CB warns
of ‘poison pill’CB says it will move to dilute
its stock only if CPF proceeds
with its June 26 meeting
The banking version of the Hatfields and the McCoys charged onto a new legal battlefield yesterday when CB Bancshares Inc. said potential acquirer Central Pacific Financial Corp. will trigger a poison pill if it proceeds with a June shareholders meeting.
CB's assertion came hours after both sides claimed victory following a special meeting in which CB shareholders rejected a CPF proposal to acquire a majority of CB's outstanding shares.
Undeterred by two earlier courtroom setbacks and yesterday's vote, CPF said yesterday it is proceeding with plans for a June 26 shareholders meeting that it called but CB refuses to recognize.
CB said late yesterday that CPF had triggered a CB shareholder-rights plan -- or poison pill -- that would dilute CPF's stake. A poison pill is a shareholder-rights plan that dilutes stock holdings when one party accumulates a large block of stock. It is designed to prevent hostile takeovers.
CB said it amended the poison pill at a board meeting yesterday so it would not be activated unless the June 26 special meeting becomes valid. In that case, all shareholders other than CPF and its affiliated groups would have the right to acquire CB shares at half the market price. This would effectively dilute the ownership that CPF and its supporting shareholders group have of CB stock from about 27 percent to 8 percent, according to CB.
Attorney Gordon Bava, who is representing CPF for Los Angeles-based firm Manatt, Phelps & Phillips, called CB's pronouncement yesterday a "trumped-up card to create confusion in the marketplace."
Bava said the shares CPF either owns or has voting power over did not result in beneficiary ownership as defined by federal securities laws or CB's poison pill that existed at the time the shares were purchased.
"What they may have done is to redefine beneficial ownership after the fact," Bava said. "It's just another obstacle that they're throwing in the way of their shareholders. But, at the end of the day, so what if the rights get distributed? That's not the end of the world. They still can't get executed unless there's closure of the exchange offer (to acquire CB shares) or the merger."
CPF, which has set the June 26 meeting for 11 a.m. at Hilton Hawaiian Village, said yesterday it was encouraged that two-thirds of CB shareholders either supported CPF's proposal or did not participate in the election. CB said 15 percent of the shares voted in favor of the proposal, 33 percent voted against it and 3 percent abstained. The outcome was not surprising, since CPF had urged CB shareholders not to vote at the meeting in the hope that the lack of a quorum would invalidate the results. A quorum constitutes more than 50 percent of eligible votes.
"We believe (this) signals shareholder support for this merger," CPF said in a statement. "We cannot understand how CBBI could characterize this as a victory or referendum on their opposition to our proposal. CBBI's shareholders deserve better, and it is a shame that CBBI refuses to listen to them."
Analyst Peter Kovalski, whose investment firm Saxon Woods Advisors owns 5,000 shares of CB stock, agreed with CPF's assessment.
"It wasn't a surprise they were able to squeeze out a quorum, but the key number was that 33 percent," Kovalski said. "With only a third of your shareholders voting against the merger, it would be very difficult for them to stop it. Eventually, I think it will get done. That's not a very large percentage of people who are against the deal."
However, Ronald Migita, the CB parent company's president and chief executive officer, said he was pleased with the results.
"As far as we're concerned, June 26 is not a legitimate meeting," Migita said. "Today was our meeting."
And, in keeping with the tone of the rest of the merger attempt, CPF contested CB's claim that a quorum had been met.
"Obviously, there's a serious question with the integrity of the process, and it's rather suspicious that they claim a quorum but they refuse repeatedly to offer what the numbers are," said Bava, who engaged CB attorney Fred White in a heated floor debate at the meeting. "It's a very simple question."
White, who is with New York law firm Skadden, Arps, Slate, Meagher & Flom, insisted the complete numbers would be released when they were finalized, and refused to elaborate.
Bava then demanded that White sit down and stop intimidating him.
White later said the final vote tally -- yesterday's numbers were preliminary -- will be available June 6.
In determining a quorum, CPF said all shares as of next Thursday should be counted, while CB said CPF's 2.3 percent ownership of CB shares and the 8.9 percent of shares controlled by Ton Finance, CB's largest shareholder, should not count. The fewer shares that count toward a quorum, the easier it is for CB to reach a majority of the eligible votes.
White said, though, it did not matter whether CB had a quorum because CPF was the one trying to have its proposal approved.
"The quorum is their problem," White said. "The statute says to give them a meeting, and we gave them a meeting. Their obligation is to carry the vote. They had their chance."
CB's stock rose $2.04, or 3.3 percent, to $64 today after falling $2.48 yesterday on the Nasdaq Stock Market. CB's stock is now trading $9 below CPF's offer of $73 a share.
CPF's stock gained 73 cents, or 2.7 percent, today to $27.55 on the New York Stock Exchange.