City Bank
rejects takeoverDirectors say the deal does not
pay enough and would hurt
many employees and clients
The parent of City Bank, refusing to cave in to merger pressure, said late yesterday its board of directors has unanimously rejected a hostile takeover bid from its Honolulu rival.
CB Bancshares Inc. said Central Pacific Financial Corp.'s proposal was inadequate from a financial point of view and not in the best interest of its shareholders, employees, customers, suppliers and local communities.
The CB Bancshares board also recommended that its shareholders vote against allowing Central Pacific to acquire more than 10 percent of CB Bancshares' stock at a special meeting set for May 28.
"There's a way to do business in Hawaii, and hostile takeovers and pressure tactics designed to intimidate is not the Hawaii style," said Richard Lim, City Bank's president and chief operating officer.
"If Mr. (Clint) Arnoldus truly wants to act local, he'll shake hands and go back to competing on a friendly basis."
Despite the rejection, CB Bancshares' stock was resilient today as it slipped just 81 cents, or 1.2 percent, to $67.78 on volume of 22,000 shares. The buoyancy could indicate investors believe the deal still will happen or Central Pacific will come back with a sweetened bid. Central Pacific, whose stock rose 7 cents today to $25.75, has made no indication it would boost its offer.
The 10-member board reached its decision at the end of a daylong special meeting yesterday. CB Bancshares Chairman Lionel Tokioka faxed a letter yesterday to the office of Arnoldus, chairman, president and chief executive officer of Central Pacific Financial, the parent of Central Pacific Bank. A CB Bancshares spokesman said the letter also would be hand-delivered today.
Central Pacific said in a statement last night that it was disappointed, but not surprised, by CB Bancshares' decision.
"After seven weeks of silence and delay, CBB continues to ignore the unequivocal message from many of its shareholders and the financial markets (that) our merger proposal is good for shareholders, employees, customers and Hawaii," it said.
Tokioka, in his letter to Arnoldus, said the financial terms of Central Pacific's offer "fail to recognize the value that we are capable of delivering to our shareholders through the continued execution of our current strategy."
He added that the unsolicited proposal undervalues CB Bancshares' franchise, market position and customer loyalty. Tokioka said the offer also raises serious concerns about the adverse effect such a combination would have on the people, communities and economy of Hawaii.
CB Bancshares said in a news release that the proposal does not reflect the "true earnings power" of the bank because CB Bancshares has had compound annual earnings per share growth greater than 15 percent over the last five years; strong growth in core deposits and fee income; and improved asset quality.
CBB said Central Pacific's offer, which involves 70 percent stock and 30 percent cash, is subject to market risk since Central Pacific's stock is trading near its all-time high of $31.08 reached on Jan. 14.
"What (Arnoldus) calls a win-win for everyone actually should be called cut-cut for Mr. Arnoldus," Lim said in a press conference this morning. "Cut branches, cut employees, cut services, cut whatever it takes to achieve his cost-reduction numbers. Mr. Arnoldus says we (the two banks) will end up with more of everything, but, of course, that's from his point of view."
CB Bancshares said yesterday that Central Pacific's estimate of $16 million in annual merger cost savings likely would be achieved from the layoff of 200 employees. CB Bancshares estimated the economic impact of the job losses could reverberate to eliminate nearly 500 jobs outside the bank with an estimated cost of $16.5 million to the Hawaii economy. Central Pacific disputed the layoff figures.
"Perhaps most disappointing is CBB's decision to invent estimates of employee layoffs knowing full well that the best way to minimize job loss is to meet and plan together -- and knowing equally well that CPF is publicly committed to merit and fairness in its approach to post-merger employee relations," Central Pacific said in a statement.
CB Bancshares additionally noted that approximately 10 branches would be eliminated and CB Bancshares' loan production offices in California would be closed. The branch and loan production closures previously had been disclosed by Arnoldus.
Central Pacific criticized CB Bancshares for setting a shareholders meeting date for as soon as May 28 -- the first allowable date -- when the bank had until June 22 to schedule the meeting. The shareholders, who will receive proxies from both banks prior to the meeting, won't be asked to vote on the merger. Rather, they will vote on whether to allow Central Pacific to accumulate more than the 10 percent ceiling allowed under the state's control acquisitions statute. Central Pacific had sent a letter and information statement to CB Bancshares forcing the special meeting.
"(The) meeting date (was) specifically calculated to deny their own shareholders time to receive materials that would explain our offer to them," Central Pacific said. "Even if CBB management has chosen to reject our proposal, we'd like to think they care enough about shareholder democracy in this era of heightened attention to good corporate governance that they would allow their shareholders time to consider and express their views. We have no intention of allowing such an important meeting to be hijacked in this manner."
CB Bancshares said the merger would raise antitrust and anti-competitive concerns that would be detrimental to Hawaii-based consumers and small businesses, and said there could be a substantial reduction in banking services for retail and business customers. "The board believes that CB Bancshares' small business and retail customers would not be valued CPF customers and would be underserved by CPF's big bank strategy," CB Bancshares said.
Analyst Joe Morford, who covers Central Pacific for RBC Capital Markets, said he wasn't surprised by the rejection but was puzzled by some of CB Bancshares' statements.
"What is a bit confounding is why at the same time (CB Bancshares) would also raise concerns about antitrust matters and layoffs in the community," he said today in a note to clients. "We do not see how these issues would magically disappear were CB to convince CPF to pay upwards of $75 or $80 per share and/or more of the total consideration in cash."
Tokioka, who expressed concern about the impact a merger would have on individuals and businesses, also lashed out at Arnoldus for the "overtly hostile manner" in which he has pursued the merger.
"As responsible members of the local business community, it is incumbent upon us to express our regret over the tactics employed throughout this ill-advised endeavor," Tokioka said. "A transaction pursued in such an overtly hostile manner only serves to reduce the value of both of our franchises."
Central Pacific's original offer, which changes slightly daily with market fluctuations, was priced at $285 million and worth $70 a share to CB Bancshares shareholders.
The parent of Central Pacific Bank had offered to pay CB Bancshares shareholders $19.09 in cash and 1.7233 shares of CPF stock in exchange for each share of CB Bancshares stock. The prices are adjusted for CB Bancshares' recent stock dividend that will be payable June 27.