Item 7 (Material To Be Filed As Exhibits) of the Schedule 13D previously filed
is hereby amended as follows:
Exhibit D: Letter from Heine Securities Corporation dated April 13, 1994
circulated to shareholders of Michigan National Corporation and
other parties on the same date.
Exhibit E: Letter from Heine Securities Corporation dated April 14, 1994
mailed via overnight delivery to all of the directors of Michigan
National on the same date.
In addition, Exhibit B (Summary of Transactions Within the Last Sixty Days) is
updated as set forth below.
EXHIBIT B
SUMMARY OF TRANSACTIONS WITHIN THE LAST SIXTY DAYS
DATE BUY/SELL NUMBER OF SHARES PRICE
3/30/94 BUY 5,000 $60.75
3/31/94 BUY 3,000 $60.75
TOTAL 8,000
<PAGE>
EXHIBIT D
HEINE SECURITIES CORPORATION
51 John F. Kennedy Parkway
Short Hills, New Jersey 07078
April 13, 1994
Re: Michigan National Corporation
Dear Fellow Michigan National Shareholders:
Heine Securities Corporation is investment adviser to clients owning 848,300
shares of Michigan
National Corporation, more than 5.5% of the outstanding shares.
We continue to believe that the Board of Directors should pursue the sale of
Michigan National.
The gap between Michigan National's trading value and its potential merger
value is in our
view one of the largest for the banking group, an industry obviously
undergoing
substantial consolidation. We also believe that Michigan National will
be unable to
close this gap in any meaningful way so long as it remains independent.
As you know, the Company has scheduled its annual meeting for April 19, 1994,
at which time
all of its directors are up for election. To date, the Board has resisted
our recommendation
to sell the company. In order to reinforce our message, we intend to vote
against the directors
up for election. If you agree with our view concerning the future of
Michigan National,
we urge you to vote similarly. We believe that a sizable "No" vote will
send a clear
message to this Board.
If you have any questions regarding this matter, please contact Ray Garea
at Heine
Securities: telephone (201) 912-2174, fax (201) 912-0147.
Sincerely,
Heine Securities Corp.
<PAGE>
EXHIBIT E
HEINE SECURITIES CORPORATION
51 John F. Kennedy Parkway
Short Hills, New Jersey 07078
April 14, 1994
Mr. Gerald B. Mitchell
155 Indian Mound Trail
Tavernier, FL 33070
Dear Mr. Mitchell:
Heine Securities is the investment advisor for Mutual Series Fund Inc. and
several other
investment accounts which collectively own 840,300 shares of Michigan
National Corporation
(MNC). We are writing to you in your capacity as a member of the Board
of Directors
of MNC regarding a number of critical issues that concern us as a large
shareholder of
MNC: (1) the Board's steadfast refusal over the past nine years to
consider the
sale of MNC, even though its decision to keep MNC independent has proven
extraordinarily
costly to MNC's shareholders, (2) the Board's need to exercise its
fiduciary
responsibility to shareholders as it considers major corporate decisions,
(3) the Board's
failure to create shareholder value over the past nine years by making
the wrong
major corporate decisions, (4) the Board's failure during the past two
years to
take actions to prevent the further erosion of shareholder value and
(5) the consistent
earnings under performance of MNC over the past nine years under the
stewardship of
the Board of Directors and its Chief Executive Officer. Let me address
each of these
subjects in some detail.
MNC's Strategic Alternatives: What Has the Board Done?
As you are undoubtedly aware, Heine Securities recently filed a Schedule
13D with
the Securities and Exchange Commission calling for the sale of MNC. In
the spring
of 1993, MNC's Board first adopted a policy of remaining independent,
a policy
which was reaffirmed in late 1993, and, apparently, again in early 1994
subsequent
to our Schedule 13D filing. We have numerous questions about the
Board's
conclusion regarding this matter.
1. On what basis has the Board made this judgment? Did the Board
carefully
evaluate the appropriate strategic alternatives available to MNC, or
did it act
merely as a rubber stamp for the CEO's desires?
2. Did the Board determine the value that MNC would command in an
acquisition
and compare that with the discounted value of management's earnings
projections?
Did the Board use an independent, qualified firm to ascertain the
potential
acquisition value of MNC?
3. Who reviewed management's projections for the company's future
performance to
ascertain their reasonableness? Since management undoubtedly did not
project that
MNC would only earn $1.56/share in 1993, do you as a Board member
now feel less
comfortable with the decision making process and your decision?
Fiduciary Responsibility of MNC Board of Directors
In making a determination as to the appropriate strategic direction for
MNC, as
the Board has done on a number of occasions over the past two years,
the Board owes
a duty to shareholders to exercise prudent and reasonable business judgment
in a disinterested
manner in choosing among the various alternatives. The Board's actions
do not appear to satisfy its responsibilities to shareholders. In
our view,
the Board has acted irresponsibly over the past several years by
(1) not
holding MNC senior management accountable for its actions, (2) permitting
the poor
performance of the company to continue without Board action,
(3) not
strengthening the senior management team of MNC, with the result that bank
regulators have
directed the addition of senior management to the company, and
(4) approving
numerous major strategic initiatives that have cost shareholders
substantial value.
The Record of the MNC Board
In assessing the performance of the MNC Board over the past nine years,
two criteria
should be examined: (1) the success of MNC's major strategic initiatives
and (2) the
historical earnings record of the company. Let us first focus on the
disappointing
results of the MNC Board's major corporate decisions during this time
period
The most critical decision made by MNC's Board was its response to the
1985 merger
proposal received from Comerica. The circumstances of that episode and
the key strategic
decision that MNC's Board should be addressing today in an objective,
forthright
manner are very similar. At that time the Board concluded, without
allowing shareholders
the opportunity to exercise their judgment, that shareholders would
be better
off if MNC continued to remain an independent entity. The cost of the
Board's action
to MNC shareholders has been staggering. Depending on the approach
taken, the
total bill for the Board presuming to know what was best for MNC and
its shareholders
lies between $450 and $775 million in lost value. We have enclosed two
tables (Tables I
and II) that illustrate how much better off MNC shareholders would
be today had
the MNC consummated a merger with Comerica. We are astonished and
perplexed that
the Board some nine years later, with the same CEO running the
company, again
believes that shareholders would be better off if MNC were to remain
an independent
entity! Shareholders have a right to know on what basis you have
reached such a
conclusion; or is it, as the record indicates, that there is no logical
support for
such a determination?
Let us now turn to a few more recent major corporate decisions. During
1987, MNC made
a major commitment to the mortgage banking business. Over a five year
period, the
company spent approximately $225 million to purchase mortgage
servicing.
During the past two years, by our estimate MNC took in excess of $110
million in
extraordinary write-offs in this segment (50% of the original purchase
price), that
is, write-offs over and above the company's $20 million per year
rate in 1991.
Over the past six years, excluding the extraordinary write-offs, MNC has
generated marginal
profits from a business that was targeted as a key source of earnings growth.
In mid 1988, MNC paid $18 million to acquire Second Commercial Fund,
Inc. (now
Independence One Financial Services), a Philadelphia based commercial
lender. That
in itself was a questionable decision, but using this as a vehicle to grow
commercial real
estate and construction lending outside the midwest in 1989 and 1990 - a
period well into
the real estate frenzy that occurred in the U.S. - was a gigantic
error. While
MNC's public disclosure documents do not permit an accurate assessment
of the cost of
this blunder, it undoubtedly ran into the hundreds of millions of dollars.
In addition to these massive mistakes, MNC has made several other
strategic errors
over the past few years. In 1992, the company acquired a software
company, Bank A
Corporation, for $3.5 million. Did you probe why MNC, or any bank for that
matter, should
acquire a software company? In all likelihood, the answer is that there is
no good reason.
In 1993, one year later, MNC took a $4.6 million write-off for this
company, an amount
greater than its purchase price.
MNC's purchase of small banks in Texas represents another example of a
highly questionable
strategic decision. The early 1994 decision to sell these banks
obviously represents
a repudiation of this earlier decision.
As a concerned shareholder, we must question the lack of oversight by
the Board of
Directors during this series of strategic blunders. Do you as a Board
member realize
the magnitude of the cost of the company's decisions over the past
nine years?
Excluding banks that have failed, the record of the MNC Board over the
past nine years
has been one of the worst within the banking industry. The bank has
survived only
because its Michigan franchise was so strong that it offset the
cumulative losses
caused by the company's far flung forays.
The Last Two Years - Has the Board Acted Properly?
While the above review of the strategic decisions made by MNC's Board
over the
past nine years reflects an alarming series of missteps, the events of the
past two
years concerning the future direction of the company are perhaps even
more disturbing.
The actions of the MNC Board during this period suggest an almost total
disregard for
the interests of shareholders and instead preoccupation with a single
overriding
purpose - to perpetuate itself and the current CEO.
In April and May of 1993, the MNC Board undertook an assessment of the
company's prospects
as an independent entity versus the sale of the entire company. In
June of 1993, the Board formed an executive committee to begin looking for
a successor to
Robert Mylod as CEO. During this period, bank regulators also informed
the Board that
MNC would be the subject of a memorandum of understanding (MOU) and that
one of its
requirements was significant additions to the senior management of the
company. In
July of 1993, with no tangible results from the search effort, Edgar Prince
asked the Board
to either seek to sell the company or hire a new Chief Executive Officer.
Notwithstanding the
Board's actions in June regarding the search for a new CEO, the Board
chose to do
neither. After the Board meeting, Mr. Prince resigned from the Board. The
Board agreed
to and signed the MOU in August 1993.
We have several questions about the series of events that occurred during
this time period,
which bear directly on the issue of whether the Board has acted properly.
1. At the May, 1993 meeting, did management indicate to the Board that
the company
could not produce earnings sufficient to justify staying independent versus
pursuing the
sale of the company? Did the Board ask management what financial performance
would be required
to justify remaining independent? Did management then in June 1993 prepare
a plan that
would "achieve" the target return and allow the Board to conclude that the
company should
remain independent? We believe that the answer to each of the above
questions is yes,
and that in fact, management's plan was not a credible one. We wonder how
the Board could
have found the June 1993 plan credible, given that only one month earlier
management
indicated that such performance was not achievable.
2. What happened to the executive committee formed in June of 1993
to search for
a successor to Robert Mylod? Do you realize how extraordinary it is
that the bank
regulators required the Board to sign an MOU and make substantial
management changes
in a large banking company that was overcapitalized and did not have
significant asset
quality problems? We cannot recall another such instance.
3. Having one month earlier sought to replace Mr. Mylod, why did the
Board not support
any of the actions proposed by Mr. Prince?
The events in 1992 at MNC were no less extraordinary than those of 1993.
1. Did MNC retain an investment banker in early 1992 to examine various
strategic
alternatives for the company? Did that study place a potential
acquisition value
on MNC far in excess of the company's trading value, its likely future
trading value, and
did the investment banker recommend that the Board pursue the sale
of the organization?
2. What decision did the Board make? On what did it base its
conclusions?
Did senior management, while acknowledging the validity of these findings,
convince the Board
that the timing was not right and that the potential acquirors would
not be interested
in a major acquisition at that time?
3. Is it true that within weeks of this "assessment," major acquisitions
were announced
by Banc One and several other large midwestern banking companies, all of
which are likely
acquirors of MNC, and that the Board never reevaluated its earlier
conclusion?
4. Was MNC approached by one or more companies in early 1993 regarding
the possibility
of acquiring the company? Was the Board fully informed about these
contacts and
were they properly evaluated, particularly in light of the company's
continued dismal
financial performance, ongoing regulatory problems, and management
shortcomings?
The foregoing raises serious questions about the Board's actions during
the past two
years, and it is clear that the Board's record during this period would
not withstand
the scrutiny of any objective analysis. It is now time for you as a
Board member
to act as a fiduciary, to put the interests of shareholders first and
not those of
an entrenched CEO and a few Board members who evidently are only
interested in
continuing as members of a banking company Board of Directors.
MNC's Financial Performance Record
In addition to the earlier review of MNC's record of strategic
decision making,
it is also instructive to study the company's operating performance during
this period.
Here again, the conclusion is an obvious one, namely, that over the past
nine years MNC
has demonstrated poor to mediocre financial performance and has
consistently and
significantly under performed a peer group of comparably sized banking
companies.
Tables III and IV enclosed herein illustrate the magnitude of the company's
underperformance.
Over the past nine years MNC's return on assets and return on equity
have averaged
0.58% and 9.3%, respectively. Over this same period, a group of comparably
sized banks achieved
an average return on assets and return on equity of 0.91% and 13.7%,
respectively.
This represents such dramatic and consistent underperformance over a
long period
of time that one can only ask, has the Board of Directors abdicated its
responsibility
to manage and direct the business and affairs of MNC?
If one is tempted to say this performance is ancient history and does
not matter
today, one only has to look at the last two years to see that nothing
has changed at
MNC. In a ranking of 25 banks between $10 billion and $20 billion in
total assets
recently compiled by the American Banker, for the last two years MNC
ranked #25 and
#21 by return on assets and #25 and #23 by return on equity. Is it not
ironic that
the cover of the company's 1993 annual report features a single word:
Quality? Nothing
could illustrate better the extent to which the management of MNC is
out of touch
with reality.
In addition to the cold facts of the Company's bottom line performance,
there are
numerous other indicators that illustrate how poorly MNC has performed.
MNC consistently
has been one of the least efficient large banking companies in the U.S.
During the past
three years, a period in which mortgage banking companies have grown
their servicing
portfolios dramatically, MNC's portfolio has steadily declined. In
1985, a group of
investors founded Republic Bancorp, a Michigan banking company that
emphasizes
mortgage banking. One need only examined their record and performance
during this period
to see that it was certainly possible to achieve consistent profitability,
even operating
with the significant handicap of a newly chartered bank. Is the MNC's
Board aware
of what Republic Bancorp has accomplished? Does the Board wonder why, by
comparison,
MNC's mortgage business fared so poorly?
In closing, we reiterate several critical points.
1. The Board of Directors should take steps immediately to pursue the
sale of MNC.
2. The Board of Directors has presided over the dissipation of corporate
assets and
shareholder value at MNC totaling hundreds of millions of dollars and
done nothing
to enhance shareholder value. It is time for the Board to acknowledge
that it has
consistently erred in choosing the best strategic alternative for MNC,
and at a minimum,
let shareholders decide what is the best course of action.
3. Based on the events of the past two years and the series of actions
taken by the
Board, MNC's Board has acted in a manner which suggests that it has not
carried out
its fiduciary responsibility to shareholders. Will the Board's actions
stand up to
the spotlight of a public, objective analysis? We think not.
Finally, we would note that MNC's franchise can, in fact, be damaged, and
that it has
deteriorated over the last few years. We have received letters and phone
calls from
numerous MNC employees applauding the action Heine Securities has taken,
hoping that we
are successful in our efforts and warning of considerable problems
internally at
MNC. These employees are concerned about their company, but also concerned
about retribution
for expressing their opinions: is it just coincidence that five senior
managers who
spoke extensively with Board members during the 1993 strategic assessment
and regulatory
crisis were all terminated during the recent restructuring? It is your
responsibility
as a Board member to understand what has occurred at MNC and what is
happening today.
Your shareholders cannot and will not sit back and let the Board continue
to dissipate
shareholder value without bearing the responsibility for its actions. I hope
you recognize
your responsibility to shareholders and decide to act in their best interests
by pursuing the sale of MNC.
Sincerely,
Michael F. Price
President
