Showdown draws near in battle of banks

By John Duchemin
Advertiser Staff Writer

Discussing Central Pacific Bank's proposed takeover of City Bank: From left, Wayne Miyao, spokesman for City Bank; Dean Hirata, CB Bancshares and City Bank chief financial officer; Richard Lim, City Bank president and chief operating officer; and Ronald Migita, CB Bancshares president and chief executive officer. Eugene Tanner • The Honolulu Advertiser It's Wednesday A shareholders meeting at 8 a.m., Wednesday, in the Dole Cannery second-floor Lanai Ballroom, to vote on Central Pacific Bank's "control share acquisition" proposal, a technical step necessary for the proposed merger with City Bank to proceed.

Would-be buyer Central Pacific and target CB Bancshares have spent hundreds of thousands of dollars in the past several weeks arguing over mind-numbing details like the date of a shareholders meeting, the issuance of proxy statements and the designation of voting agents.

The most contentious of these issues has been the date for a CB Bancshares shareholders' vote to exempt CB from state statutes that could impede the merger.

The vote, now scheduled for Wednesday, is one of many skirmishes in the takeover battle, but CB and Central Pacific are portraying it as Armageddon. After unsuccessfully suing CB, Central Pacific is now urging a boycott of the vote, and both banks have taken out daily full-page newspaper ads blasting each others' positions on the issue.

What's the big deal? When a $275 million merger proposal is at stake, why obsess over whether shareholders should meet this week, or five weeks from now? Central Pacific's official line is that it just wants shareholders to have more time to weigh the takeover offer, while CB says the May 28 meeting date is important to settle the matter as quickly as possible.

But the real answer goes far deeper than the surface reasons. The two companies are still engaged in a fierce struggle to win CB Bancshares shareholders to their side, and the fight over the meeting reveals their strategic motivations.

For CB directors, the goal is to fend off Central Pacific until they can escape their bind. The meeting set for Wednesday has served as a useful tool for delay.

Meeting date disagreement

The meeting resulted when Central Pacific demanded that CB Bancshares schedule a shareholder vote to exempt CB from Hawai'i share-control statutes. CB picked May 28 — the earliest possible legal date to hold the meeting.

Central Pacific promptly cried foul, arguing that the meeting was scheduled too soon to give shareholders enough time to properly consider the takeover offer.

CB Bancshares then managed to tie up Central Pacific in court, where Central Pacific unsuccessfully sought to stop CB from issuing proxy letters explaining the meeting to shareholders.

Meanwhile, the back-and-forth public-relations campaign has digressed from the main issue — whether or not Central Pacific's offer is good — as the banks argue about the meeting date.

"Somewhere among the complication of legal issues and media hype lies the real issue — let's allow all shareholders enough time to make a fully informed decision," wrote Clint Arnoldus, Central Pacific chairman, in a May 19 letter to Central Pacific employees.

Despite the threatened Central Pacific boycott, CB officials would love to portray the May 28 meeting as a referendum on the deal, said Fred White, a New York-based lawyer and merger specialist representing CB Bancshares. White said Central Pacific wouldn't be complaining about the meeting date if they had a majority of voters lined up.

"It's like playing a basketball game to 21," White said. "At 21, Central Pacific is losing, so they say, 'Let's play to 25.' They're saying, 'Let's play until I win.' "

White said he expects Central Pacific to sue over the meeting results if they are unfavorable. Central Pacific has already demanded a later vote date, in late June, which CB Bancshares has rejected.

"One should believe they feel the 28th is lost, so rather than admit that, they would rather battle in court over two meetings," he said.

In any case, procedural and legal roadblocks could take months to resolve — pushing the takeover costs that much higher for Central Pacific.

Primary goal, strategy

On the other side, Central Pacific officials say they have significant backing for the $70-per-share offer, even though the actual results of the disputed May 28 vote may not reflect that. The bank's main goal is to get a strong pro-merger vote on the record — even if such a "vote" consists of a large group of shareholders boycotting the May 28 meeting and preventing a quorum.

A large-scale boycott, Central Pacific officials hope, would ratchet up the pressure on CB directors to listen to shareholders' sentiments.

"Our strategy is to give CB shareholders a voice, and we have the means to do that," said Neil Morganbesser, managing director of U.S. West Coast mergers for Bear, Stearns & Co., Central Pacific's financial adviser on the merger. "Their shareholders are not happy with the position their board has taken."

Though CB Bancshares' strategy centers around delay, Central Pacific officials say they are happy to give shareholders more time to weigh their options.

Central Pacific has several reasons for its confidence: First, with CB stock trading near $70 per share — more than $20 higher than its price before the hostile bid — CB officials will be under ever-increasing pressure to justify their position of remaining independent and risking a significant slide in stock price.

Also, Central Pacific has history on its side.

Odds against target banks

In most cases, hostile bank merger targets have eventually been bought anyway, even if not by the initial would-be buyer. That's because the target bank often has to find another buyer — a so-called "white knight" — or find someone willing to invest millions of their own to keep the bank independent (a "white squire").

For example, Mainland bank Great Western evaded a hostile acquisition by H.F. Ahmanson by soliciting a more attractive offer from another bank, Washington Mutual. In another case, Wachovia escaped the hostile bid of SunTrust by accepting a friendly offer from First Union.

So unless an outside savior emerges to save CB, the Hawai'i bank's directors will find it difficult to defend their position, Morganbesser said.

"We don't think there's anyone else out there who is able to buy the company," he said.