have included selling all or part of its assets. The ensuing decision to accept Rosemore's offer, which values Crown at $95 million -- $54 million less than its book value -- comes after a monthlong bidding war for the refiner.
Early last month, Rosemore offered $8.35 a share for outstanding stock. That offer was met with a competing bid from privately held Apex Oil Co. Inc. of St. Louis, and Rosemore eventually raised its bid to $9.35.
Apex has made three bids for Crown since November: An offer of $9.20 in cash for Class A and B shares; a merger of the two companies; and a private placement purchase of up to 4.5 million of previously unissued Class A shares for $9.50 each.
On Friday evening, the head of Crown's independent board, Michael F. Dacey, contacted Rosemore officials and said the board would recommend a deal with Rosemore if it would offer $9.50 a share instead of $9.35.
"After some discussion, Rosemore agreed to that," said Crown spokesman J. Steven Wise. When asked if Apex was also given an 11th-hour opportunity to raise its bid, Wise said he was "not aware of any further discussion there."
Officials at Apex did not return phone calls seeking comment yesterday.
Crown's chairman, chief executive officer and president, Henry A. Rosenberg Jr., who recused himself from the board vote, also did not return calls.
Edward L. Rosenberg, 44, son of Henry and chief executive of Rosemore, said it would be premature to discuss Crown's future and what Rosemore will do to reverse the refiner's fortunes. But he did say he is upset about the criticism Crown and his father, who is active in the philanthropic community, have sustained.
He pointed to a 1998 Baltimore City Council resolution that called on city residents to "support the efforts" of the union that was locked out of Crown's Pasadena, Texas, refinery in 1996 -- and remains locked out today. The Paper, Allied-Industrial, Chemical & Energy Workers Union International(PACE) has recommended a boycott of Crown's gas stations.
"I feel somewhat strongly that the way people acted toward Crown is unacceptable," Rosenberg said. "Whether Crown would leave Baltimore, a lot of people's lives are at stake and it's not a decision we would make simply and easily."
He added that in "today's environment" it is easier to be a private company. "Unfortunately, our legal system allows a lot of frivolous lawsuits to be thrown at the company," he said. "In the public arena you tend to be an easier target for people like that."
Crown is facing litigation on several fronts, including a lawsuit by a PACE member and shareholder who alleges Crown's board is not working in the best interest of stockholders. Analysts say more suits, from institutional shareholders, could be in the works.
Crown also faces a federal suit alleging its Pasadena refinery violated the Clean Air Act by exceeding legal release limits for sulfur dioxide and by burning gas containing hydrogen sulfide.
Joe Drexler, director of special projects for PACE, said the change will not affect the union's ability to negotiate with Crown.
Alvin D. Silber, an oil analyst for Herzog Heine Geduld in New York who also owns Crown shares, said he thinks the Rosemore offer is fair.
"[Henry] Rosenberg devoted his life to working at Crown and he had his fun; you can't feel sorry for him," Silber said. "He toughed out a difficult period and certainly has the ability to take the whole mess private and see what he can do with it."
The family's roots in the oil business date to 1910, when Louis Blaustein, Henry Rosenberg's grandfather, formed the American Oil Co., or Amoco, selling kerosene in Baltimore from a horse-drawn wagon. In 1923, he became a partner in Pan American Petroleum and Transport Co., which was later purchased by Standard Oil.
A legal battle followed, and a 1954 settlement took the Blausteins out of management but made them the largest shareholders in Amoco, now BP Amoco PLC. Forbes reported in 1998 that Blaustein descendents owned $1.6 billion worth of Amoco shares.
In 1930, Blaustein bought a 48 percent share of Crown Central Petroleum, a small oil exploration and refining company founded in 1917 by Texas wildcatters.
After poor earnings at Crown, the investment-management company set up by Blaustein's descendents, American Trading and Production Corp., split up in January 1999.
That left some Blaustein heirs focused on real estate and on the production and distribution of office products. Crown and other refining concerns were left in the hands of the Rosenberg family.
Analysts say Crown, which has 331 gas stations, two refineries and 13 terminals, is a small player in a field of giants with no economies of scale. It is unclear how taking the company private will address Crown's fundamental problems.
And while analysts say shareholders should be happy to get $9.50 a share, bondholders had hoped Apex would win the bidding war because that would have triggered a change-of-control clause and Crown's $125 million in bonds would have to be paid off instantly. The bonds are now trading at less than 80 percent of their value.
A clause in the bond agreement says if Crown stays under the control of the Rosenbergs, the change is not triggered. "This is the best deal shareholders could have expected," said Jon Kyle Cartwright, senior fixed-income analyst at Raymond James Financial Center in St. Petersburg, Fla. "It is the worst deal for bondholders."