Central Pacific raises the ante
• Bank faces April 15 deadline
By Andrew Gomes
Advertiser Staff Writer
Central Pacific Financial Corp. yesterday significantly increased its bid to buy rival City Bank, but analysts see no increased probability that City Bank will reverse its passionate opposition to a merger now valued at $400 million.
Central Pacific proposed paying $22.27 in cash plus 2.4 shares of company stock for each share of stock in City Bank parent CB Bancshares Inc., or $87.26 per share.
The offer represented a 27 percent increase over the price of CB shares on Friday, before the sweetened offer was announced, and a 110 percent increase over the price of CB shares just before Central Pacific disclosed its initial offer on April 16, 2003.
The total value of the deal comes to $400 million, which represents a 33 percent increase over the roughly $300 million value of the previous offer.
Central Pacific, the state's fourth-largest bank, also said it would withdraw its offer and cancel merger plans if City Bank, Hawai'i's fifth-largest bank, refuses to discuss the bid by April 15.
Clint Arnoldus, Central Pacific chairman, president and chief executive officer, said he hopes City Bank shareholders will express support for the new offer and help convince management and directors to negotiate a deal.
"It's always been our desire to have a friendly negotiated merger," he said during a conference call with investors. "This compelling offer delivers a substantial premium to City Bank shareholders."
City Bank spokesman Wayne Miyao said the bank will consult with its outside financial and legal consultants to assess the offer, and directors on the company's board will make a decision in "due course."
Bank analysts considered the offer fair given City Bank's improved financial performance over the past year, and said shareholders will likely express their wishes to City Bank's management and directors.
But industry observers doubted that City Bank's opposition to the deal would change.
"It's hard for me to envision anticipating them all of a sudden becoming more receptive to this transaction," Brett Rabatin with Nashville, Tenn.-based Midwest Research said during a conference call yesterday with Central Pacific management.
"The deal makes a lot of sense on paper," he added in an interview. "If they could just get over their differences ... but as we've seen, it's not been a deal that's been met with much reception so far."
Rabatin said investors didn't express much support for the new offer, as they bid up CB shares by only $1.30 to close yesterday at $69.85. The price was nowhere near the $87.26 offer price. Central Pacific shares closed at $26.25, down 82 cents.
"It doesn't look as though the market is giving the offer full faith that it'll be successful," Rabatin said.
Keller of DealAnalytics agreed. "The market is basically assigning a pretty low probability to this deal actually happening," he said.
However, Keller added that the proposed merger is a relatively small one by Wall Street standards, so a lack of heavy trading and substantial price swing in CB's stock isn't surprising. Still, he said he'd be surprised if CB changes its stance against combining the banks.
In January, City Bank asserted in newspaper advertisements that $109 per share would be a more reasonable price for the bank and called Central Pacific's original offer of about $70 per share "a steal of a price."
Banking industry analysts at the time said $109 was more reflective of City Bank's desire to scuttle the merger than a realistic counteroffer. Miyao, of City Bank, at the time said bank management likely would oppose the merger even if the price was increased to $109, as there are other elements to consider such as affects on customers, employees, suppliers, business partners and the community.
Price is "not all you need to see to change your mind," he said in January of the hypothetical situation.
Miyao yesterday emphasized that the bank has not reached any conclusions regarding the new offer.
Research firm SNL Financial LLC calculated that the offer represents 18.5 times the sum of CB profits over the past four quarters, compared with a median of 21.8 times for 22 U.S. bank and thrift acquisition targets with $1 billion to $5 billion in assets.
SNL also calculated that the offer's value is 221.8 percent of CB's book value, or common equity, compared with an average of 235.2 percent for the peer group.
City Bank has opposed two previous offers, calling them inadequate and harmful to employees and customers. The company has maintained that it can bring more value to its shareholders by remaining independent, and has significantly enhanced profits over the past year.
City Bank also sharply criticized its rival's takeover tactics as violating accepted business practices in Hawai'i, and has drummed up support against the merger through rallies, advertising and testimony at state regulatory hearings.
Central Pacific, which appealed to City Bank shareholders directly last April after City Bank management rejected a private offer, maintains a merger would create a stronger financial institution by enhancing efficiency and the ability to expand.
Central Pacific officials in December promised to open a new branch for every one closed, and to not layoff any City Bank employees except for a few executives who would benefit financially from a takeover.
Last month, state regulators approved the merger, following a similar decision by federal regulators, leaving the final decision to the shareholders of the two companies and the courts.
If City Bank rejects the latest offer, Central Pacific said it would use money set aside for the merger to repurchase its own stock, initially investing $20 million in a repurchase program.
"We look forward to the next 30 days," Arnoldus said, "and have confidence we will be able to enter negotiations and complete a transaction that will be great for shareholders and for our communities, for our customers and employees."
Reach Andrew Gomes at agomes@honoluluadvertiser.com or 525-8065.
• • •
By Deborah Adamson
Advertiser Staff Writer
After nearly a year of tactical maneuvering to take control of City Bank, Central Pacific Financial said yesterday it's prepared to walk away from the deal if negotiations don't start by April 15.
"Clearly, we won't pursue this path indefinitely," said Central Pacific spokesman Ian Campbell.
But despite assurances by Central Pacific that it was prepared to give up on the merger, officials at CB Bancshares, the parent of City Bank, and others are unconvinced.
City Bank spokesman Wayne Miyao said if Central Pacific decides to walk away from the merger on April 15, they could return and pursue it at a later date.
Merger experts also said that the self-imposed April 15 deadline is arbitrary and may be changed if it suits the purposes of Central Pacific.
One reason for a deadline is to motivate shareholders to pressure the City Bank board to accept the deal, said Mark Sirower, managing director in charge of mergers and acquisition strategy at PriceWaterhouseCoopers in New York.
"Without serious pressure from CB Bancshares shareholders, nothing's going to happen," added Scott Keller, president of New York merger-watching firm DealAnalytics.
While the deadline may spur shareholders to action, it's not likely to bring the City Bank board to the table, Keller said. "What incentive does that create for the target company to negotiate?"
Central Pacific's options were narrowing, and the company may have seen the deadline as a way to move the blocked merger forward.
Central Pacific has pledged not to stage a proxy fight, which would replace a board of directors with a group more amenable to a deal. City Bank's bylaws only allow the replacement of a third of the 10 board members at a time so a total change would take at least three years.
Central Pacific has also decided against a tender offer, which is a direct offer to buy stock from shareholders, because it would trigger what is known as a poison-pill defense and dilute the value of all shares.
Central Pacific said yesterday if City Bank fails to negotiate by April 15, it will drop its offer and instead pursue a $20 million stock buyback to boost shareholder value,
Campbell, the Central Pacific spokesman, said his company hopes to change the often rancorous tone characterizing the deal in the past into a friendlier one.
Historically, a friendly merger is more apt to succeed than a hostile takeover, Sirower said. In a hostile attempt, a lot of time, energy and money is spent on getting the deal done. Little time is left for proper planning of both companies' integration.
"The classic problem is that you spend so much time trying to do the deal, you spend no time planning what to do once you get it," he said.
Advertiser staff writer Andrew Gomes contributed to this report.
