Breakup fee high if bank sale fails
By Frank Cho
Advertiser Staff Writer
BancWest Corp., the parent company of First Hawaiian Bank, would have to pay $100 million to back out of its planned $2.5 billion acquisition by one of France's big gest banks, making it the largest breakup fee ever in Hawai'i history.
Paris-based BNP Paribas SA would not have to pay anything if it decides to pull out of the deal, according to the merger agreement filed last week with the U.S. Securities and Exchange Commission.
The French bank agreed May 8 to purchase the 55 percent of BancWest it did not already own for $35 a share, or $2.5 billion, to gain broader access to U.S. retail banking markets and the bank's 1.1 million customers.
The $35 offering price represented a 40 percent premium over the $24.98 closing price for BancWest shares May 11 before the Monday announcement.
Both companies say they are committed to the deal, even though several shareholders have filed lawsuits seeking to stop the sale alleging BNP's offer price is too low.
"Breakup fees are pretty common. They are usually just enough to hurt the seller if they decide to pull out for a better offer," said Richard Dole, a private equity investment banker in Honolulu.
BancWest yesterday declined to comment about the fees because of the pending shareholder lawsuits.
While analysts say break-up fees are often used to keep shareholders from accepting other competing offers, Dole said they also give the seller, in this case Banc-
West, a way out of the deal.
But analysts said it's unlikely this deal will fail since supporters already control nearly all of the two-thirds of BancWest stock needed to approve the purchase.
BNP is BancWest's single-largest shareholder with 45 percent of all outstanding shares while the Estate of Samuel M. Damon, which is expected to support the deal, holds another 13 percent.
Those shares, coupled with holdings of BancWest executives and other major supporters like Honolulu's Alexander and Baldwin Inc. — which stands to make about $68 million after taxes on its 3.4 million shares — almost ensure approval of the sale, analysts said.
According to the merger agreement, either company can back out of the deal without penalty if the transaction isn't completed by Jan. 30, 2002, unless one side fails to complete its part of the agreement.
BancWest could also escape paying the breakup fee if its shareholders vote against the sale, the deal fails to win regulatory approvals, or if both sides consent to terminate the agreement.
Dole said breakup fees are always negotiated and there are no specific formulas, but Banc West's fee appears to be in line with other bank acquisitions.
"This sounds a little steep to me," said Craig Silvers, a Los Angeles-based equity analyst. But Silvers said the fee probably doesn't mean much since BancWest is likely to close the deal on schedule sometime in the third quarter of this year.
Analysts said breakup fees typically range from 2 percent to 5 percent of the value of the company being acquired. In Banc West's case, with a valuation of $4.375 billion at BNP's offer of $35 a share, the $100 million fee is about 2.2 percent.
In the unlikely event BancWest had to pay the fee, BNP, which already owns 45 percent of the bank, could find itself paying nearly half of the $100 million fee to itself.
BancWest's stock rose two cents yesterday to close at $34.44.
Frank Cho can be reached by phone at 525-8088, or by e-mail at fcho@honoluluadvertiser.com.
