Arbitrage firm not ready
to bet on CPF, CB merger yet

A midsized mainland arbitrage firm that has closely monitored Central Pacific Financial Corp.'s hostile takeover attempt of CB Bancshares Inc. said the uncertainty of the merger is still too great to take a position.

An arbitrage analyst, who asked not to be identified, said he thought there was a 55 to 60 percent chance that the deal ultimately will be consummated but that the length of time to accomplish that could take years.

"If you put a gun to my head, I'd say it probably goes through," the analyst said. "But the biggest concern is the timing risk. It seems like a very litigious process. That's very important from an arbitrage position because the big thing from an arb position is waiting to get paid."

An arbitrage player tries to exploit the difference, or spread, in the price of two securities that should be viewed the same with the terms set forth for the deal.

The legal process for the two banks kicked into high gear yesterday when a Circuit Court judge denied CPF's request to issue a temporary restraining order halting a May 28 CB shareholders meeting.

However, Judge Victoria Marks left open the possibility the meeting still could be called off by scheduling a Thursday hearing to listen to arguments on CPF's motion for a preliminary injunction.

The purpose of the May 28 meeting is to vote on CPF's proposed acquisition of a majority of CB's outstanding shares. But CPF said there is nothing to vote on at that meeting since it changed its original offer.

"The May 28 date does not allow all CBBI shareholders time to receive, carefully review and return proxy materials," CPF said in a statement. "Therefore, while we await the court's ruling, we are urging CBBI shareholders to send a message to CB Bancshares by ignoring the May 28 meeting and not returning CBBI white proxy cards."

CB, though, said the May 28 date previously was agreed to by CPF and that the May 9 offer is a modification of the one CPF made in April. The new offer changes the allocation of CPF stock and cash from 70 percent stock and 30 percent cash to 65 percent stock and 35 percent cash. The current value of the offer, based on yesterday's $27.68 closing price of CPF stock, is $73.23 per CB share.

CB Chairman Lionel Tokioka said yesterday the court's decision affirmed CB's argument that CB shareholders will have adequate time to review CPF's proposal and make an informed decision by May 28.

"We are pleased that the Hawaii court has rejected CPF's transparent and self-serving attempt to prevent us from communicating with our shareholders," Tokioka said.

"We believe that postponing the date of the meeting will only prolong what has become a disruptive, expensive and potentially lengthy takeover battle and we continue to urge CB Bancshares shareholders to vote against CPF's hostile attempt to take over our company," Tokioka added.

In the meantime, the arbitrage analyst said it was unlikely CB's stock would hold its price if CPF called off its pursuit.

"As hostile and as nasty as this is, it would be difficult for CB Bancshares to win because the biggest risk they face is a lot of their shareholders seem to be supportive of this deal," the analyst said. "If you look at where their stock price is going, if this deal doesn't get completed, that has to be a major concern. What are they going to do to get their stock price to the level it is? They can talk about improved credit quality, but I don't think the market is going to react that quickly to talk of a turnaround bank."

Bu the arbitrage analyst admitted if the deal does go through in a hostile manner that there could be problems down the road.

"Hostile takeovers are a difficult process," the analyst said. "They tend not to work out if they do happen. What you're seeing right now is a nasty battle and, if you're in the banking sector, and in Hawaii, the integration risks are incredible. City Bank has a point when it looks at that, but part of that is their own fault for not playing ball. It may be their own making."


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