Bank battle heads
back into court
Central Pacific Bank's parent, insisting that its merger proposal is "not only adequate but an excellent offer," sued CB Bancshares Inc.'s board yesterday for breaching its fiduciary duties.
The lawsuit filed in state Circuit Court seeks to invalidate several provisions that City Bank's parent put in the new shareholder rights plan its board approved last week.
Central Pacific Financial Corp. is asking the court to invalidate:
>> The definition of the term "person," which CPF said is designed to intimidate CB shareholders from taking virtually any action in support of the merger.
"CBBI's latest actions fly in the face of the bedrock principles of corporate governance," CPF said. "Directors work for shareholders and not the other way around. Shareholders have a right to replace directors if they are unhappy with them. Shareholders have a right to support the sale of a company. And, finally, shareholders have the right to meet and vote on proposals."
>> The "dead-hand" provision, which prevents new directors -- not designated by the current board -- from removing the pill; and
>> Any application of CB's poison pill to agent designations, which would destroy most of the value of CB shares held by shareholders who exercise their right to call a special shareholders meeting.
CPF's suit comes just a week after CB's board strengthened its shareholder rights plan, or poison pill, to ward off potential suitors. The anti-takeover defense makes it more expensive for a potential acquirer to take over the company by diluting its shares.
Under CB's poison pill, shareholders other than the acquirer would have the right to purchase additional shares at half price. The poison pill can be triggered when any group of persons acquires 15 percent or more of CB shares. The former threshold was 20 percent.
The new poison pill also retained the controversial dead-hand provision, which allows only current directors or management-selected successors to cancel the pill. Thus, if a competing slate of directors supplants some of the CB directors, the new directors will have no power to amend the pill. The dead-hand provision has been rejected in Delaware and other jurisdictions but has been upheld in some other states.
"The person definition is really the worst," said CPF's New York-based attorney, John Hardiman of Sullivan & Cromwell LLP. "You can be subjected to the dilution of this pill for acting with other shareholders to support our offer."
CPF's stock-and-cash offer, worth $265 million as of yesterday's market close, is valued at $62.97 for each CB share. CB's stock closed yesterday at $61.27.
CB said yesterday it couldn't comment specifically until it had a chance to review the complaint.
"However, we believe their complaint is without merit and we will defend our company and our shareholder rights plan," CB spokesman Wayne Miyao said. "The board of directors of CB Bancshares considers our new shareholder rights plan to be more consistent with the terms and conditions of other rights plans more recently adopted by other public companies."