Alfred Lerner, chairman and chief executive of MNC Financial Inc., has won a partial victory in his bid to acquire more than 25 percent of the region's largest banking company.
The Federal Reserve Board, which regulates bank holding companies, ruled this week that Mr. Lerner and the Progressive Corp., a Cleveland-based insurance company of which Mr. Lerner is chairman, could increase their combined stakes to beyond the 25 percent threshold.
But the total stake held by Progressive, Mr. Lerner and an invest
ment company he controls, The Maybaco Co., cannot reach beyond 29.9 percent without further regulatory approval, the Fed ruled in a letter dated Wednesday.
Maybaco, which is by definition a bank holding company, is MNC's largest shareholder, owning 7.3 million shares, or 8.5 percent, of MNC's 86.3 million outstanding shares. Mr. Lerner personally holds 0.3 percent of MNC's stock, according to the Fed letter.
The convoluted case revolves around a request by Mr. Lerner to increase his stake beyond a critical 25 percent threshold.
If the Fed had approved the origi
nal application and Mr. Lerner had increased his position beyond 25 percent, he would have been able to make any additional purchases of MNC shares -- up to 100 percent of the company -- without needing prior regulatory approval.
Under his original application to the Fed, Mr. Lerner would have been joined by Progressive in making the stock purchases, and the resulting combined stakes of Progressive, Mr. Lerner and Maybaco would have added up to more than 25 percent.
Mr. Lerner had argued that any MNC stock held by Progressive should be counted as part of his personal holdings, given the fact that Mr. Lerner manages all investments for Progressive under a separate consulting agreement with the company.
His control over Progressive's investment portfolio should be interpreted in such a way that any MNC stock bought by Progressive would be part of Mr. Lerner's holdings, he argued.
The Fed took issue, however, with how control of the shares would be divided.
While ruling that Progressive, Mr. Lerner and Maybaco could increase their collective stake to beyond 25 percent, the Fed said Progressive's stake could not be considered part of Mr. Lerner's personal holdings. The result was that Progressive was permitted to buy as much as 5 percent of MNC's shares, but no more.
Owning a greater stake would, by definition, make Progressive or its investment subsidiary into a bank holding company, which would not
Maybaco, which holds 8.5 percent of MNC's shares, did not ask for permission to raise its stake and thus will continue at its current level. Mr. Lerner is deemed to control Maybaco, and its stake, unlike Progressive's, is counted as part of his.
Mr. Lerner, the Fed said, could increase his MNC ownership by the
11.3 percent that is needed to give the three entities a total of more than 25 percent.
But if Mr. Lerner and Maybaco together want to go beyond the 25 percent threshold, further regulatory approval is required, the Fed ruled.
Mr. Lerner and Progressive have one year in which to make the additional purchases.