B of A Directors OK ‘Poison Pill’ Plan--Just in Case
In the wake of predictions that BankAmerica, the nation’s third-largest banking company, will return to profitability this year, the firm’s board of directors Monday adopted a “poison pill” defense, even though the company said it knows of no plans for a hostile takeover.
BankAmerica said it approved the “preferred share purchase rights plan” to “protect shareholders’ interests in the event of partial tender offers, squeeze-outs, and other abusive tactics to gain control of BankAmerica without paying all stockholders a premium.”
BankAmerica Chairman A. W. Clausen said the board “did not adopt the rights plan in reaction to any specific proposal. However, it was the board’s judgment that this rights plan be adopted and in place to protect shareholders’ opportunities to realize the long-term value of their investment in the future.”
Last year, San Francisco-based BankAmerica, which is the parent firm of Bank of America, fought off a hostile $3.25-billion takeover bid by First Interstate Bank of Los Angeles.
Even though a recent study pegged BankAmerica as vulnerable to takeover, some analysts said Monday that it is unlikely that any domestic banks could now afford to take over BankAmerica or that any foreign banks would be interested.
BankAmerica “failed to go broke and now they’re on the mend,” said Joseph T. Arsenio II, an analyst with the Birr, Wilson securities firm in San Francisco. “So it seems fairly obvious that . . . if you had any takeover hopes, you should move sooner rather than later.”
A recent study by a Cambridge, Mass., management consulting group included BankAmerica on a list of 15 large bank companies whose weak stock values following the October market crash and lagging profits made them vulnerable to takeovers. In addition to B of A, the study by MAC Group listed Security Pacific and First Interstate.
Bad loans and high overhead has meant red ink for BankAmerica, capped by a $955-million loss last year. However, many analysts are predicting profits for the corporation this year of more than $300 million.
Even though the company appears to be regaining its health, making it more attractive to potential buyers, a takeover would be too expensive for any domestic banks to pull off, the analysts said. In addition, BankAmerica is protected from takeover to some extent by California law that does not allow out-of-state banks--with the exception of a few states--to buy California banks until 1991.
Foreign banks could afford such a purchase, but analysts suggested that a hostile takeover by a foreign bank would not be allowed, let alone attempted.
“I think, politically, a bank with the name BankAmerica is not going to be approached hostilely by anybody in the world,” said Stephen Berman, a banking analyst with the New York investment firm County Securities.
Dan Williams of the Sutro & Co. investment firm in San Francisco agreed: “There’s no way in the world that the Federal Reserve would look kindly on a foreign owner” for BankAmerica.
The poison pill defense that BankAmerica approved Monday is a common device for preventing takeovers. If a hostile takeover occurs, the plan allows shareholders to buy stock in the surviving, merged company at half price. This dilutes the raider’s holdings and makes acquiring the company more expensive.
BankAmerica noted in its statement that such rights plans have been approved by more than 500 other companies including half of the 200 largest publicly held companies in the nation. Critics have charged that poison pill plans are a way to reduce shareholder control of the company and that shareholders are not allowed to vote on whether to adopt the plans.
BankAmerica does not have two other common takeover defenses: a “staggered board,” in which directors’ terms are staggered so that they do not all stand for reelection at the same time, and a provision that requires 75% of shareholders, rather than a simple majority, to approve a merger.
