ov. Harry Hughes vetoed a bill today that was designed to protect Maryland corporations from hostile takeovers and announced that he will call a special session of the General Assembly, probably on June 21, to pass another version of the bill.
The bill was drafted by the Maryland Bar Association in response to a court ruling last year that declared Maryland's existing antitakeover law unconstitutional. The ruling came at the height of an unsuccessful attempt by the Bendix Corp. to take over Bethesda-based Martin Marietta. As passed by this year's General Assembly, the bill would have required 80 percent of all stockholders to approve any major transaction.
Corporate executives who urged the veto, both individually to the governor and his staff and in testimony at a veto hearing last Thursday, said the bill would make it difficult, if not impossible, to secure approval for major transactions such as takeovers. The president of American Motors, which incorporated in Maryland in 1916, testified that to achieve the so-called super majority of 80 percent of all prime stockholders would likely mean that 99 percent of the stockholders attending a meeting would have to agree.
House Speaker Benjamin L. Cardin, the bill's chief sponsor, had urged Hughes to sign the legislation despite the problems, saying they could be corrected in the regular 1984 legislative session.
AMC and other corporations similarly affected warned that signing the bill would force them to incorporate in another state.
Hughes said today that after studying the 11-page bill for five hours on Sunday, he agreed with its opponents. His call for a special session, at his final bill signing ceremony of the year, caught legislators by surprise and angered some of them, who failed to see the emergency that is usually associated with a special session.
"It's a bloody waste of time and money. There is absolutely no emergency here," said Sen. Howard A. Denis (R-Montgomery). "The stock market is high and even when it's low there are only about 100 corporate takeovers in the entire country each year. This could easily have waited until January."
Under the vetoed bill, a transaction is considered major if it involves a party holding 10 percent or more of a company's stock. Since 47.4 percent of AMC's stock is owned by Renault, the European car maker, AMC would not have been able, for example, to authorize sale of its European jeeps, which are made by Renault, without that 80 percent vote.
Additionally, the legislation affected mutual funds. It would have meant that if a person or group bought 10 percent or more of a mutual fund it would be unable to sell back to the fund or buy more from the fund without approval of the 80 percent super majority.
Tentative plans call for the bill to be rewritten to exempt mutual funds and to also require a purchaser of more than 10 percent to hold onto the stock for a certain period of time before making transactions without the 80 percent vote. Such changes would, for example, allow AMC to do business with Renault, and allow friendly takeovers to take place while making hostile takeovers more difficult.
One concern about calling a special session is that it cannot be limited to a single issue. Once the legislature is officially meeting, any order of business can be brought up. For example, as soon as Hughes announced the special session today, Denis refiled a bill that died in committee during the last session that would give juries the option to sentence a defendant convicted of a capital crime to life without hope of parole.
Further, before any legislation can be considered, all 64 of Hughes' vetoes of this year's session must be considered. Most of the vetoes merely corrected technical flaws, such as misprints, but 11 were for policy reasons, and the sponsors of the latter bills may want to take up time arguing against sustaining the veto.
Speaker Cardin, concerned that Hughes' call for a special session would be interpreted as a political accommodation to him, said, "We are told the bill can be corrected within the next week. If so, our committees can meet on it in two weeks and we can have the session on the 21st. If it can't be done in a week, we would have to delay the session."
Cardin said that if the session is held to one day the cost to the state will be minimal. "Many legislators are down here on Tuesdays anyway," he said.
But other legislators estimated that a one-day session would cost a minimum of $10,000, including per diem allowances for the 188 legislators, and expenses for staff, printing and maintenance, such as turning on the electronic vote machines and other devices necessary for the assembly to function.
There is also the possibility that the business would not be finished in one day and then the costs would go up considerably. Last August, when Hughes called a special session to extend unemployment benefits, legislators were in the midst of their campaigns and had little desire to spend time away from the campaign trail. In an off-year, there may be more rhetoric in the chambers.
"If I did not think this was an extremely important bill I wouldn't call for the session," Hughes said. "But if we wait another year, some Maryland corporations may be subject to takeovers and won't have any protection against it." But Hughes said he did not know of any specific situations like that.
Hughes vetoed one other major bill today. It would have required developers of new towns, such as Columbia, St. Charles and Kettering, to pay an agricultural transfer tax for having developed what was once agricultural land. Hughes said that because the new towns have been good for the state and because the tax would come at the end of a project instead of at the beginning, he opposed the bill.