American Telephone and Telegraph Co. lost the first legal skirmish yesterday in its hostile takeover bid for NCR Corp., but experts on Maryland's anti-takeover laws say more battles may be forming over the issue in the courts.
Judge Frederic N. Smalkin dismissed yesterday a lawsuit brought by AT&T against NCR last week in U.S. District Court here. The suit challenged NCR's attempt to use Maryland takeover laws to prevent the acquisition, but Judge Smalkin said his court lacked jurisdiction.
NCR, the nation's fifth-largest computer company, is based in Dayton, Ohio, but is chartered in Maryland.
Wednesday, New York-based AT&T launched a tender offer for NCR worth $90 a share in AT&T stock, or a total of about $6.1 billion.
NCR directors rejected the stock bid, saying they would discuss a merger with AT&T if the company increased its bid to $125 a share, or a total of $8.5 billion. The giant communications company then countered by changing its $90-a-share bid to an all-cash offer.
In its lawsuit here, AT&T asked the federal court to prevent NCR from using, as a bar to being taken over, the Maryland Control Share Acquisition Act and the Maryland Business Combination Act, said James J. Hanks Jr., a lawyer with the firm Weinberg & Green who attended the hearing.
Since AT&T was merely contemplating acquiring proxies from NCR stockholders for the takeover, the court had no authority to decide the legal questions raised by the lawsuit, Judge Smalkin ruled.
The two Maryland takeover laws were enacted last year by the General Assembly in an effort "to protect stockholders of Maryland corporations against the abuses of the takeover frenzy of the 1980s," said Mr. Hanks, who helped draft the laws.
One allows a potential acquirer such as AT&T to hold a special meeting that, in essence, forces a shareholder referendum on the proposed acquisition, said John Woloszyn, a lawyer with the firm Frank, Bernstein, Conaway & Goldman, who also helped draft the laws.
The second statute prevents a corporate raider that acquires at least 10 percent of a Maryland corporation in a hostile takeover bid from merging with the Maryland company, selling or leasing its assets, or realizing tax benefits from the company for five years, Mr. Woloszyn said.
Both laws apply to NCR, since it is chartered in Maryland, he said. NCR, however, decided last week to waive its rights under the Control Share Acquisition Act, both lawyers said.
The legal waters were muddied Friday when NCR Chairman Charles Exley Jr. said in a statement that his company had no plans to sell itself to AT&T, despite the fact that the directors had set a minimum price.
The Business Combination Act was meant to give directors of a target corporation the option of negotiating with a hostile raider or "just saying no," Mr. Hanks said.
In light of Mr. Exley's statement, "I'm not sure what the message is. Perhaps this is a hard-line position designed to elicit the highest possible price," he said.
If, however, the NCR board of directors is actively trying to fight off AT&T, both companies could end up contesting the validity of the Maryland anti-takeover statutes in federal court, either here or in Ohio, Mr. Woloszyn said.
"Right now I don't know of any legal storm clouds gathering, but they're certainly possible in the weeks to come, depending on how hard AT&T pushes.
"From what I gather, the shareholders are really anxious to do the deal," he said.