Shareholder's step may halt City Bank takeover

By Andrew Gomes and Curtis Lum
Advertiser Staff Writers

City Bank employees rallied on Merchant Street yesterday against Central Pacific Bank's hostile takeover bid. Deborah Booker • The Honolulu Advertiser

The switch by TON Finance BV, a Netherlands-based investment firm that owns about 9 percent of City Bank, was announced hours after City Bank said it found a legal technicality that could prevent TON from voting for the takeover at a key upcoming vote.

TON Finance will not be allowed to vote at a special shareholders meeting May 28 because its proxy was filed too soon, said Fred White, a City Bank attorney from the New York firm Skadden Arps.

TON clarified that it does not support any merger plan which is not in the long-term best interest of City Bank shareholders and which would not result in a stronger bank to serve the Hawai'i market, according to a statement issued by California law firm Howard Rice Nemerovski Canady Falk & Rabkin.

"We do not support a hostile takeover of (City Bank parent) CB Bancshares," the family-owned investment firm said in the statement.

Central Pacific said it will have a formal response to TON's statement later.

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

White said that because TON signed over its voting rights to Central Pacific before the deal was formally presented to City Bank, TON shares will not be counted at the May 28 meeting.

But a Central Pacific spokeswoman said the bank did not solicit a proxy from TON for the special meeting and as such no blow was dealt to the takeover bid.

"We heard about it and actually we are checking with our financial advisers who have been in touch with our representatives of TON in Japan," said Ann Takiguchi, the bank's communications officer.

Central Pacific yesterday also called on CB Bancshares to reschedule the May 28 meeting to June 19, saying the earlier date "effectively denies CBBI (City Bank) shareholders the ability to review important proxy materials before the vote occurs."

"We have no intention of allowing such an important meeting to be hijacked in this matter," Central Pacific said. City Bank could not be immediately reached for a response last night.

TON's reversal of support — which came several hours after White's announcement and a day after City Bank directors called Central Pacific's proposal bad for shareholders, employees and customers — could be a significant setback for Central Pacific.

"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 May 28 meeting, Central Pacific Bank intended to ask shareholders to approve its attempt to gain control of up to 100 percent of City Bank stock. The bank needs to win more than 50 percent of the voting shares to move forward with its takeover attempt.

That vote is one of many legal and regulatory hurdles Central Pacific must clear before it can claim ownership of City Bank.

Central Pacific CEO Clint Arnoldus said last week that he was "very comfortable" that at least one-quarter of the City Bank stock supports the merger. But his estimate included TON's shares.

Taking the battle of the banks to the streets, more than 100 bank employees crowded on the sidewalk outside City Bank's Merchant Street headquarters yesterday afternoon at a "Proud to be City Bank" rally.

The group cheered as three City Bank executives asked for their support as the bank fought the takeover attempt.

Daniel Tanaka works in City Bank's electronic banking department and has been with the company for 15 years. Tanaka said he supported management's decision and that he was put off by the hostile takeover attempt.

"The local style is more a kinder and gentler way of doing business," Tanaka said. "But when you have somebody who is just trying to shove it down your throat, it's kind of offensive."

He said the community will be better served with two banks.

"We can do a lot being an independent bank. If there are two banks, then the customers have a choice," Tanaka said.

Deidre Tawara said she would object to the takeover even if the tactics were different. Tawara has been with City Bank for nearly two years and is a business services officer.

"I would put the trust in the people that we hired and if they feel that it was not in our best interest, I would support that," said Tawara. "We've seen in other bank mergers, that although there can be some benefits, there are also a lot of drawbacks in terms of layoffs."

Richard Lim, City Bank's president and chief operating officer, cautioned that the legal fight will not be easy. Lim borrowed a phrase that was used at the start of the war with Iraq to describe City Bank's situation.

"It almost looks like his (Arnoldus) strategy came out of a military handbook; it's called 'shock and awe,' " Lim told the crowd. "We are quite certain that this will be followed by a prolonged legal battle, so unfortunately there's no end in sight."

City Bank's share price, although down 81 cents yesterday at $67.78, is still trading in a range that indicates most investors expect the merger will either go through as is or that Central Pacific will increase its offer, Goeas said.

City Bank shares were trading for about $46 before the takeover bid. Central Pacific originally offered about $70 in cash and stock for each City Bank share, sending its price to the high 60s.

"It is a decision of CPF as to where they are going to take it," said Richard Dole, CEO of Dole Capital. "I don't know if they are going to sweeten it. If the shareholders won't do it at this price, I don't know if they would do it at a higher price."

Arnoldus' decision to attempt the takeover without the support of City Bank's management and his comments on the weaknesses of rival Hawai'i banks has led to a negative backlash against Arnoldus and the deal.

"CPF made a mistake in the process," said Goeas. "It could have been handled differently. Maybe go back and say, 'We're sorry. Let's sit down and talk.' I'm not sure that bridges can be mended. A lot of bad blood was exchanged."

Advertiser staff writer David Butts contributed to this report. Reach Andrew Gomes at agomes@honoluluadvertiser.com or 525-8065.