The chief executive of a St. Louis-based petroleum-distribution company who controls about 15 percent of Crown Central Petroleum Corp.'s voting shares has proposed a merger of the two companies and a change in Crown's management, according to Securities and Exchange Commission documents released yesterday.
In a letter to Crown's board of directors, Paul Novelly, chief executive of Apex Oil Co., said he was disappointed in Crown's performance and called for "a dramatic change" in the company's strategic direction. Novelly's plans call for him to replace Henry Rosenberg as chairman, chief executive officer and president of Crown for a three-year term after the merger.
Novelly said his group has seen its Crown shares decline from more than $40 per share to below $6 and that Crown has had only two profitable years in the 1990s. Crown, which operates 348 gasoline stations and convenience store outlets and two Texas refineries, has averaged an annual net loss of $12 million since 1990, Novelly wrote.
"The Novelly Group is not satisfied with Crown nor do I believe you are satisfied with the performance of Crown's stock," Novelly told board members in the letter.
John E. Wheeler Jr., Crown executive vice president and chief financial officer, said the company had just received Novelly's letter and could not comment on his proposal. "We're still trying to get it in everybody's hands," Wheeler said. "It just came in here around lunch time."
Crown Central Petroleum in February hired Credit Suisse First Boston's Energy Group to assist in "evaluating strategic alternatives," including selling part or all of the Baltimore oil company.
At the time, Crown said it could be a buyer or seller, merge with another company, sell a piece of its business or buy part of another company. Any deal would likely require the cooperation of the Rosenberg family, which holds about 49.85 percent of the company's Class A voting shares.
The Novelly Group holds 698,375 Class A shares of Crown and 174,400 Class B nonvoting shares; 72,000 shares have been bought since September.
In his letter to Crown's board, Novelly said his group attempted to work with Credit Suisse First Boston to structure a deal. "However, attempts to work with CSFB have been frustrated by delays and apparent refusals to meet," Novelly wrote.
The Credit Suisse First Boston official working with Crown was traveling and could not be reached for comment yesterday.
Outlining a strategy for the two companies, Novelly said Apex's wholesale marketing department operates through a system of terminals on the Gulf Coast and along the Eastern Seaboard.
"We believe this operation could add substantial value to Crown by providing an additional established market and distribution system for Crown's refined products, and an established source of supply for Crown's retail outlets." Novelly said Crown might also be helped by an Apex "hedging strategy," which reduces the risks from fluctuations in crude prices; and Apex's relationships with crude suppliers, which should lower Crown's refining costs. He wrote that "the combined companies should produce substantial annual net income."
Novelly's plan said Apex has "expressions of interest from lenders" sufficient to retire $125 million of Crown's long-term debt and replace credit lines on better terms. Novelly proposed that Crown issue shares to Apex of newly issued Class A common stock equal to 35 percent of Crown's outstanding common stock. Among the deal's closing conditions is the "satisfactory resolution" of a boycott against Crown led by the union that represents workers locked out of the company's Pasadena, Texas, refinery for more than three years.
Privately held Apex, which employs about 800, had sales of $1 billion in 1997.
Wheeler said yesterday that it was not clear yet how Crown would view the proposal. "It will be taken into advisement in combination with our financial adviser, Credit Suisse First Boston, and through our securities counsel, McGuire Woods Battle and Booth," he said.
Crown's Class A shares closed at $5.75, unchanged. The Class B shares rose 12.5 cents to $5.75.