TON Finance, CB Banchares' largest shareholder, with 8.9 percent of the company's shares, will not be allowed to vote at a special shareholders meeting on May 28 because its proxy was filed too soon, said Fred White, a City Bank attorney from the New York firm Skadden, Arps.

Central Pacific Bank had touted TON Finance's support as a sign of shareholder approval of its hostile bid since it first announced the $285 million takeover attempt on April 16.

"I don't think the deal goes through without that major shareholder," said Larry Goeas, senior vice president at A.G. Edwards & Sons.

At the special City Bank meeting of shareholders, Central Pacific Bank needs support from holders of more than 50 percent of the shares to pass one significant hurdle in its takeover bid, said White.

City Bank shares lost 81 cents in trading today to close at $67.78. Central Pacific shares gained 7 cents to close at $25.75.

City Bank's board of directors unanimously rejected the merger proposal from Central Pacific Bank parent Central Pacific Financial Corp. yesterday, concluding that the combination would be "disastrous" for employees, customers and the local economy.

The decision followed an all-day meeting of the bank's 10-member board, its outside attorneys and investment adviser Sandler O'Neill & Partners LP in New York.

"The unsolicited proposal from ... (Central Pacific) undervalues our franchise, our market position and the loyalty of our customers, and raises serious concerns about the adverse effect such a combination would have on the people, communities and economy of Hawai'i," CB Bancshares chairman Lionel Tokioka said in a statement.

City Bank calculated that a merger would result in more than 200 lost jobs for the envisioned combined bank, and that Central Pacific's $16 million estimate of annual operating cost savings would largely be achieved from layoffs. City Bank also estimated that the banking job cuts could reverberate to cost the local economy $16.5 million through almost 500 additional job losses at vendor companies and elsewhere outside the bank.

The board also warned that it believed that City Bank small business and retail customers would be underserved by Central Pacific's "big bank strategy," and could lose City Bank services such as free checking with no minimum balance and nonconforming residential mortgages.

The City Bank board said Central Pacific's offer for City Bank is "inadequate," which suggested that City Bank shareholders would receive overvalued Central Pacific stock, and questioned the experience of Central Pacific management in merging and running the envisioned combined bank.

"There is substantial execution risk," City Bank said in a statement. "If CPF were to fail to realize the benefits it expects, CPF's stock price would be vulnerable to downward pressure."

Central Pacific responded that it was "disappointed, but not surprised" that City Bank opposes the merger. Central Pacific said the merger would create a more competitive bank at which additional jobs and services would be created as well as new jobs in communities that the bank would serve as it grows.

Central Pacific also defended its management as having delivered superior financial results compared with City Bank in the past five years, and said it is well-positioned to integrate the two banks. 

Central Pacific said City Bank "invented the estimates of employee layoffs." Central Pacific has said there will be positions cut but will not say how many.

City Bank said it had been studying the offer since an April 2 meeting between executives of the two banks, and had not been ignoring the merger proposal as suggested by Central Pacific, which announced April 16 that it will take its offer directly to City Bank shareholders.

"Our board has made its decision after a thorough and comprehensive analysis and we hope that (Central Pacific chief executive Clint) Arnoldus respects it," said Richard Lim, City Bank president and chief operating officer. "We want him to shake hands and compete on a friendly basis."

Lim reiterated City Bank's displeasure at a takeover attempt that it considers not in line with how business is done in Hawai'i. "It is not local style," he said.

Central Pacific could still proceed with a hostile takeover if it can persuade more than 75 percent of City Bank shareholders to support the deal.

Central Pacific would have to neutralize several City Bank takeover defenses, including a "poison pill" that floods the stock market with extra City Bank shares if a would-be buyer acquires more than 20 percent of shares, a measure that would devalue the company's stock.

To defeat the poison pill, Central Pacific would have to persuade City Bank shareholders to elect a new City Bank board that supports the merger, which could take additional time and money that would make the merger less attractive.

So far, Central Pacific said, it has secured the support of about 25 percent of shareholders, including two of the company's largest institutional investors.