The stock of struggling Michigan National Corp. gained ground Thursday as investors lined up to participate in a $200 million stock-repurchase program that caps a massive restructuring effort.
Shares of the Farmington Hills-based banking company rose by 3.6%, or $2.81 per share, closing at $80.56. The buyback, announced late Wednesday, includes common stock and warrants and is scheduled for completion Dec. 3.
Controversy erupted as officers of the $9.2 billion-asset company confirmed that. under Securities and Exchange Commission rules, Michigan National would be ineligible to participate in stock-swap transactions, either as a buyer or as a seller, for two years.
That apparently lowers Michigan National's profile as a takeover target, analysts said, since a potential acquirer would have to pay cash and incur the subsequent amortization expenses flowing from goodwill, or the amount by which a purchase price exceeds book value.
"I think that's one of the reasons Michigan National chose to return capital to the market in this fashion," said McDonald & Co.'s Fred Cummings.
Though he acknowledged that repurchasing 10% of its shares would hamper Michigan National's near-term ability to do stock deals, chief financial officer Joseph Whiteside denied that was a motivation.
He said the bank needed a way to return excess capital generated from asset sales, and said the repurchase "wouldn't prevent a deal from getting done for cash."
Bear, Steams & Co.'s Michael Diana .said Michigan National later could restore eligibility for stock-swap transactions by reissuing shares. The analyst predicted that Michigan National ultimately will be sold next year following a proxy fight.
The buyback caps a high-stakes restructuring effort that probably will determine whether the company can remain independent. Reeling from mortgage banking losses, Michigan National last year posted a pitiful 0.23% return on assets.
At a fractious shareholders' meeting this spring, investors joined with a former director in castigating chairman and chief executive Robert Mylod, who adamantly opposes a sale.
Michigan National subsequently auctioned off its Texas banking operations and the bulk of its mortgage banking business. It is expected to sell remaining operations in California.
Additionally, Michigan National has announced a massive streamlining effort that will eliminate 1,000 jobs and entail a pretax restructuring charge of $62 million in the fourth quarter. Through expense cuts and revenue enhancements, Michigan National hopes to reduce its ratio of operating expenses to a svelte 55%, 20 percentage points below current bloated levels, by the end of 1995.
In a significant turn of events, the Office of the Comptroller of the
Currency in mid-October terminaled a memorandum of understanding with Michigan National. That gives the company more maneuvering room.
These events, though dramatic, apparently have done little to raise Mr. Mylod's credibility on Wall Street.
Analysts continue to couch his efforts in terms of job preservation, and many openly predict dissident shareholders will rout the board of directors at the next annual meeting to force an auction.
"I still think April is management's Rubicon," said Chicago Corp. analyst James Schutz, referring to the next scheduled annual meeting.
Michigan National will conduct the common share buyback as a Dutch auction, setting aside up to $170 million for the effort.
It is soliciting investor offers to sell shares for no more' than $90 and no less than $78.
After receiving all investor responses, the company will ascertain a single price at which it can repurchase the most shares. Investors offering to sell at that price or less will get the price selected by the company, and potential sellers at higher price will be excluded.
Additionally, Michigan National will spend up to $30 million to acquire outstanding warrants on 973,000 shares.