City Bank stock jumps after takeover bid revealed

By John Duchemin
Advertiser Staff Writer

City Bank stock soared more than $20 per share yesterday on news that the bank is a hostile takeover target by rival Central Pacific Bank.

Central Pacific Bank's takeover bid of City Bank is considered hostile because leaders at City Bank have not approved it. An analyst said the takeover bid makes strategic sense for Central Pacific, but is risky because it's one-sided rather than a partnership. Richard Ambo • The Honolulu Advertiser

Stock in City Bank parent CB Bancshares jumped to $66.86, a 44 percent increase, on unusually strong trading as investors anticipated the consummation of Central Pacific's takeover offer, which calls for a cash and stock payment worth $70 per share to City Bank shareholders.

Central Pacific, Hawai'i's fourth largest banking company, on Wednesday announced its $285 million unsolicited takeover bid of City Bank, the state's fifth-largest bank. Central Pacific officials say the takeover would nearly double the bank's size and strengthen its ability to compete with Hawai'i's larger banks, but it would also lead to job cuts and branch closings.

Central Pacific Chairman Clint Arnoldus yesterday told analysts that 10 of the two banks' 45 branches would be closed if the takeover bid succeeds.

Arnoldus also said he would quickly move to close City Bank's U.S. Mainland office, which has been used to secure Mainland loans and other out-of-state business. Arnoldus said that Mainland activity is too risky for a small Hawai'i bank.

Central Pacific's takeover bid is considered hostile because it has not been approved by City Bank leadership. Central Pacific is trying to persuade City Bank shareholders to buck their company's wishes and back the deal.

In a tersely worded statement yesterday, City Bank chief executive Ronald K. Migita said his bank is still reviewing the offer, but also asked shareholders to sit tight.

ARNOLDUS

MIGITA

Arnoldus told analysts he made a "soft attempt" to discuss a merger last year and City Bank executives declined. He decided this year he would pursue the merger even if City Bank officials did not agree to it. On March 17, he sent his financial advisors to City Bank to explain the offer.

Arnoldus said he did not attend the meeting because his relationship with City Bank executives was chilly. "Based on our offer last year, they were not sending me Christmas cards," Arnoldus said.

Finally City Bank did agree to a meeting on April 2, but the City Bank officials did not respond.

Arnoldus said he made one more attempt to reach City Bank by sending letters to individual board members, but that also failed. At that point he decided to take his offer directly to the shareholders.

Meanwhile, an analyst said the takeover attempt makes strategic sense for Central Pacific, but is also risky.

"With any merger, you want to go into it as partners, and right now it's obviously pretty one-sided," said Joe Morford, a San Francisco-based bank research analyst with RBC Capital Markets, which owns no stock in Central Pacific or CB Bancshares. "And hostile takeovers are very uncommon in the banking industry, in large part because of concerns over credit quality. You really just don't know what's inside the loan portfolio, so it's hard to get totally comfortable."

Morford was also concerned that Central Pacific will lose its business focus if it gets wrapped into a drawn-out takeover bid.

"When something like this comes up, the risk is that it becomes all-encompassing, and you take your eye off the ball," Morford said.