Fed OKs Central
The approval is only conditional
and has a 90-day expiration
The Federal Reserve Board gave Central Pacific Financial Corp. conditional approval yesterday to complete its hostile takeover of smaller rival CB Bancshares Inc.
Central Pacific is the third-largest bank in Hawaii, with deposits of about $1.7 billion, while City Bank is the fourth-largest state financial institution, with deposits of about $1.2 billion. Central Pacific has proposed acquiring City Bank for cash and stock currently valued at $300 million. Should the deal go through, the resulting bank would have about $2.9 billion in deposits, or about 14 percent of all state deposits, the Fed said.
"We are extremely pleased to have received the Federal Reserve Board's approval, which represents an important step in moving this merger forward," said Clint Arnoldus, Central Pacific chief executive officer.
But although the Federal Reserve Board's decision was the first hurdle in Central Pacific's quest to acquire City Bank, critics say it is far from a done deal. The Federal Reserve has set stipulations that could prevent Central Pacific from completing the transaction, said Wayne Miyao, spokesman for City Bank.
In order to successfully complete the unsolicited purchase, Central Pacific must comply with applicable Hawaii laws, including a state shareholder rights law. The Federal Reserve also said Central Pacific could not use a shareholder rights plan set up by City Bank's parent company, CB Bancshares Inc. And the process must also be completed within 90 days, or Central Pacific will have to request an extension from the Federal Reserve.
City Bank called the Federal Reserve decision "very narrow and highly conditional."
"It's subject to Central Pacific Bank satisfying the control share vote and the shareholder's rights plan, more commonly known as a poison pill," Miyao said, adding that City Bank officials are skeptical that Central Pacific will be able to meet the 90-day transaction period.
"This is just one step in the approval process. They are still a long way off from getting final approvals," Miyao said. "We intend to appeal their decision and ask for more clarification."
Although City Bank officials have opposed the takeover, citing concern for competition and jobs, the Federal Reserve has said it does not think the takeover would cut competition unfairly in the Hawaii market.
The fact that all seven of the Fed board members voted in favor of the deal lends validation to Central Pacific's quest, Arnoldus said.
"In essence, this approval provides independent, objective support for our view that this combination would not create management, anti-competitive, antitrust or other concerns," Arnoldus said. "We believe that combining the best of both our banks will create a stronger, Hawaii-based bank focused on our community needs."
In its written decision, the Federal Reserve also said it had determined that the financial and managerial factors of the proposed acquisition are consistent with the standards of the Bank Holding Company Act. And the board said it was satisfied with Central Pacific's pledge to open a new branch for every bank branch closed because of the merger.
But the decision did not take public or employee opinion into account, Miyao said.
"We question the Federal Reserve's ability to assess the hostile takeover situation, as they did not have a public hearing," he said. "We are concerned for our customers, our employees, the Hawaiian economy and the general public."
The Federal Reserve ruling was the first movement in the case since Dec. 8 and 9, when the state Division of Financial Institutions had a public hearing on the proposed merger. More than 200 people testified on behalf of City Bank at the hearing, Miyao said.
The Division of Financial Institutions is expected to decide by Feb. 18 whether a merger of 25-branch Central Pacific and 22-branch City Bank is in the public's interest.