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In Pennsylvania, Watch Out What You Try to Take Over

Law: Thanks to tough rules, Mellon Bank is able to flatly reject an offer from Bank of New York.

April 23, 1998|From Bloomberg News

When it comes to takeover law, no state is tougher on corporate raiders than Pennsylvania.

State law says corporate boards must weigh the interests of a whole company--its employees, customers, the community and investors--when considering a takeover offer. That's different from most states, where boards have a fiduciary duty to serve shareholders.

"Pennsylvania clearly has the toughest set of anti-takeover laws in the country," said Simpson Thacher & Bartlett merger lawyer Lee Meyerson. "Pennsylvania has actually codified the 'just say no' defense," which allows a company to reject bids without seeking higher offers or making other changes.

That's good news for Mellon Bank Corp. The Pittsburgh-based company rejected an unsolicited $23.6-billion, $90-a-share offer from Bank of New York Co.

Frank Cahouet, Mellon's chairman and chief executive, said, "We are not for sale."

Mellon shares leaped $8.13 to $78 on Wednesday on the New York Stock Exchange. Bank of New York shares fell $2 to $62.06, also on the NYSE.

In most states, Bank of New York could begin a legal battle to try to force Mellon Bank to consider its offer. But Pennsylvania courts cannot require boards to take any special action in response to a bid, such as lowering takeover defenses.

Conrail used the Pennsylvania statute to initially fend off a hostile raid from Norfolk Southern Corp. in 1996. The law protected Philadelphia-based Conrail until it agreed to sell itself for $10.2 billion to Norfolk Southern and CSX Corp.

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