Disney-like wrinkle
in bank mergerA major shareholder of City Bank's
parent threatens to withhold votes
at an April shareholders meeting
Taking a page from the script of the Walt Disney Co., one of the largest shareholders of City Bank's parent said yesterday he plans to withhold his votes at the company's April 29 shareholders meeting for the three people who have been nominated to its board of directors.
Some other institutional shareholders of CB Bancshares Inc. said they also might consider withholding votes, while others said they have been selling shares in case the proposed merger between CB Bancshares and the parent of Central Pacific Bank is called off.
Just saying 'no'
Institutional investors in City Bank parent CB Bancshares Inc. are expressing their displeasure at the company's failure to discuss a proposed buyout by Central Pacific Financial Corp. with its rival's board.>> Voting no: Naples, Fla.-based Private Capital Management, which owns about 10 percent of the bank's stock, will withhold votes from bank officers up for reelection.
>> Selling shares: As of yesterday's market close, CB Bancshares stock had fallen 2.7 percent to $66.70 from $68.55 since Central Pacific's new offer was made. Its stock closed yesterday nearly 24 percent below the offer price.
>> Big players: As of Dec. 31, 50.4 percent of CB Bancshares' stock was owned by institutions, according to Thomson Financial.
Earlier this month, 43 percent of Disney shareholders withheld their votes to re-elect Chief Executive Michael Eisner as chairman. The no-confidence vote resulted in Eisner stepping down as chairman, though he remains CEO.
Bruce Sherman, chief executive of Naples, Fla.-based Private Capital Management, said he wants to send a message to City Bank's board that investors are upset that the board and management have failed to sit down with Central Pacific Financial Corp. to discuss two offers for CityBank.
"In my 20 years of professionally investing capital, I have never seen such an entrenched organization that was more concerned about their own board and executive well-being than that of their shareholders," Sherman said. "I represent approximately 10 percent of the (stock ownership) and (CB Bancshares) seems to have the view that shareholders' rights are nonexistent."
CPF's latest -- and it says final -- stock-and-cash offer announced on March 15 is for $400 million, or $87.26 a share for each share of CB Bancshares' stock. That's 107 percent higher than the split-adjusted $42.16 that CB Bancshares' stock was trading at when the original offer was made public on April 16, 2003. Central Pacific has given CB Bancshares until April 15 to begin discussions.
As of Dec. 31, just more than half of CB Bancshares' stock was owned by institutions, according to Thomson Financial.
CB Bancshares spokesman Wayne Miyao said no decision has been made yet on the new offer.
"We cannot comment on any timetable or when a decision will be made," Miyao said. "However, the CBBI board understands its obligations and will review the unsolicited offer very thoroughly, working with its independent financial advisers, Sandler O'Neill, and its legal advisers, Skadden, Arps, Slate, Meagher & Flom, and our local firm, Kobayashi, Sugita & Goda. When a decision is made, we will announce it with a press release."
Undecided owner
One institutional investor, who requested anonymity, said he hasn't decided what he'll do with his proxy votes but has been reducing his shares in CB Bancshares.
"It's better to be safe than sorry," said the investor, who projects that there is a 10 percent to 15 percent downside risk to CB Bancshares' stock if the deal doesn't go through.
"The issue with City Bank is the quality of its earnings and if its earnings are sustainable. If its earnings are sustainable, there's no reason for the stock to go lower than 60."
He said he was disappointed that the stock didn't react to the sweetened offer.
"I don't know if it's a cultural or personal difference between managements," he said.
"But I would be a buyer again if I knew they wanted this process to work."
The investor said CB Bancshares has done "an excellent job" in extracting higher value but it needs to go to the table to try to negotiate a deal that makes sense for both sides.
"I think it would be a shame to let this offer slip away," he said. "I think they'd be stronger together than they are apart."
If the deal is called off, he said Central Pacific's stock should go up as investors who sold the stock short unwind their positions by buying it back. In addition, Central Pacific could fuel a rally in its shares because it said it would repurchase up to $20 million of its stock.
Ray Galkowski, a principal of Princeton, N.J.-based Princeton Absolute Returns, said withholding his vote is something he would consider if he could "come up with a reasonable rationale for doing that that would allow (the process) to move forward."
CB Bancshares hasn't identified its nominees for the staggered, 10-member board, but the individuals with terms expiring this year are Tomio Fuchu, director of Dart Coffee Inc.; Duane Kurisu, a partner of Kurisu and Fergus and a minority Star-Bulletin owner; and Mike Sayama, vice president of customer relations of Hawaii Medical Service Association.
Galkowski, who said his firm owns less than 1 percent of the stock, hasn't accumulated more shares because of the uncertainty of the deal.
"My firm looks for value companies in the financial services area," he said. "We thought City Bank was trading below value and Central Pacific obviously thought the same thing. That's why they made such a good offer for the bank."
Money maneuvers
Another institutional shareholder, who also requested anonymity, said his firm also has been voting with its wallet.
"Our level of ownership has decreased, and the reason we've reduced our stake is we don't have any expectation that the management of CB Bancshares will change its tune and engage with Central Pacific on the merits of the combination," the investor said.
"The thing is, you can vote in lots of different ways. If you're a large shareholder, you can't sell your stock because it's illiquid (because of the few numbers of shares that exchange hands daily). If you're smaller institutional investors, you can just sell your stock."
Another institutional investor, who also asked to remain anonymous, hinted that he might withhold his votes.
"When a management team doesn't listen to its shareholders, we are inclined not to support that management team in an election," he said. "It's symbolic.
"In Disney's case, Eisner had 43 percent of the votes withheld. That doesn't give the shareholders the power to remove him as CEO of that company, but it sends a very strong signal to the board of directors that the shareholders are unhappy with them. In CBBI, you can see a similar situation to send a signal by the shareholders to the board that shareholders are unhappy with the direction of the company."
Sherman, who has been outspoken since the outset, threatened to sell all his shares of Hawaii companies if CB Bancshares doesn't negotiate a deal.
"I would expect that should management fail to negotiate an agreement, that this abuse of shareholders' rights will lead myself and other institutional shareholders to abandon investments in Hawaii for Hawaiian institutions," he said. "I personally intend to liquidate all my other Hawaiian investments (3 percent of Bank of Hawaii and 9 percent of Central Pacific) should this abusive behavior continue."
Sherman said he doesn't care who ends up running the combined bank.
"These institutions need to merge and stop sending money to New York lawyers and New York investment bankers," Sherman said.
"They've already taken close to $15 million of profits and given it to New York City lawyers and New York investment bankers. This is money that could have been agreed upon to be spent on branch beautification, lending to disadvantaged communities within the state of Hawaii and for other more morale purposes."
