NEW YORK, 08/22/2000 (Dow Jones News Service)--Labor activists working to upend a family buyout of Crown Central Petroleum Corp. (CNPA, CNPB) say that, despite the odds, they have a shot at blocking the deal. The AFL-CIO - having jumped into the Crown merger fray - is keeping tabs on proxy voting, concluding that killing the insider deal isn't out of the realm of possibilities. Whether the labor union is indulging in unwarranted optimism or has truly tapped into widespread shareholder dissatisfaction with the pending buyout won't be known for certain until Thursday, the day the Baltimore-based company has scheduled a shareholder vote. Crown Central , which operates two refineries and several hundred gas stations, is a small player in the oil industry. The fight over control, however, has reached maximum intensity - complete with a rival bidder in the wings, dueling proxy solicitors working at full-throttle and unhappy refinery workers reaping the benefits of the AFL-CIO's involvement.
Shareholders are being asked to weigh a $9.50-a-share cash offer from Rosemore Acquisition Corp., a holding company controlled by Crown Chief Executive Henry Rosenberg and his family. At the same time, privately-held Apex Oil Co., which holds a large minority interest in Crown, has offered $10.50 a share and has urged shareholders to reject Rosemore's pact in favor of an open auction process.
Not only has Crown's independent board committee thrown its weight behind the Rosemore acquisition, the family controls a big chunk of votes, through its holdings of Class A and Class B shares. Between Rosemore, which holds 45.4% of the votes, other Rosenberg holdings and officers and directors who have pledged to support the merger, the deal's backers control nearly 47% of Crown's voting strength.
Just a few weeks ago, that voting block was enough to lead investors to believe the Rosemore merger was a fait accompli, said Brandon J. Rees, a research assistant at the AFL-CIO's office of investments. The labor organization has joined forces with the union representing Crown workers, the Paper, Allied-Industrial, Chemical & Energy Workers Union, or PACE, using an ad hoc group called Crown Shareholders For Fair Value as a vehicle to urge shareholders to reject the pact.
That attitude may be changing, Rees said, noting that one of the company's largest unaffiliated institutional investors, Dimensional Fund Advisors, has voted the majority of its position against the deal; Dimensional controls about 6% of the company's votes.
"There's been a real momentum developing against the Rosemore bid," Rees said, also noting that uncast proxies will be considered a no vote by the company. "We're not ready to declare victory. But we're optimistic this deal's going to go down, and the board will have to reconsider and put together a more favorable deal."
Under Maryland law, Crown needs to recruit two-thirds of the company's votes to its side. Under the guidelines, the union figures it needs roughly 1.8 million votes; according to a recent tally nearly 1.6 million votes were cast in opposition to the deal. That tally is a fluid number, and votes can be changed leading up to the meeting, he noted. Each Class A share represents one vote, while each Class B share is worth 1/10th of a vote. Crown: Labor Unions Don't Want What's Best For Co
Faced with steep operating losses over the course of several years blamed on declining refining margins, volatile crude oil and petroleum product prices and increased retail competition, Crown began exploring strategic and financial alternatives in late 1998.
At the same time, the company has been embroiled in a long-running labor dispute with PACE, which represents workers locked out of Crown's Pasadena, Texas, oil refinery since February 1996.
Rosemore originally offered to buy shareholders out at $8.35 a share in March. Since then, it has upped the price to $9.50, an offer still deemed inadequate by Apex, which holds a 13.6% voting interest in Crown, the second largest block. Crown shares were recently trading around $9.125, a sign shareholders think Rosemore will prevail. St. Louis-based Apex declined to comment on the vote.
In recommending the deal to shareholders, Crown cited in proxy materials "the arm's-length negotiations" between its independent board committee and Rosemore. The company said it considers the $9.50 takeover price a fair offer and "the best available value to stockholders," adding that "Apex has never presented a fully financed all-cash offer to acquire all of Crown."
Among Crown, Apex, and the labor-friendly shareholder group, investors' mailboxes have been filled with advice on which way to vote. According to the AFL-CIO, Crown's proxy solicitor has even gone as far as calling individual investors.
A Crown spokesman said the company wouldn't discuss how the vote was running or specifics of its drive to win over shareholders.
"We've engaged a proxy solicitor and they made every effort to obtain proxies on behalf of the company," the spokesman said.
Calling the merger "a sweetheart deal" that enriches management at outside shareholders' expense, Rees said the AFL-CIO has an obligation to protect the interests of worker funds invested in Crown. But the union's activities are also admittedly being driven by its labor agenda, its efforts reflecting concern over "a long history of poor labor relations," Rees said.
Steven Wise, the Crown spokesman, questioned labor's motivation in working against the deal.
"The unions have made it pretty clear over the last few years that they're interested in doing what's worst for the company and not what's best - all in an effort to force our hand at the bargaining table," he said.
If the dissidents manage to prevail, the long-term fate of the troubled company would be far from settled. While taking no position on the Apex offer, the AFL-CIO "would like to see Rosemore either reevaluate its business strategy and take a more long-road perspective on its labor relations, or be replaced by a more capable management that can realize value for shareholders."
Apex would still face an upward climb for control even if it succeeds at busting the deal on Thursday, a situation that could result in a stalemate, said Patrick McGurn, director of corporate programs at Institutional Shareholder Services, which has advised institutional clients to vote against the deal.
"It's not a slam-dunk for Apex if Rosemore doesn't make it," he said. "There's a slew of anti-takeover rules that have been waived for Rosemore that wouldn't necessarily be waived to consummate the Apex offer."
Even if Apex were to succeed in interfering with the deal, by blocking the two-thirds vote necessary for the merger, it doesn't mean the company could actually drum up two-thirds of the votes to its side in a hostile takeover situation.
"Therein lies the stalemate issue," he said. "The blade cuts both ways."
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