Keep City Bank stock, advisers urge

With CB Bancshares stock rising nearly $20 per share last week after a hostile takeover bid by rival Central Pacific Bank, shareholders face the temptation to sell immediately and walk away with at least a 40 percent profit.

That may not be the wisest move, said several local financial consultants, many of whom are advising their clients to keep the CB Bancshares stock.

Despite the surge in CB Bancshare's price from $46.38 per share to more than $66 last Thursday after Central Pacific announced its buyout plan, shareholders could gain more money and avoid some taxes if they refrain from selling at this point, said Larry Goeas, senior vice president at the Honolulu office of brokerage firm AG Edwards.

Central Pacific, Hawai'i's fourth-largest bank, is offering cash and stock worth $70 per share to buy out CB Bancshares shareholders for $285 million. The stock is now trading at a slight discount to that per-share amount, possibly because the risk that the hostile takeover bid might fail.

"It's hard to argue with taking the money and running, but I'm telling people to just hold on," Goeas said. "Even if the deal doesn't go through, the bank will continue to grow and be profitable."

The choice to sell or hold CB Bancshares, owner of City Bank, Hawai'i's fifth-largest bank, comes down to risk versus reward, said Geal Talbert, a certified financial consultant with Edward Jones in Honolulu.

"The bottom line is, it depends on the goal of the shareholder," Talbert said. "It seems like a pretty good price. At this point, you don't know if it's a done deal, and you can assume if it doesn't go through, the price may go back to where it was before."

If stockholders unload CB Bancshares now, they lose the potential to gain more money if the deal does go through for $70 or more per share. They would also have to pay brokerage fees on the sale, and tax on the capital gains.

But they would also gain definite profits and not need to worry about the possibility of the deal failing. CB Bancshares directors and executives have not agreed to the takeover bid, and Central Pacific may need to usurp the CB Bancshares board by gaining majority control of the company.

So far, two institutional investors owning about 13 percent of CB Bancshares' stock have announced support for the deal. City Bank executives and their employees own another 12 percent of the company. The other three-quarters of the company's shareholders have not publicly said which way they will vote. The CB Bancshares annual meeting is Thursday.

Central Pacific spokeswoman Ann Takiguchi said the company is receiving "overwhelming support across the board" in comments from City Bank shareholders, but offered no tally.

She said Central Pacific will have a better read on shareholders' sentiments later this week after Chairman Clint Arnoldus meets with institutional investors on the Mainland.

Despite the uncertainty, most stockholders would be wise to keep their shares, said Colin K. Watanabe, Honolulu branch manager for National Securities Corp. Watanabe said that the proposed takeover price seems fair, and the deal has a good chance to go through now that some institutional investors have declared their support.

"If the market was cranking, it could make sense to take your money out (of CB Bancshares) if there was somewhere else to invest it," said Watanabe, who has several clients with CB Bancshares stock. "But now, if you hold on for a few months, you could have a better return."

Stock in CB Bancshares closed at $66.10 yesterday, down 76 cents per share from Thursday's record high.