Banks appear to be
talking, analysts sayCentral Pacific Financial and
City Bank’s parent remain quiet
about a proposed merger
Central Pacific Financial Corp. and City Bank's parent maintained their silence yesterday as speculation swirled that CB Bancshares Inc. finally has agreed to consider its rival's unsolicited merger proposal.
The two analysts who cover Central Pacific agreed that there appears to have been a breakthrough in the yearlong merger attempt in light of Central Pacific's announcement Thursday night that it was extending its offer another week and postponing its earnings release.
Central Pacific's third offer was supposed to have expired Thursday, but the deadline extension leaves open the possibility that CB Bancshares may be seeking a better deal and negotiating positions for some of its executives or board members.
In the letter that Central Pacific sent to CB Bancshares regarding its latest offer, Central Pacific made it clear it was willing to work with CB Bancshares' board regarding social issues. Central Pacific said in the letter it already had proven its willingness to address such concerns by promising to protect jobs and opening new branches to offset the closure of overlapping branches.
Bruce Sherman, the largest shareholder of both banks, declined to comment yesterday after previously being outspoken in support of the merger.
"I'm not in a position to comment now," said Sherman, chief executive officer of Naples, Fla.-based Private Capital Management LP. "If you try me in a few days, I might be able to."
Sherman, according to the respective proxy filings of each bank, controls 9.6 percent of CB Bancshares' stock and 9.3 percent of Central Pacific's shares.
Analyst Joe Morford, who covers Central Pacific for San Francisco-based RBC Capital Markets, said he was encouraged by the deadline extension.
"The fact that CPF has postponed its earnings release suggests that there has been some level of communication between the two companies," he said.
Morford, who has a "sector perform" rating on Central Pacific, said he believes the merger has "some very real strategic and economic synergies" and it would be a "shame" if the two sides didn't at least take the opportunity to sit down together and talk about the deal.
"Central Pacific has obviously spent a lot of time, effort, and money over the past year trying to get this merger to happen," Morford said. "One can argue that longer term, this may be its best growth opportunity and the greatest way it can increase shareholder value.
"So as much as it wants some closure on this issue, if extending the deadline another week is what it takes to make it a reality, then that's worth doing."
Analyst Brett Rabatin of Nashville, Tenn.-based FTN Midwest Research, said he was surprised at the 11th-hour extension and suggested that the offer might no longer be considered hostile.
"They're obviously still attempting to find some amicable way to get this deal closed," said Rabatin, who rates Central Pacific's stock "neutral." "(Thursday) was the deadline for the offer and we were operating on the premise that after that there wouldn't be an offer. So, obviously, they're hopeful they're going to try to work something out. But there's no real way of handicapping what could be going on."
The stock market liked the deadline extension. CB Bancshares' stock yesterday jumped $5.79, or 8.6 percent, to an all-time closing high of $73. It climbed as high as $74.55 in intraday trading. At yesterday's closing price, Central Pacific's offer was valued at $386.5 million, or $87.07 for each share of CB Bancshares stock. Central Pacific's latest proposal was worth about $400 million, or $87.26 a share, when it was made on March 15.
Rabatin said that if CB Bancshares is indeed negotiating, he believes it is doing so with the idea of getting a deal done and not for cosmetic reasons to avoid future litigation in case it rejects the offer.
"I don't really think CB Bancshares would enter into negotiations without the actual intent of following through," Rabatin said. "I don't think they want to sit down and negotiate just to cover themselves regarding fiduciary responsibility."
But despite the appearance of talks, Rabatin said he's not holding his breath that a deal ultimately will get done.
"I'm still hesitant to think there might be an acquisition," he said.