Investor favors An investor who controls roughly $50 million worth of combined stock in CPB Inc. and CB Bancshares Inc. is urging the management of CB Bancshares to come to the bargaining table and work out a friendly deal.
merger of banks
He controls $50 million worth
of CPB and CB Bancshares stockBy Dave Segal
dsegal@starbulletin.comBruce Sherman, chief executive officer of Naples, Fla.-based Private Capital Management, said yesterday he's a strong proponent of consolidation and regards CPB's $285 million cash-and-stock offer to CB Bancshares as "extremely positive."
"I hope what might be viewed as an unfriendly offer may turn into a friendly negotiation merger," he said. "I respect the bold stroke that the management of CPB has taken and they offered a generous price."
However, Sherman said City Bank parent CB Bancshares, which two years ago attempted to buy Central Pacific Bank's parent, might take another route and employ a Pac-Man defense.
"That's where the prey, CB Bancshares, turns around and tries to buy the predator," he said.
CPB, Hawaii's fourth-largest bank, is attempting a hostile takeover of City Bank, Hawaii's fifth-largest bank.
Sherman, whose money management firm oversees $12 billion in assets, owns through his clients just less than 10 percent of CPB stock and slightly less than 5 percent of CB Bancshares stock. Private Capital Management owned about 1.6 million CPB shares worth $43.2 million and 173,284 CB Bancshares shares worth $7.4 million as of Dec. 31, according to the company's last quarterly filing with the Securities and Exchange Commission. Those same shares today would be worth $38 million and $11.6 million, respectively. Private Capital Management, which is CPB's largest shareholder after the CPB employees stock ownership plan, doesn't have to disclose whether it added or subtracted from those holdings until it files its next statement in May.
Earlier this week, TON Finance B.V., the largest CB Bancshares' shareholder with an 8.9 percent stake, said it would support the deal. It said it would commit more than 7.5 percent now and the remaining shares after required shareholder approval under the Hawaii Control Share Acquisitions Statute. Another entity close to TON also is expected to vote 5 percent of its shares. In addition, CPB owns 2.3 percent of CB Bancshares stock that it purchased on the open market and Private Capital Management controls 5 percent. Together, the four entities account for more than 21 percent of CB Bancshares stock.
Meanwhile, CPB said yesterday it was in a holding pattern as it waited to see whether CB Bancshares would respond by CPB's Friday deadline. CB Bancshares said yesterday it would not comment further than it did Thursday when it said it was examining the proposal. CPB has its annual shareholders meeting Tuesday while CB Bancshares has a board meeting slated for Wednesday and its annual shareholders meeting Thursday.
Sherman acknowledged it would have been better for him financially had CB Bancshares made an offer for CPB, since Sherman owns considerably more CPB shares. Still, he said a merger would be the optimal way to go since "a combined institution is better than two and it would be much more efficient.
"Financial institutions are integrated all the time," he said. "It's a process that has to be done carefully, but cultural differences are always there up front and I think they get resolved. I think they have complementary strengths.
"Yes, some directors will lose their jobs and, yes, some employees will lose their jobs, but it happens all the time," he added.
Sherman said he hasn't talked to either bank's management in the past three months, but it's not hard to understand the CB Bancshares management's reticence. "Managements and boards typically like to perpetuate their existence," he said. But, he added, "I would hope that the companies can reach a negotiated agreement as opposed to spending a lot of money on lawyers."
CB Bancshares, like CPB and many other companies, also has a poison pill that, if triggered, would make a merger more costly. In essence, CB Bancshares' rights plan allows shareholders to purchase new stock from CB Bancshares at a 50 percent discount from market value. A poison pill encourages bidders to negotiate transactions with a board of directors and makes unwanted takeovers more difficult as few bidders would pay a lot of money and risk being diluted by a 50 percent sale.
In CB Bancshares' rights plan, the right to purchase new stock at a discount is triggered when a bidder, such as CPB, acquires 20 percent or more of its stock. Before CPB can acquire that much stock, however, it would require the approval of the Federal Reserve Board and the Hawaii Commissioner of Financial Institutions
CB Bancshares' poison pill also provides that only the board of directors who are in office when a bidder acquires 20 percent or more of the stock can redeem the rights to purchase the stock at a discount. Generally, those rights must be redeemed as a condition of closing any transaction by a bidder. So even if CPB could purchase a majority of CB Bancshares' stock and changed the majority of CB Bancshares' 11 directors, the new directors wouldn't have the ability to repurchase the rights. The same also would hold true if existing stockholders voted the current board out and put in a new board. In either case, the old board would have the final say. This so-called dead-hand provision has been ruled illegal in most states that have considered it because it deprives the stockholders of their rights to have a say in a transaction.
CPB has a poison pill that is virtually identical except it lacks the dead-hand provision. In other words, it allows the shareholders to elect a new board of directors who can subsequently decide on a merger offer.
Central Pacific Bank
City Bank