The group of sixteen dissidents trying to take over Baltimore Bancorp will have difficulty achieving their goal, but it is not impossible, according to experts familiar with such struggles.
The attack on the parent of Bank of Baltimore is being led by Edwin F. Hale Sr., a Baltimore trucking and shipping executive and owner of the Baltimore Blast. The battle has heated up in recent weeks as both sides have purchased newspaper advertisements criticizing each other and have sought to score legal points in court. The big fight will come tomorrow morning when Baltimore Bancorp holds its annual meeting.
In a proxy fight, a group tries to convince shareholders to support its slate of candidates by sending in their votes before the annual meeting or casting them at the meeting.
John M. Nash, president of the National Association of Corporate Directors, an educational organization for corporate directors, said the proxy fights that are successful are ones where the company is doing badly and the stockholders are upset. It is also very helpful if the challenging group has a list of shareholders -- something the Hale group does not have.
The dissidents also have another large obstacle to overcome -- Baltimore Bancorp's staggered election of directors. Under this arrangement, about a third of the company's 18 members are elected each year for three-year terms. Normally this would prevent a majority of the board from being elected in any one year.
"It [taking over a board] is almost impossible with a staggered board," Nash said.
To get around this problem, the Hale group is proposing to increase the board by 10 seats to 28. Then, if the 16 dissidents are elected, they would become a majority on the board. But this effort poses problems of its own.
The bylaws of Baltimore Bancorp require a vote of 80 percent of the shareholders to change the size of the board, not a simple majority. But Hale's group contends that such a restriction should be in the bank's charter, not in its bylaws, under state law. However, the group was dealt a setback on Friday when U.S. District Court Judge J. Frederick Motz decided that the issue was a question of state law and was outside his jurisdiction.
The Hale group asked Motz yesterday to certify his decision so the case could be sent directly to the Court of Appeals, the highest court in Maryland. But despite the efforts of Hale's attorneys, it is probable that the legal issue will continue to be fought after tomorrow's annual meeting.
David Clarke Jr., an attorney for the law firm of Piper & Marbury, which is representing Baltimore Bancorp, said the bank has 15 days to respond to the motion by the Hale group. While the bank is willing to argue the case before whatever court is considered appropriate, Clarke said the issue is hypothetical until after the vote tomorrow.
In another development, the Federal Reserve System today said dissidents can pursue their effort, according to a spokesman for the Hale group. In a letter to the Federal Reserve on May 10, Baltimore Bancorp officials had questioned whether the takeover attempt was prohibited by banking regulations.
John J. Gavin, president of D.F. King & Co. Inc. of New York, a major proxy solicitation firm, agreed that Baltimore Bancorp's staggered board would make it "difficult, but not impossible" to stage a successful proxy fight.
But if the challengers only get a few of their representatives on the board, it would be a partial victory,
said. "Life would be different," Gavin said. Even if the group is defeated, it would serve to to make management more sensitive to shareholders, he said.
The Hale group is counting on stockholder discontent over the bank's rejection last year of a $17-a-share offer by First Maryland Bancorp, the parent company of First National Bank of Maryland. Baltimore Bancorp's stock yesterday closed at $8.87 1/2 a share.
The dissidents also argue that they will be able to improve the performance of the bank, which they say compares poorly to some of the top earning banks in the area.
However, Baltimore Bancorp has remained profitable even as other banks have suffered massive losses.
Arnold G. Danielson, president of Danielson Associates Inc., a Rockville bank consulting firm, said Baltimore Bancorp's profitability is hampered because it was a thrift before converting to a commercial bank in 1984. "Their ability to earn at commercial bank levels is practically non-existent," he said.
Danielson also questions whether the dissidents would be able to cut costs much more. "They [Baltimore Bancorp] are good on cost control," he said.
While Danielson said there may be a lot to criticize about the current management, Baltimore Bancorp is not in danger of going under. "They're just a dull performer. There is nothing dangerous about them," he said.