BIRMINGHAM, Ala. - Is Harry B. Brock Jr. a banking visionary, or just an old man tilting at windmills? The future of Compass Bancshares Inc. may ride on the answer.
Mr. Brock, Compass's founder, is fighting probably the last great battle of his distinguished career as he tries to gain control of the bank's board through a proxy challenge. In pursuing his conviction that Compass needs to be sold - now - Mr. Brock is wrecking lifelong friendships and leaving his company badly divided.
And it may all be for naught. Most outside experts agree Mr. Brock faces an uphill struggle to depose a well-entrenched management. A comparison to the man of La Mancha springs, unbidden, to Mr. Brock's own lips.
"I believe I have thought further ahead than Don Quixote," he says, propping his feet on a desk in a Birmingham office belonging to a Compass director. "I'm willing to take risks, but usually my risks are thought out."
It is true that Mr. Brock's career is marked by quixotic battles that he eventually won. It was largely through his efforts that Alabama relaxed its barriers to multibank holding companies and in-state branching.
It is also true that Mr. Brock could win by losing. The proxy challenge, even if it fails, could leave Compass so weakened by internal strife that its directors would finally throw up their hands and authorize a sale.
But Mr. Brock, now 68, has been out of power at Compass for four years. He doesn't command the loyalty of directors, employees, or shareholders as he once did. Achieving his immediate goal of winning control of the board and ousting existing management may well be out of reach.
Mr. Brock announced Jan. 27 that he and two other Compass directors had formed a committee to wage the proxy struggle. Mr. Brock, who supplies 99% of the horsepower behind this "Committee to Maximize Shareholder Value," said he would ask Compass stockholders to elect three new members to the 12-person Compass board.
Mr. Brock asserts that three new directors would give him a voting majority on the board, which would then solicit and consider buyout offers for Alabama's fourth-largest bank. The battle will be decided April 11, when Compass holds its annual shareholders meeting in Birmingham.
Mr. Brock has hired a well-known proxy solicitation firm, Georgeson & Co., to help him and has pledged to spend $500,000 of his own money in the effort. But he can't begin to match the resources of the bank itself, which has hired the top-notch New York law firm Wachtell, Lipton, Rosen & Katz.
Chairman and chief executive D. Paul Jones Jr. has at least six fellow board members firmly in his camp - a group that includes some of the bank's largest shareholders: Goodwin L. Myrick, who owns 2.5% of the shares; Marshall Durbin Jr., with 1.6%; and Charles W. Daniel, whose family-owned Daniel Foundation holds 3%.
Mr. Jones himself owns 1.4% of Compass' 37 million shares of common stock.
In their regulatory filings Mr. Brock and his group have claimed voting control of 8.5% of the shares - but most of that consists of Mr. Brock's own stake (5.3%) and that of his son, Stanley (1%).
It is significant, in fact, how little support Mr. Brock has on the board, given his founder's role and 18 years at the company's helm. Of the six outside directors casting their lots with management, five had been brought onto the board by Mr. Brock.
The only two directors siding publicly with Mr. Brock are his son and his closest friend, insurance consultant G.W. "Red" Leach Jr. "They're both in very difficult positions in trying to oppose him," Mr. Jones says dryly.
The ownership structure of Compass doesn't help Mr. Brock, either. Institutions, which might tend to favor a proxy challenge, hold a relatively low 20% of the stock. Officers, directors, and employees own about 40%, and the remaining 40% is spread broadly among retail shareholders who would be difficult to organize into large blocs.
The market, so far, seems to be voting thumbs down on the Brock effort, since no big acquisition premium has materialized in the stock. The shares did jump 15% in the wake of Mr. Brock's Jan. 27 announcement. But the current trading range of $27 to $28 a share puts Compass' valuation at nine times this year's estimated earnings, comfortably within the peer group average.
"A lot of people think Harry can pull this off," says Mr. Jones, Compass' embattled CEO and chairman. "But the market says he can't. And the market doesn't care about me, and it doesn't care about Harry."
Most Wall Street analysts who follow Compass have also rallied to the side of Mr. Jones. Raimundo C. Archibold Jr., with First Manhattan Co., rates Mr. Brock's chances at "less than 50/50."
"My bet is that the Compass shareholder base is going to side with existing management because they've done a really good job," says Dean Witter's Anthony R. Davis.
The long-term viability of Compass as an independent entity is another matter. Even if his proxy challenge fails, Mr. Brock will remain on the board, a constant thorn in Mr. Jones' side, until at least next year, when his directorship expires.
Shareholders will also no doubt remain mindful of the $30.71 a share offer from First Union Corp. that Mr. Brock recently made public. First Union extended the offer last October, at Mr. Brock's solicitation, and then subsequently withdrew it at the request of Mr. Jones.
At some point, says First Manhattan's Mr. Archibold, Compass "is an acquisition candidate. It's just a function of whether it's going to be sooner or later."
Mr. Archibold reasons that Mr. Brock's activism "raises the consciousness" of the board in regard to "at least considering a sale." To that extent, Mr. Brock "will have succeeded," according to Mr. Archibold.
Indeed, Mr. Brock says that's all he cares about: prodding the board into finding Compass a larger, stronger partner. The passage of last year's national interstate banking bill convinced him that a midsize bank such as Compass would be forced into some kind of alliance sooner or later.
Mr. Brock says he took his concerns to Mr. Jones, who saw matters differently. "He had only one strategy, and that was to stay independent," Mr. Brock says. "I said, we ought to have more than one strategy. We ought to look at what is available if we should get a bigger partner and we ought to explore it."
Mr. Brock also had concerns about Compass' goals for achieving 15% growth in earnings per share each year. In his view, anything over 10% increases the temptation to stretch on loan quality.
Compass' earnings per share grew 18.3% in 1994, helped by 11% loan growth. While Compass' reported earnings remain good, revenue growth did slow down in 1994.
The debate, previously conducted behind closed doors, broke into open warfare last fall, when Mr. Brock began calling up the largest southeastern banks to solicit preliminary bids for Compass, a process he describes as "a market survey in the truest sense of the word.
"I decided I'd make a few discreet phone calls," Mr. Brock says. "I didn't try to negotiate. I didn't say we'd do it. I said, I'll present your offer to the board."
Only one bank, Charlotte, N.C.-based First Union, responded in time to meet Mr. Brock's deadline of Oct. 17, the day of a scheduled Compass board meeting. First Union chairman and CEO Edward E. Crutchfield Jr. communicated his $1.14 billion offer by phone to Mr. Brock and then followed up with a written proposal a few days later.
When Mr. Jones and the board refused to consider the First Union offer, Mr. Brock took his crusade public.
To Mr. Jones, Mr. Brock's unauthorized "market survey" was the culmination of an attempt to usurp control of the organization. Mr. Brock picked Mr. Jones to be his successor in 1991, but relations between the two had become increasingly strained.
Mr. Jones particularly resented Mr. Brock's unsuccessful attempt last summer to shift control over the nomination of new directors from bank management to a special committee of the board.
"This is a power play," Mr. Jones says. "This is really just an attempt by Mr. Brock to regain control of a company he once ran."
Mr. Brock denies any such intent. But he admits that he might have to assume temporary command of the company if his three director nominees are voted in. In that scenario, one of the three deposed directors would be Mr. Jones himself.
"It would be a transition situation," Mr. Brock says. "Somebody would have to step up to the plate."
Richard H. Gamble, who wrote an authorized history of Compass published in 1987, doubts that Mr. Brock is motivated entirely by concern for shareholders. "Everybody wondered how in the world he would handle retirement," says Mr. Gamble, now the editor of Cashflow magazine in Atlanta.
"He's a leader who doesn't fall gracefully to the ranks of the followers. He's brash and he likes a challenge. He gets his juices flowing at the prospect of a fight."
The fight has become increasingly acrimonious and personal. Mr. Jones personally wrote the letter evicting Mr. Brock from his office in the Compass operations center, also known as the "Harry B. Brock Banking Center."
Directors who sided with Mr. Brock were disinvited from a recent trip to Costa Rica. Each year, the bank rewards directors who bring in new business with cash compensation or vacation trips.
"If you're supporting Mr. Jones, you can go. If you're not supporting Jones, you can't go," said Mr. Leach, one of the disinvited directors.
Mr. Brock's son, Stanley, has also felt the repercussions. He had to leave his Birmingham law firm because of its close business ties to Compass. The younger Mr. Brock says he was not explicitly asked to leave, but he realized, "that's just the way it was."
Mr. Brock blames Mr. Jones for making the contest personal. But he says he has no intention of backing off.
"Those guys know me, and they know I can't just sit back and not carry out what I know is the right thing to do," he says.