Hearing on bank merger begins

By Deborah Adamson
Advertiser Staff Writer

Ron Migita, president and chief executive officer of CB Bancshares Inc., greets Meyer Ueoka, a Maui attorney and former Board of Education member, at a hearing on the proposed hostile takeover of City Bank by Central Pacific. Photos by Bruce asato • The Honolulu Advertiser

Central Pacific Bank CEO Clint Arnoldus, second from right, was among those listening to testimony on the proposed bank merger at the State Capitol yesterday. Officials said the hearing could last up to three days.

"No matter what they promise, they will close branches and lay off people," said Min Sung Yang, owner of Atlas Insurance Agency and a customer of 20 years with City Bank. "I don't want my friends to worry about their jobs."

More than 200 people packed the auditorium at the State Capitol to listen to at least 100 people voice support or opposition of the proposed hostile takeover of CB Bancshares, the parent of City Bank, by Central Pacific Financial, the parent of Central Pacific Bank. Most of the speakers at the morning session were opposed to the merger.

In April, Central Pacific proposed to buy City Bank for cash and stock now valued at about $245 million. Although the initial offer provided City Bank shareholders was a 60 percent premium over the bank's stock price at the time, the board rejected the unsolicited bid. Since then, both sides have waged a public relations war to win over consumers, employees and regulators.

The latest olive branch came from Central Pacific, which pledged Sunday not to lay off employees after the merger, with the exception of certain senior management. The bank also said it will open a branch for every location closed because of the merger. Ten Central Pacific branches are near City Bank branches.

The promise was met with skepticism by City Bank, which described the offer as a "desperate attempt" to keep its "ill-advised" bid alive.

Central Pacific's Arnoldus said in a statement that his bank can cut costs without layoffs through a hiring freeze, natural attrition, re-training, re-assignments and reallocation of employees to other areas.

The public hearing, which could run as long as three days, is being chaired by Nick Griffin, commissioner of the state Division of Financial Institutions. Griffin said he will decide whether to let the merger proceed by Feb. 18.

Wearing a royal blue City Bank shirt adorned with a blinking City Bank button, Marion Hufen tried to hold back her tears as she contemplated the fate of rank-and-file bank workers.

"A merger is not just about numbers or profits. It's about the community impact," Hufen said. "I don't think (Arnoldus) understood the way business is done here. I don't think he understands how people feel about businesses here, especially businesses that are built by local people and supported by local people."

The retired schoolteacher showed up more than two hours before the hearing. She joined dozens of City Bank employees to march and wave placards outside the State Capitol.

Hufen said she's one of the original shareholders of City Bank, since 1958. She doesn't plan to sell her shares, despite the higher price.

"I'd rather have the bank," she said.

But a Florida institutional investor, whose company owns almost 10 percent of both banks, disagreed.

John Smith, senior vice president of Private Capital Management L.P. in Naples, Fla. believes the merger would result in a more efficient and stronger bank that could better compete with larger Mainland banks.

Smith, whose firm is a seasoned investor in the banking industry, expressed surprise at the "vocal and scare tactics" employed by City Bank.

"Because of the premium involved, it made good business sense to at least take an objective look at the proposal," said Smith, who stood out at the hearing in his black suit, red tie and tasseled leather shoes. "I don't think that's happened."

He said his firm would understand if the merger derailed because of antitrust issues, but not based on public sentiment. If state officials reject the merger to look good publicly, they risk turning off Mainland investors who might feel that Hawai'i doesn't play by the same rules as the rest of the country, he said.

"The benefits to Hawai'i from the continued investment by Mainland institutional investors is at stake," Smith said. Out-of-state investors could leave with the perception that Hawai'i is a market "where sound corporate governance and shareholder rights are at a minimum."

Dean Hirata, chief financial officer at City Bank, disagreed that much of the basis for denying the merger is emotional. Central Pacific's offer is too low, he said.

Based on City Bank's adjusted earnings for the 12 months ended Sept. 30, Central Pacific's per-share offer is 13.5 times earnings. The national average for bank mergers is 21.7 times earnings, Hirata said.

What if Central Pacific raises its offer?

"We believe we can achieve more value to our shareholders by remaining independent," he said.

Austin Imamura, a City Bank supporter, said he opposes the merger because "there's no compelling reason at this point. It's not a matter of survival. We have two healthy banks today."

Richard Lim, president of City Bank, added that a merger is complex to execute and requires trust, cooperation and collaboration on both sides. With a reluctant partner in a hostile takeover, it would be "nearly impossible" for these elements to exist, he said.

"In Hawai'i, we have no experience in dealing with situations of this nature," Lim said. "On the Mainland, however, hostile takeovers used to be the business tactic du jour. From their experience, we know that hostile takeovers are replete with minefields."

Part of the issue is the forceful nature of the takeover. When City Bank approached Central Pacific in 2000 for a three-way merger with an insurance company, Central Pacific said it wasn't interested, and City Bank dropped the matter, a City Bank spokeswoman said.

Not only are circumstances and the merger terms different this time, but Central Pacific wouldn't take no for an answer.

Arnoldus, who was scheduled to testify today, showed no signs of backing down. In remarks prepared for the hearing, he said that "we are very confident of our decision, and we will make it work."

That's not what Luz Damo, a City Bank employee, wants to hear: "I hope Central Pacific Bank just leaves my employer alone!"

Reach Deborah Adamson at dadamson@honoluluadvertiser.com or 525-8088.