Legislation to thwart hostile corporate takeovers of firms chartered in Maryland, introduced in the aftermath of last year's Martin Marietta-Bendix merger fight, has become the focus of a political skirmish with potential national implications.
The bill was approved by both houses of the state legislature and appeared almost certain to be signed by Gov. Harry Hughes. But lawyers for several Maryland-chartered corporations are arguing that the bill as written might make difficult even friendly transactions between a corporation and significant shareholders.
As a result of intense lobbying by Maryland and Wall Street lawyers and others, Hughes announced last Friday that he will hold a "veto hearing" Thursday to consider what action to take on the bill. The antitakeover measure and two others will be considered.
"While no one seems to be quarreling over the premise of the bill, a number of corporations believe the bill is too broadly drafted," a Hughes spokesman said last week. "The question the governor wants answered is whether the bill will be detrimental to Maryland corporations."
Among the consequences of the Bendix-Martin Marietta battle was a court ruling that found an earlier Maryland antitakeover law unconstitutional.
So, since last fall, in effect, there has been no Maryland law governing tender offers. And, generally, state antitakeover laws were found unconstitutional in an earlier case in which the U.S. Supreme Court ruled that an Illinois law interfered with interstate commerce.
Impetus for the legislation came from Maryland lawyers and politicians who wanted to make the controversial "two-tier" tender offers more difficult. Under two-tiered tender offers, the buyer agrees to pay a higher price to stockholders willing to part with their holdings immediately. There is usually a deadline for shareholders to respond to the offer, after which a lower price would be paid, putting pressure on shareholders to sell out.
The potentially precedent-setting questions for other states raised by this bill have caused ripples of interest on Wall Street.
The bill's most controversial provision would force corporations wanting to do business with institutions or persons holding 10 percent or more of the company's assets or market value of its stock to gain stockholder approval first. Deals affected would involve sales or other transactions worth 10 percent or more of the value of a company's stock.
That vote would require a tally of 80 percent or more of the company's outstanding shares and approval by two-thirds of the shareholders other than the interested party.
Spearheading the lobbying campaign to encourage Hughes to block the legislation are lawyers representing two Maryland-chartered corporations--American Motors Corp. and Certain-teed Corp.
The issue for AMC, for example, is the fact that Renault and Co., the French car maker, owns 46 percent of AMC's stock. According to James Hanks, a Baltimore lawyer, if AMC wanted to sell Jeeps to Renault, sales of about 7,600 Jeeps or more Jeeps would call into play the complex approval procedures designed to hinder two-step tender offers.
"I don't think this takeover bill was designed to place production controls on the number of Jeeps AMC can sell to Renault," he said. "There are a variety of transactions that could be affected here."
But the bill's supporters have rallied at least seven large Maryland-chartered companies, some based in the state, to urge Hughes to sign the legislation. Maryland-based companies, McCormick & Co. and PHH Group Inc., as well as companies with headquarters outside the state such as Foremost-McKesson Inc., are among the backers.
The bill's advocates say that AMC's problem could be overcome if the company's board of directors adopts a resolution before the measure takes effect, as of now on July 1, approving these transactions. But Hanks noted that it is "difficult to imagine in 1983 all of the types of transactions that a Maryland corporation might want to enter into five, 10 or 20 years from now."
On the other hand, Larry P. Scriggins, a Baltimore attorney with Piper & Marbury, and chairman of the state bar committee on corporate laws, argues that the situations raised by AMC representatives and others "can be taken care of.
"My answer is simply that Maryland chartered companies are in a position to have their boards adopt a resolution before the effective date," Scriggins said, noting that during legislative hearings on the bill no such opposition had surfaced.