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1983
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HOUSE OF DELEGATES
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33
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MESSAGE FROM THE CHIEF EXECUTIVE
May 31, 1983
The Honorable Benjamin L. Cardin
Speaker of the House of Delegates
State House
Annapolis, Maryland 21404
Dear Mr. Speaker:
In accordance with Article II, Section 17 of the Maryland
Constitution, I have today vetoed House Bill 1030.
House" Bill 1030 was passed by the General Assembly to fill
the void left after the United States District Court for the
District of Maryland held the Maryland Corporate Take-Over Law to
be unconstitutional in the case of Bendix Corp. v. Martin
Marietta Corp., 547F. Supp. 522 (D. Md. 1982). The Attorney
General has advised me that House Bill 1030 is not clearly
unconstitutional on its face. I believe, therefore, that such
legislation could avoid the constitutional objections found in
existing law, but I also believe that there are practical
problems associated with the bill which stem from a legal
uncertainty with respect to the scope of the exemptions to the
stringent provisions of the bill.
The evil which both the unenforceable Corporate Take-Over
Law and House Bill 1030 addresses is the so-called "front load"
or "two tier" corporate acquisition tactic in which the potential
acquirer offers to purchase a controlling interest in the
"target" corporation at a premium price. After purchasing that
interest, usually through a carefully orchestrated public tender
offer a limited duration, the new controlling interest causes the
"target" to be merged or consolidated with it or with yet another
entity which it fully controls. This "second step" merger or
consolidation transaction usually includes an exchange or
redemption of the shares which are not owned by the controlling
interest for a value which is considerably less that the price
offered in the initial tender offer.
Typically, the owners of the shares who are forced to
exchange their shares during the "second step" are the small and
relatively unsophisticated investors who were not in a position
to take advantage of the terms of the "front loaded" public
tender offer. Other usual consequences of these corporate
takeovers are the replacement or elimination of the incumbent
management group of the acquired corporation and the transfer of
the corporate headquarters of the combined entity to the site of
the acquiring corporation's headquarters.
House Bill 1030 makes such corporate action difficult by
imposing stringent requirements on the approval of the "second
step" of "two tier" corporate takeover transactions. Those
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