Crown battle has way to go

Decision: No matter which offer receives the nod of the board of directors, the fight for the petroleum company probably will continue.

March 26, 2000|By Kristine Henry | Kristine Henry,SUN STAFF

Crown Central Petroleum Corp.'s board of directors is trying to decide who should be the victor in a takeover battle for the troubled refiner. But regardless of who wins this round, the fight may go on.

One proposal would put the company in the hands of the family that runs Crown, criticized by some for its management. The other would turn it over to a privately held St. Louis oil company that is loath to discuss its holdings or its plans for the Baltimore-based refiner other than to say it would oust Henry A. Rosenberg Jr., Crown's chairman, chief executive officer and president.

On the face of it, neither party is offering to pay what the company's assets could bring if they were split up and sold.

Rosenberg and his family, through their private holding company Rosemore Inc., are offering $8.35 a share for all the stock they don't own. Their proposal values Crown at $83 million.

Apex Oil Co. Inc. of St. Louis is offering $9.20 a share, valuing the company at $92 million. Crown's book value is $14.91 a share. And one of the few analysts who still covers Crown values its assets -- two Texas refineries, 331 gas stations and 13 terminals -- at $170 million.

But observers note that even if Crown has value on paper, finding a buyer for its holdings would likely prove difficult.

"Crown has the value of a comic book," said Jon Kyle Cartwright, the Raymond James analyst who came up with the $170 million valuation. "It could be worth $1,000, but you still have to find the guy who's going to buy it."

He said it would be hard to find someone to take over the stations because buyers are more interested in acquiring names like Exxon or Mobil.

He also believes that the refinery in Tyler, which handles about 52,000 barrels a day, would be impossible to sell on its own because of its remote East Texas location and its small size.

The larger refinery near Houston would be hard to sell because it isn't as advanced as many that surround it, he said.

And this isn't the best time to unload any refinery.

"It's not a sellers' market, that's for darn sure," said Allen Mesch, director of the Maguire Energy Institute at Southern Methodist University in Dallas.

For one thing, new rules calling for a lower sulfur content in gasoline are on the horizon, and it will take tens of millions of dollars to upgrade individual refineries to comply. Also, the Environmental Protection Agency is calling for a ban on the use of MTBE, or methyl tertiary butyl ether, in gasoline. The widely used additive reduces smog but can pollute drinking water.

"With all of this," Mesch said, "people are saying, `Why do I really want to be in this business?'"

Expanding presence

But Paul A. Novelly, head of Apex Oil, not only wants to be in the business, but expand his company's presence in it. He and his partners own about 15 percent of Crown's Class A shares and say they haven't been happy with their investment.

It's not surprising: Crown's Class A shares went from more than $40 a decade ago to less than $5 in December. Class B shares, which hold one tenth the voting power, have followed a similar decline.

The company has lost money in eight of the past 11 years, averaging a loss of more than $10 million annually. For 1999, it had a net loss of $30 million, or $3.04 per share, on sales of $1.27 billion.

In November, Novelly proposed merging Apex and Crown, and the offer is still on the table.

Crown's directors, Novelly or Rosenberg did not return calls seeking comment, and company officials won't discuss any of the proposals other than to say they will be carefully considered. But several different scenarios could be played out.

If the board takes no action, the proposals will expire April 17. However, when they were on the verge of expiring this month, both Rosemore and Apex extended the deadlines.

The board, which has a fiduciary duty to do what's best for shareholders, could approve the Apex buyout. But even then, the Rosenbergs, who own 49 percent of the Class A shares and 11 percent of the Class B shares, could block the deal when it goes before shareholders for approval.

"Generally speaking, shareholders don't have any duty to other shareholders to vote with the best interests of the entire company, or other shareholders, in mind," said Richard Booth, a law professor at the University of Maryland who specializes in corporations and securities.

But, he added, if the Rosenbergs voted against the Apex deal, other shareholders could bring suit.

"You can sue anybody for anything," he said. "It doesn't mean you'll win."

Analysts say the Crown board might be able to justify taking the lower Rosemore offer if it sees problems with the Apex proposal, such as potential financing problems.

However, Apex said in filings with the Securities and Exchange Commission that its offer "has no financing contingency, as Apex has adequate cash resources to fully fund the purchase of all Crown shares at the $9.20 per share price."

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