Bid to go private has a public side

The mood at Crown Central Petroleum Corp.'s headquarters on the 22nd floor of downtown's Blaustein Building has brightened considerably in recent months. The refiner's shareholders will vote Wednesday on an offer that would take the company private, and despite a bruising first-round rejection last summer, this time signs point to victory.

The move would end Crown's 66-year legacy as a public company but preserve a business that has been run by Chairman Henry A. Rosenberg Jr.'s family for seven decades and pave the way for the next generation to assume control and map the company's future.


It also would place Crown out of reach of unwelcome takeovers by out-of-state firms - it narrowly avoided one several months ago - and ensure its future in Baltimore. While the company employs only about 150 here, its impact on philanthropic activities has been strong, and those in the civic community are relieved that the company is staying put, regardless of whether it's publicly or privately held.

"Whenever we needed money, we would go to Henry," said state Comptroller William Donald Schaefer, former mayor of Baltimore and governor of Maryland. "The Rosenbergs are very good corporate people and have helped the city all along. If we would have lost their headquarters, it would have been bad."


Stockholders are to vote on an offer to sell their shares for $10.50 each to the Rosenberg family's holding company, Rosemore Inc. Shareholders rejected a similar proposal in August, but circumstances have changed. If they say yes this time, a company that has been synonymous with Baltimore's business community for more than 70 years will remain intact.

The refiner's roots here go back to 1910, when Rosenberg's maternal grandfather, Louis Blaustein, formed American Oil Co., selling kerosene from a horse-drawn wagon.

The Blausteins lost control of Amoco after a series of legal battles resulting from the acquisition of an affiliate by Standard Oil of Indiana in 1925, but they remained substantial shareholders. (Forbes magazine reported in 1998 that Blaustein descendants owned $1.6 billion in Amoco shares.)

A company led by Blaustein then bought a 48 percent share of Crown in 1930, which had been founded by Texas speculators 13 years earlier. Today, the Rosenbergs control 49 percent of Crown's A shares and 11 percent of its B shares, which have a tenth of the voting power of A shares.

The family's long history - as well as fabulous success - here is not lost on Rosenberg, who became president of Crown in 1966.

"If you get something out of the community, both monetarily and otherwise, as far as I'm concerned you're obligated, if you can, to put something back," said Rosenberg, 71. "That's the way I grew up and that's the way I've tried to live my life."

Despite his generosity and prominence in Baltimore's social circles, Rosenberg has had his share of critics. Unhappy investors have derided his management as Crown racked up $139 million in losses between 1990 and 1999, and its widely traded B shares sank from $36 in 1989 to a recent 52-week low of $6.25.

Union members waged a bitter and personal five-year boycott against the company - including attempts to derail the merger with Rosemore - after 250 of its members were locked out of Crown's Pasadena, Texas, refinery in February 1996 when contract negotiations broke down. Crown alleges that union members sabotaged the plant, a charge the workers deny.


Rosenberg said media coverage of these issues has been unfair to the company at times, which he finds "frustrating" but has generally learned to shrug off.

"Oh, sure, after all these years, you get beat up and turn the other cheek and get hit again. It's just disappointing because the business community is what supposedly makes it all tick," he said. "So when the media beats up on the business community I say, well, what the hell? Why should I be here, you know? Give me a break."

Labor settlement

The refiner and the union, the Paper, Allied-Industrial, Chemical & Energy Workers Union International (PACE), reached a settlement in January, and workers have begun returning to their jobs. As part of the agreement, PACE will not oppose the Rosemore proposal.

"If this [merger] is what Crown wants to do, I suppose that's OK with us," said Robert E. Wages, executive vice president of PACE.

Also working in favor of a positive vote is an agreement worked out with Apex Oil Co. of St. Louis, which had been trying for more than a year to take over Crown and oust Rosenberg. Apex's chief executive officer, Anthony Novelly, proposed in November 1999 that the two companies merge. Crown rejected the offer, and a bidding war between Apex and Rosemore ensued.


Although ultimately not successful in acquiring Crown, Novelly was instrumental in getting Rosemore to raise its offer for the Crown shares it doesn't already own from $8.35 to $9.35 to $9.50 to the current $10.50 - a figure that means the Rosenbergs would pay $82 million.

Under the agreement with Apex, which controls 13.6 percent of the votes entitled to be cast, Crown will pay $1.75 million for costs associated with Apex's attempted takeover and will buy Apex's shares at $10.50 each even if the merger vote fails.

Another bright spot for the Rosenbergs is that a proxy advisory firm, which last summer recommended a vote against the $9.50-a-share Rosemore merger, is now in favor of the deal.

Bimal Patel, an analyst at Institutional Shareholder Services, said that, thanks to Novelly's actions, Rosemore is offering a fair price.

"It definitely warrants shareholder support," he said.

The vote also comes at a time when Crown's fortunes appear to be on the upswing.


The Gulf Coast crack spread - the difference between what refiners such as Crown pay for oil and what the refined product brings in - has improved, going from $2.76 a barrel for the first 11 months of 1999 to $4.89 per barrel during the like period in 2000. Crown's net loss during that 1999 period was $29 million; in the 2000 period it was $2.5 million.

Crown owns two refineries, both in Texas, which together can produce about 152,000 barrels of gasoline, home heating oil and diesel and jet fuel per day.

Despite better margins, it's possible Crown could get out of the refining business. In filings with regulators, the company's advisers have laid out two possible futures: one in which Crown keeps its refineries and one in which it sells them to focus on its 330 gasoline stations and convenience stores throughout the mid-Atlantic region.

At issue, besides Crown's smaller size, is an environmental regulation requiring refiners of gasoline and diesel fuel to cut the amount of smog-producing sulfur in their products beginning in 2004.

Crown expects compliance with the measure will cost at least $25 million.

But simply dumping refining and focusing on service stations might not be very lucrative, said Louis Gagliardi, vice president of John S. Herold Inc., an industry consulting firm.


"Retail has very tight margins. You can make up some of that by opening convenience stores and selling other products, but at the end of the day, it's refined product that you're trying to sell," he said.

Spending the money to comply with environmental regulations may not be cost-effective, he said, "but to just stay with retail, I don't know if that's the answer."

Crown won't say whether it was motivated to settle its labor dispute in order to make selling its refinery easier, but Gagliardi said it definitely would be more difficult to find a buyer during a lockout.

"Who wants those issues?" he said. "You need a clean slate to move forward."

James L. Smith, a professor of oil and gas management at the Maguire Energy Institute at Southern Methodist University in Dallas, said Crown could unload its refineries and still be profitable as long as it has competitive prices and good locations.

Because Crown is not a national brand, its stations tend to be in local communities rather than at interstate highway exits - and that can be an advantage.


"If you have a convenient neighborhood filling station where you can get in and get out, with good prices, that breeds loyalty," Smith said.

Crown officials won't discuss the company's future, although regulatory filings indicate it plans overhead reductions and will make "an asset-by-asset determination as to which assets to retain." A company spokesman said no wholesale layoffs are expected.

Assuming the merger goes through, Rosenberg will step down as chief executive and president, but retain his title as chairman of both Crown and Rosemore.

His older son, Frank B. Rosenberg, 42, will run Crown. Edward "Ned" Rosenberg, the younger son, is CEO of Rosemore.

Henry Rosenberg said he will remain active in his philanthropic endeavors, but doesn't plan to increase that focus.

"It's time that the next generation does that," he said.


'A huge plus'

Vincent F. Connelly, vice president of the Association of Fundraising Professionals' Maryland chapter, which recently honored Rosenberg as its philanthropist of the year, said retaining Crown's base here would mean a lot to civic groups.

"Towns like New York have a lot of corporate headquarters. Baltimore does not have as many as we would like," Connelly said. "Corporations and corporate heads tend to give where they are. It's a huge plus for the philanthropic community to have Henry Rosenberg in town."

Dr. Gary W. Goldstein, president of the Kennedy Krieger Institute, a hospital and school for children with physical and learning disabilities, said Rosenberg has been instrumental in recruiting other business leaders, such as Robert J. Lawless, chairman of McCormick & Co., to get involved with the institute. Rosenberg is chairman of Kennedy Krieger's board.

"It would be a horrible loss to us if Crown did leave," Goldstein said.

"Collectively over the past 10 years [Rosenberg has] donated close to $2 million ... , and that wouldn't have happened if he wasn't a player in the community and if the company wasn't here."


Scout troop leader

Rosenberg, following in his father's footsteps, is also a major supporter of the Boy Scouts. Rosenberg Sr. was a troop leader whose Scouts included civic leader Walter Sondheim Jr. and John Schapiro, former owner of Laurel Race Course.

"Henry has helped me to meet some of the right people in town to expand our base - everything from Mayor [Martin] O'Malley to other corporate leaders in town," said Bob Myers, director of development for the Baltimore area Boy Scouts, adding that Rosenberg gives the group about $50,000 a year. "I would consider Henry and his family one of the strongest pillars of this community."

Rosenberg estimates that "in excess of $1 million" is given annually between his personal donations and those made through Crown and various family foundations.

He is also a major donor to many political campaigns.

According to the Federal Election Commission, he has given $70,000 to the Republican National State Election Committee since 1998, at least $5,000 to the Democratic Congressional Campaign Committee, and smaller amounts to various individual campaigns, including those of Democratic Rep. Elijah Cummings of Baltimore and Republican Sen. Phil Gramm of Texas. Gramm introduced Rosenberg to then-Vice President George H. W. Bush in the 1980s.


'He's a friend'

Rosenberg commissioned a painting of Bush for his presidential library in College Station, Texas. When that painting was moved to the state Capitol in Austin, Rosenberg paid for another one, this time of Mr. and Mrs. Bush and their dog, Sadie.

Rosenberg "is a leader in his industry," the former president said in a statement via e-mail last week, "respected by all, and I'm glad he's a friend."

Rosenberg, who lives in Stevenson with his wife, Dorothy, said the couple plans to travel more after he retires, including spending more time at their part-time homes in Aspen, Colo., and Houston and taking trips to Europe.

The former lacrosse goalie, who was an honorable mention All-American in 1951 and 1952 at Hobart College in upstate New York, also plans to spend time at the tracks, both horse and race car.

Rosenberg is a huge NASCAR fan and owns about 40 Thoroughbreds throughout the country.


"I'm not," he says, "going to fade into the sunset."