Merger of banks wins final approval

By Deborah Adamson and Andrew Gomes
Advertiser Staff Writers

Shareholders gave final approval to the merger of Central Pacific Bank and City Bank yesterday, and the banks quickly moved to reassure customers they would not be inconvenienced.

Clinton Arnoldus, chief executive of the merged bank, said he hoped the integration would appear "seamless" to customers.

Starting Thursday, customers of both banks can use either bank's ATM machines for free, Arnoldus said. Customers will be able to use their old checks until at least the first quarter of 2005. Arnoldus also said he did not expect customers would have to change account numbers.

Perhaps the biggest change for customers will be the closure of 10 bank branches, to be identified tomorrow. Arnoldus has said that for every branch closed, another will be opened eventually.

The merger started as a hostile takeover bid by Central Pacific more than a year and a half ago, and generated heated opposition from City Bank managers, employees and customers. They said the hostile bid was at odds with the way business is conducted in Hawai'i, and that a merger would hurt competition.

The hostility vanished this year when City Bank management accepted a higher price from Central Pacific. The final vote yesterday came without much fanfare as fewer than two dozen shareholders attended back-to-back special meetings. No one spoke against the merger.

"This is indeed a historic time for both organizations. There's been a lot of blood, sweat and tears," Arnoldus said. "It ended friendly — that's the most important thing."

The merger could mean lost business for companies that served the banks, which will lose a customer. Arnoldus said the banks likely would stick with one advertising agency, not two, and City Bank will move out of its downtown headquarters, where it occupies six floors in a building owned by the state Employees' Retirement System.

Arnoldus reiterated his promise of no layoffs for the 1,000 combined employees, outside of top management. However, one option on the table is a voluntary termination program.

The banks will add $1 million to their contributions to non-profit groups, and there will be no change to the level of participation, Arnoldus said.

In April, City Bank parent CB Bancshares accepted the fourth and highest-priced offer from Central Pacific Financial Corp. after a year of rebuffs. Shareholders will get $20 in cash and 2.6752 Central Pacific shares in exchange for one share of CB Bancshares stock. The deal is worth about $96 a share. Before the takeover was first announced in April 2003, CB Bancshares had been trading at around $46 a share.

The surviving holding company will be called Central Pacific Financial Corp. and headquartered at CPF offices downtown.

The merged bank will be the fourth-largest financial institution in Hawai'i, with $4.4 billion in assets. Central Pacific will benefit from City Bank's stronger mortgage banking business, while City Bank will be able to tap Central Pacific's wealth management and trust services. The deal has a restructuring cost of $50 million, but annual savings of more than $19 million should be fully realized in 2006, Arnoldus said.

CB Bancshares shareholders cast 80.4 percent of their shares in favor of Central Pacific's offer. Fewer than 4.5 percent of the shares voted against the merger; about 15 percent were not voted.

Central Pacific shareholders voted 81.3 percent of their shares in favor of the merger, 2.2 percent opposed, with the remainder abstaining or not voting. The banks needed 75 percent approval, according to state law.

"You try to get the best for your investment," said Tamotsu Sahara, a City Bank shareholder and retiree from Manoa who voted in favor of the merger. "I think it's a pretty good deal. Initially I wasn't sure, but when they came back with a better deal, I thought it better go."

Brett Rabatin, senior research analyst at FTN Midwest Research in Nashville, Tenn., said the level of support was resounding but not unexpected given the ultimate acceptance of Central Pacific's offer by City Bank management.

"It was pretty remarkable how the tension between the two banks changed very rapidly," he said. "I could see where someone could see there might be a few dissidents out there. But I think the bank did a good job (building shareholder support) over the past few months."

Rabatin added that the 75 percent minimum needed to make the merger happen was relatively high compared with most states, where a simple majority is enough.

Lionel Tokioka, chairman of City Bank, who presided over the bank's last shareholder meeting, said the bank stayed true to its roots throughout the deal.

"In the end, that's the way we do business — local style," he said in closing remarks. "Aloha."

Reach Deborah Adamson at dadamson@honoluluadvertiser.com or 525-8088.