Al Lerner's Big Deal: Greatness or Greed? MNC chairman defends terms with NationsBank

June 06, 1993|By David Conn | David Conn,Staff Writer

Alfred Lerner, the chairman of MNC Financial Inc., has bee hailed by many as one of the brightest businessmen this town has ever seen, and vilified by some as the epitome of greed. Sometimes both at once.

The taciturn Cleveland resident helped Equitable Bank more than double in size and vastly improve profitability after he bought 27 percent of the company in 1981. And he is credited with rescuing MNC and its subsidiary banks from a federal takeover.

But Mr. Lerner's final act, the proposed sale of MNC to NationsBank Corp., is leaving some MNC shareholders with a bad taste. They charge him with crafting a better deal for himself than for the rest of the company's owners. And they are likely to put the 60-year-old Mr. Lerner through the wringer on Thursday.

That morning, shareholders will decide whether to sell Maryland National Bank and the other parts of MNC in a $1.36 billion deal that Mr. Lerner negotiated. If holders of two-thirds of the shares endorse the deal -- and more than half already have, MNC says -- they will end the independence of Maryland's largest banking institution, with $16.9 billion in assets and 237 branches. And by October, if the merger stays on schedule, MNC would become part of the nation's fourth-largest banking company, one with $121 billion in assets and more than 1,700 branches.

But some shareholders are upset about a provision that favors Mr. Lerner -- the guarantee of a tax-free exchange of stock for anyone who owns 5 million or more MNC shares. That gives an edge to Mr. Lerner, with 8 percent of the 90.3 million shares, and Fidelity Investments of Boston, with a 10 percent stake.

Some smaller investors, including some of the 15,000 Maryland accounts that hold 13 million shares, could be forced to accept a taxable payment of cash instead of NationsBank shares, according to the deal's conditions.

Several stockholders also charge Mr. Lerner with giving away the store. They say the $15.17 per share price is too low, that it was negotiated when MNC was in far worse shape, and that other banks have commanded far more money.

"I personally don't happen to think it's a good deal," said Michael Macielag, president of Chesapeake Bank & Trust Co. in Chestertown and the owner of 4,000 MNC shares. "I think the company's worth more than that." And two Ferris, Baker Watts brokers in Hagerstown have written to Mr. Lerner criticizing the price. "It would appear to be a good deal for NationsBank and a resulting poor deal for long-suffering MNC shareholders," they wrote.

Mr. Lerner, and a number of securities analysts and investors, dismiss such thinking as Monday morning quarterbacking. If it weren't for NationsBank's $200 million investment last year, at a time when many questioned MNC's viability, MNC would still be limping along, they say.

In banking, "perception and reality are almost indistinguishable, and no banking company will survive if it's perceived that it won't," Mr. Lerner said last week in his office.

"At the last [annual] meeting, if I'd said, 'I can get you $15.17,' everybody would have been very thrilled, regardless if it was in cash, stock, lira or wampum."

Determining a fair price for a bank is an inexact science. Of 10 other major bank mergers announced since Jan. 1, 1992, prices have ranged from 166 percent to 260 percent of net worth, known as book value, says SNL Securities, a Charlottesville, Va.-based research firm. SNL calculated the NationsBank offer at 140 percent of MNC's Dec. 31, 1992, book value (not including the value of preferred stock).

Was MNC damaged goods?

Not all of those acquired banks were digesting troubled real estate loans, though. An analysis that MNC commissioned from Bear, Stearns & Co. for shareholders examined eight mergers since 1991 in which the acquired bank's nonperforming assets exceeded 4 percent of total assets (MNC nonperformers were 5.3 percent of assets on March 31, 1993). The deals had a median book value multiple of 120 percent; Bear, Stearns calculated the MNC deal at 133 percent of year-end book value.

Some of Mr. Lerner's critics scoff at that valuation, noting that MNC paid Bear, Stearns more than $2.3 million for services in the last two years. Still, analysts such as Diane Glossman, who follows NationsBank for Salomon Bros., concur. "Our opinion . . . was that MNC was a hurt puppy. There was no guarantee that the company would recover in a reasonable period of time."

Some analysts even think the price is too high.

About 35 percent of MNC's asset base remains in high-risk real estate, says Robert Bonelli, who manages the Ernst Bank Equity Fund L.P. in New York. MNC, whose stock closed at $14.50 Friday, still has nearly $900 million in nonperforming assets, and the regional economy is far from robust, he notes.

MNC looked strong back in 1989, when Mr. Lerner negotiated the merger on behalf of Equitable Bancorporation. MNC was coming off a record year: earnings of $212.5 million and assets of $20.3 billion.

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