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The Honolulu Advertiser
Posted on: Monday, June 2, 2003

Banks dispute second vote

By John Duchemin
Advertiser Staff Writer

On its surface, the May 28 vote by CB Bancshares shareholders to reject a takeover bid would seem a victory for the company in its quest to stay independent.

That victory, however, could prove hollow, as the would-be hostile buyer, Central Pacific Financial Corp., is far from finished.

Both companies are focused on a second vote that may happen on June 26. The vote would be held for the same reason: To approve or reject Central Pacific's plan to buy CB Bancshares for $275 million in cash and stock.

But the results would likely be more favorable to Central Pacific, which called for a boycott of the May 28 vote, and declared a de facto victory after half of CB Bancshares shareholders refrained from voting.

The focus of the fight is on whether that second vote would be necessary. Central Pacific says yes; it claims the May 28 vote was illegitimate because shareholders had too little time to consider the $70-per-share takeover offer. CB Bancshares, whose directors have the sole power to call a second vote, says Central Pacific blew its chance, and doesn't deserve another. The target bank has also threatened to invoke its ace-in-the-hole defense: a "poison pill" clause in its bylaws, which would flood the market with cheap CB Bancshares stock.

Like many issues in the takeover attempt, the proposed revote is surrounded by legal technicalities, which only grow murkier as the adversaries' Mainland-based attorney teams throw out new arguments. With Central Pacific hinting it may sue CB Bancshares over the issue, a state judge may be needed to settle things.

In itself, the June 26 meeting isn't that important. Winning shareholder approval to proceed with the acquisition is one of many hoops Central Pacific must jump through to complete its proposed takeover, and it doesn't have to be the first hoop. For instance, Central Pacific could try to force a vote on a different issue, or wait until next year's annual shareholders' meeting and try to install its own directors on CB Bancshares' board.

But a vote on June 26 would give Central Pacific an immediate chance to pressure CB Bancshares executives — if it can carry the day by a big margin.

"Two-thirds of shareholders have indicated they are not against this proposal — they either sat on hands, or voted in favor of it," said Gordon Bava, a Los Angeles-based merger & acquisitions lawyer representing Central Pacific. "I think we're optimistic that shareholders support our position."

CB Bancshares claimed an unequivocal victory last Wednesday, with company president Ronald Migita claiming the vote indicated widespread support for his bank's fight against the takeover. But Migita only had the support of 29.4 percent of the bank's total outstanding shares.

In that vote, 13.4 percent of the shares supported Central Pacific — a deceptively low number, Central Pacific says. It claims most of its supporters obeyed the bank's request to boycott the vote.

Both banks have acknowledged that most of CB Bancshares' institutional investors, about 40 percent of the bank's total shares, now support Central Pacific. Central Pacific officials say they'd have no problem getting more than 50 percent of the votes on June 26.

CB Bancshares executives, however, have no plans to give Central Pacific an easy avenue to a new vote. Within hours of the May 28 vote, CB Bancshares claimed Central Pacific would trigger the poison-pill defense if the June 26 vote goes forward.

In the process of demanding a June 26 vote, Central Pacific procured the voting support of institutional shareholders owning more than 25 percent of CB Bancshares stock. CB Bancshares claims that means Central Pacific has "beneficial ownership" of that stock — and is therefore over the 20-percent ownership threshold to trigger the poison pill, which would drastically dilute the percentage of shares owned by Central Pacific and its allies.

In other words, Central Pacific would be "permanently unable" to buy CB Bancshares without severely harming itself in the process, Migita warned in a statement last week.

Facing this threat, Central Pacific officials say they are researching the issues involved to decide whether CB Bancshares' poison-pill claims are credible. Central Pacific isn't revealing its next move, but it does insist the first shareholder vote on the hostile bid probably won't be the last. Central Pacific sources say the bank will reveal more of its strategy, including any possible lawsuits over the proposed June 26 vote, this week or next.

"We feel the stock market has spoken quite clearly that shareholders want these companies combined and believe it will happen," Central Pacific spokeswoman Ann Takiguchi said. "We continue to urge CBBI to turn its energies to listening to its shareholders, instead of attempting to put up further barriers to shareholder democracy.

"As far as what's next: Know that we are determined to see this through and we are considering all options to ensure that all shareholders are heard."