City Bank parent barely rejects bid

By John Duchemin
Advertiser Staff Writer

Shareholders of CB Bancshares yesterday rejected a hostile takeover attempt by Central Pacific Bank, but Central Pacific made it clear the battle is far from over.

Both banks declared victory after the ambiguous vote, which barely included enough ballots to be an official result. Central Pacific hinted its next move could be in court, as it claims yesterday's vote as illegitimate and seeks to force a second shareholders' vote on June 26.

CB Bancshares officials said yesterday's vote legitimizes their attempt to stay independent of 24-branch Central Pacific, which is offering shareholders $275 million to take control of its local rival. But they won the vote with the backing of less than 30 percent of their total shares.

"We're absolutely pleased with this result," said Ronald K. Migita, president and chief executive officer of CB Bancshares, owner of 21-branch City Bank. "It shows we have support from shareholders not only in Hawai'i but elsewhere."

Central Pacific, which had called for a boycott of the meeting, also claimed victory, because more than two-thirds of the total shares either supported their position or did not submit a vote.

"This was a show meeting analogous to elections in Cuba," said Gordon Bava, a lawyer with Los Angeles law firm Manatt Phelps & Phillips, representing Central Pacific. "It had the appearance of following proper democratic principles but the intent and result had been pre-determined. We rejected that approach, and we think shareholders responded exactly the way we wanted."

Bank merger experts said neither bank can convincingly claim victory.

CB Bancshares, Hawai'i's fifth-largest banking company, has reason to be discouraged if only 30 percent of its share base voted to support its position, said Andy Gibbs, an analyst with Mercer Capital in Memphis, Tenn. "That would cause me a little discomfort if I was the management," said Gibbs, who specializes in mergers of financial companies. "I'd think they were looking for a little stronger support than 30 percent. It doesn't sound like a ringing endorsement in their favor."

On the other hand, Central Pacific, Hawai'i's fourth-largest banking company, appeared to fail in its attempt to prevent a quorum through a shareholder boycott, said Scott Keller, president of Deal Analytics, a New York financial research firm that assesses takeovers. CB Bancshares says about 51 percent of the eligible shares — all of its 3.9 million outstanding shares, except about 11 percent owned by Central Pacific and its ally, institutional investor TON Finance — voted, above the 50-percent threshold needed for a quorum.

Keller said Central Pacific now has to get tougher with its strategy to win the battle.

"So far, there's really just been a war of rhetoric, and that's not going to do anything but prolong the situation," said Keller, whose clients include speculative investors who buy into merger targets after a takeover bid is announced. He said Central Pacific has three ways out of the stalemate: start a lawsuit, persuade CB Bancshares shareholders to pressure their directors or offer to pay more.

Of those three avenues, litigation appears to be the most likely step. Central Pacific lawyers say the vote sets up another legal showdown between the two banks, which since April 16 have fought for shareholder support in the courts and the press. Central Pacific claims yesterday's vote is invalid because CB Bancshares gave shareholders too little time and information to properly consider the offer. City Bank maintains the meeting was properly conducted.

Central Pacific is asking for a June 26 meeting to consider a slightly revised offer. That date was rejected as unnecessary by CB Bancshares management.

"It was Central Pacific's absolute obligation to carry this meeting," said Fred White, a lawyer with New York law firm Skadden Arps Slate Meagher & Flom, representing CB Bancshares. White said it's not safe to assume that the shareholders who refrained from submitting ballots are supportive of Central Pacific.

Bava said Central Pacific is weighing its options and may seek a court order to compel CB Bancshares to hold the June 26 meeting. Like yesterday's meeting, the purpose would be to seek shareholder approval to proceed with the takeover offer. The vote is one of many steps in the long process of acquiring the company.

The meeting was attended by about 100 people, most of whom were CB Bancshares employees. Several employees spoke in support of CB Bancshares' rejection of the takeover offer, saying it would be bad for stockholders and employees, some of whom would lose their jobs. Central Pacific says it would trim about 10 branches and 200 jobs, or 20 percent of the total, from the combined bank.

Other shareholders in attendance, however, were less supportive of City Bank managers. Mark G. Egan, owner of a Chicago investment firm, accused CB Bancshares of failing to provide detailed information to shareholders, including the results of a financial analysis of the deal.

"The fruit of the analysis is something we shareholders need, and we don't have it," Egan said. "We can't get a valuation with the information that they've made available."

Also yesterday, CB Bancshares threatened to unleash its "poison pill," a last-ditch defensive plan designed to thwart a hostile bidder, if Central Pacific wins its call for a June 26 meeting.

The poison pill gives existing shareholders the right to purchase additional shares at half price, therefore flooding the market with CB Bancshares stock and diluting the percentage owned by Central Pacific.

Central Pacific officials could not be reached for comment on the assertion late yesterday.