Bank merger
stirs emotions

Sadness and surprise greet news
of a deal between City Bank
and Central Pacific

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By Dave Segal
dsegal@starbulletin.com

Thursday afternoon was filled with humbling and reflective moments for the City Bank executives and board members who had fought so hard and so long to keep the bank independent.

There were emotional speeches, according to a source who asked to remain anonymous. Tears were shed.

The idea of relinquishing control of the bank to their Honolulu rival came hard.

Central Pacific had been trying for 13 months to complete a deal, but that is a mere snapshot in time compared with City Bank's 45-year history. It was founded in 1959 by nisei war veterans, initially to serve the Japanese-American community.

Before Thursday's vote was taken, one of the bank's 10 board members stood up to object to Central Pacific Financial Corp.'s latest offer. But the board was committed to a unified decision, and eventually the objecting board member relented and the deal was given the green light.

The approval by the CB Bancshares Inc. board set the gears in motion for yesterday's early morning announcement that Central Pacific was acquiring City Bank's parent for $420 million, or $91.83 a share, to CB Bancshares' stockholders. The merger, which needs 75 percent shareholder approval from both companies and regulatory approval, is targeted to close by the end of August.

After a snail-like pace for more than a year, the merger announcement turned out to be a race against the clock. Officials from both banks worked through the night to get the news out before the market opened at 3:30 a.m. Hawaii time.

Originally, the plan was to make an announcement later in the morning so the banks could inform their employees. But the results of Thursday's board meeting leaked out to some Central Pacific executives, and the race was on.

The two banks did not quite make it. The definitive agreement was not signed until about 4 a.m. Stocks of both companies already had begun trading and were halted shortly after 4:30 a.m. for news pending.

News of the merger was released at 5:10 a.m. along with Central Pacific's first-quarter earnings, which showed an 8.1 percent drop in net income.

The merger cost Central Pacific $16 million to pursue and CB Bancshares $8 million to defend, the top executives of the two banks said yesterday afternoon at a press conference in Central Pacific's board room.

"It was money very well spent from our perspective," said Clint Arnoldus, Central Pacific's chairman, president and chief executive officer.

Arnoldus will continue as CEO of the combined company, and Migita, president and CEO of CB Bancshares, will become nonexecutive chairman of the board.

Neal Kanda, chief financial officer of Central Pacific, will take over as president and chief operating officer of the new company, while CB Bancshares Chief Financial Officer Dean Hirata will be the CFO of the combined company.

Among other top CB Bancshares executives, Richard Lim, president of City Bank, accepted a position to spearhead the new company's mortgage banking operation. Lionel Tokioka, chairman of the board of CB Bancshares, said yesterday he "was in the dark" about his future, but Arnoldus later indicated he would use Tokioka as a consultant.

The marriage between the two banks caught many observers by surprise because of the acrimony that existed during the last year.

But Arnoldus and Migita began talking shortly after the bank's latest offer on March 15, with the discussions heating up over the last two weeks as positions were either created or requested for CB Bancshares executives and board members.

"Just a year ago we were perhaps on opposite sides," Migita said, "but later, here we are side by side because we are committed to this future."

Migita said the catalyst to begin negotiations was the revised offer, which included a one-month deadline that was later extended by a week.

"We felt (the sweetened offer) was in recognition of the four (good earnings) quarters that we have had, and it really reflected the true value of the company," Migita said.

Still, it was hardly a done deal as executive compensation became a sticking point.

Some CB Bancshares executives ended up receiving deals allowing them to take a job with the new company and retain their existing parachute. In other cases, executives had to choose between accepting a job or taking the parachute.

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Money in the Bank

Central Pacific Financial Corp. reached an agreement to acquire CB Bancshares Inc. yesterday after a 13-month pursuit.

Value of the deal: $420 million, or $91.83 for each CB Bancshares share
Combined employees: Approximately 1,000
Combined branches: 45 (some will be closed while new ones will be opened)
Targeted closing date: Late August

SOURCE: CENTRAL PACIFIC FINANCIAL

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Hawaii's Big Banks

The top Hawaii banks in order of assets as of Dec. 31:

First Hawaiian Bank: $9.9 billion
Bank of Hawaii: $9.5 billion
American Savings Bank: $6.5 billion
Central Pacific Bank: $2.2 billion
City Bank: $1.9 billion
Territorial Savings Bank: $1.0 billion

Note: The combined assets of Central Pacific and City Bank as of March 31 total $4.2 billion.

SOURCE: AMERICAN BANKERS ASSOCIATION