State OKs bank
mergerThe takeover still needs support
from City Bank’s board
and shareholders
Score another regulatory decision for Central Pacific Financial Corp.
Central Pacific Bank's parent, which has met steep resistance in its attempt to acquire rival CB Bancshares Inc., won another battle yesterday when a state government agency approved CPF's merger application.
In December, Central Pacific also received a green light for the merger from the Federal Reserve Board.
Nick Griffin, the newly appointed commissioner of the state's Division of Financial Institutions, said in issuing his decision yesterday that there were no grounds to disapprove the proposed acquisition.
"Everything in the application was considered," Griffin said in a statement. "We analyzed the application in accordance with the state statute and concluded there's no reason it shouldn't go forward."
The $287 million merger, however, is still far from a done deal since Central Pacific still needs to get past the CB board's anti-takeover poison pill and win 75 percent of CB shareholder approval, as well as approval from Central Pacific's shareholders.
"We are very pleased to have received the approval for our merger application," said Clint Arnoldus, chairman, president and chief executive officer of Central Pacific.
"We continue to believe that combining the best of both our banks will create a stronger Hawaii-based bank focused on our community needs and be in the best interests of all constituencies," added Arnoldus, who said in December that the bank would not lay off any CB employees. "We hope that now that we have received all required regulatory approvals, CB Bancshares' board and management will be willing to discuss the proposed combination of our two banks."
But a spokesman for City Bank's parent expressed surprise at the ruling, saying the bank is determined to block the merger.
"We are perplexed and dismayed by DFI's decision, despite the rejection of CPF's proposal by CB Bancshares' shareholders (in a May vote) and the overwhelming opposition of thousands of people across the state of Hawaii, including Central Pacific's own business loan customers, who signed petitions, wrote letters and testified in person to voice their opposition to CPF's hostile takeover," said CB spokesman Wayne Miyao.
"We believe that CB Bancshares' board has rejected CPF's hostile takeover proposal as inadequate and the decision by DFI has no impact on the board's determination and does not address the full range of issues that our board is obligated to consider. Central Pacific's offer cannot be completed without the approval of the board."
The state division, which had until Feb. 18 to issue its decision, listened to testimony in December from more than 200 people during two days of public hearings, many of them CB supporters. Last month, CB released the results of a Pacific Fielding Center Inc. survey that found that nearly 82 percent of Central Pacific Bank's own customers said the state should oppose the takeover. Central Pacific said the questions were biased.
Banking analyst Joe Morford, who covers Central Pacific for San Francisco-based RBC Capital Markets, said the ruling represents a significant step forward for CPF.
"I think it's an important victory for Central Pacific," Morford said. "Together with the Fed approval, it would seem to add some momentum to their bid. It removes a key hurdle to completing the merger, but it's still not a done deal and I suspect there will be some time before it's all said and done. Based on CB Bancshares' actions to date, they're not going to go down without a fight."
Miyao said as much by vowing that CB Bancshares will stiffen its resolve.
"CB Bancshares Inc. remains as committed to successfully executing our business plan, building shareholder value and now more than ever defending the best interests of our customers , our shareholders and our company against this hostile action," Miyao said.
Under terms of the merger, CB shareholders will get a ratio of 65 percent CPF stock and 35 percent cash for each CB share they own. The value per share, as of yesterday's market close, was $65.32.
Peter Kovalski, a portfolio manager and bank analyst for Alpine Woods Investments in Purchase, N.Y., said he wasn't surprised by the division's ruling.
"To me it wasn't a major concern that they wouldn't be able to get it approved," said Kovalski, whose firm owns Central Pacific shares but not shares of CB Bancshares. "The biggest hurdle to pass is all the takeover provisions that CB has put in place. I think the ruling would have been more of a surprise if the regulators had not approved it."
The state agency's decision, which is good for six months and can be extended for another six months, was released yesterday in an 18-page report.
Among the findings:
>> CPF has the overall acquisition-related experience, moral character and integrity required to take control of another Hawaii financial institution. CPF also is well-capitalized, has strong operating results and has increased earnings in the last five years.
>> The proposed acquisition will not have a negative effect on the convenience and needs of the community. The division cited CPF's relationship with its customers and the bank's intention to maintain those relationships. The division also said CPF will offer existing and new customers expanded products and services with no significant additional investment in costly infrastructure to the bank. The division noted CPF's statement that the consolidation of approximately 10 CPF or CB branches in close proximity of each other will not inconvenience customers, and that CB customers will have access to an expanded branch network since the number of branches of the combined bank would nearly double. CPF, the division added, also said it expects to expand into other areas of the state not served by either institution and that possible branch closings will not adversely affect the resulting number of branches and ATMs. CPF has stated that it is willing to commit an additional $1 million to support local community needs and that a combined institution could give the bank an "outstanding" overall Community Reinvestment Act rating.
>> The effect of the proposed acquisition will not substantially lessen competition or create a monopoly. The division said a post-acquisition combination of CPF and CB would result in a projected 14 percent share of the state's depository institution market, ranking it no higher than fourth in the state.
>> The financial condition of CPF would not jeopardize the safety and soundness of CB.
>> The proposed acquisition would not be unfair and unreasonable to depositors, beneficiaries, creditors or shareholders of CB.