In an era of elaborate takeover defensess, Star Banc Corp.'s Oliver Waddell ended up adopting a rather rudimentary tactic: He just said no.
The Cincinnati banker made headlines this year by rejecting overtures - not once, but twice - from crosstown rival Fifth Third Bancorp. But not so widely known is the fact that is counterpart, George Schaefer Jr., wrote a conciliatory letter seeking to take the sting out of what had become a hostile affair.
Master of His Ship
Mr. Schaefer made a direct offer: Meet with us and consider our sweetened $1.2 billion bid. If you don't like it, Mr. Schaefer promised, we'll go away.
Last week Mr. Waddell said no; Mr. Schaefer said goodbye.
Killing the deal took some nerve on the part of Mr. Waddell. And in an unusual twist, sources confirm, he did not seek competing bids before declaring Mr. Schaefer's offer "wholly inadequate."
Mr. Waddell's decision was in keeping with his "master of my ship, captain of my soul" mindset, say people who know him. Pride, they say, has just as much or more to do with his solo quest as financial performance.
"He was pushed into a corner, and now he's out to prove he can do it all by himself," said Fred Cummings, an analyst with McDonald & Co. of Cleveland.
Mr. Waddells's refusal to seek competing bids is a sharp departure from standard procedure. Many bank executives involved in mergers believe they have a fiduciary responsibility to seek competing offers once an unsolicited bid is made.
Ameritrust, for example, drummed up a parade of shoppers last year before rejecting National City Corp.'s unsolicited bid. It later agreed to be acquired by Society Corp.
But Mr. Waddell's desire for independence seemed to over-ride discussions on terms and finances, said Fifth Third's Mr. Schaefer.
"The merits of the deal were very obvious to wall Street, but we couldn't get to that issue unless we got past the issue of Star Banc wanting to remain independent," he said in an interview.
On to the Impossible
Mr. Waddell, who climbed to the top of Star Banc after joining as a management trainee in 1957, declined repeated requests to be interviewed for this story.
Now that he has rejected Fifth Third's offer - equal to a hefty 2.2 times book value - Mr. Waddell, 61, faces a daunting challenge: boosting his performance to the level of its rival. The size of the task is underscored by first-quarter results. Fifth Third pumped out a stellar annualized return of 1.65% on assets; Star Banc managed a middle-of-the-pack return of 1.08%.
Mr. Waddell's misfortune, analysts say, is that his institution sits 50 yards away from one of the best performing banks in the nation, Fifth Third.
Though he has spend his entire career at Star Banc, many shareholders and arbitragers would love to wave him aside because they view him as an obstruction to a deal.
Cincinnati residents say there's a clear difference in style between Mr. Waddell and Fifth Third's Mr. Schaefer.
Penny-Pinching Schaefer
The hard-charging, cheerleading Mr. Schaefer pushes employees to the limit and pinches pennies until they say ouch. Mr. Waddell, who prefers to be called Ollie, is a more paternalistic executive who emphasizes the banking traditions of strength, decorum, and conservatism.
"Go to Fifth Third's executive floor and you see open doors and people bustling about," said Vere Gaynor, president of Bahl & Gaynor, a Cincinnati investment firm that controls 1% of Star Banc's stock. "Go to Star Banc's executive floor and there sits Ollie in a mausoleum."
Mr. Waddell got his wake-up call in February.
Approached by Fifth Third privately about selling, he went right to work developing strategies to boost Star Banc's performance.
Although shareholders at the company's april 14 annual meeting didn't realized it at the time, Mr. Waddell's preview of the coming year was his road map for staving off Fifth Third.
Matching Strength for Strength
The executive, whose 1991 compensation was $572,000, said he wanted to boost non-lending revenues to 30% of total revenues from 23%. He said he wanted to hone credit quality to a razor-sharp state, improve efficiency, and expand market share by pumping up marketing and sales efforts.
In short, Mr. Waddell set out to match every strength of Fifth Third. "It's important that you know what our goals are, and why we're confident they will be met," the executive told shareholders. The next day, he sent a letter of rejection to Fifth Third.
In defining areas to be improved, ironically, Mr. Waddell also was highlighting some of the reasons why Star Banc's stock has been comparatively weak.
It turns out that Mr. Waddell, who holds an undergraduate degree from Duke University and a law degree from the University of Kentucky, has been relying heavily on lending income to drive Star Banc's profitability.
Given the prospects for a slow credit market in the 1990s and his late start in developing fee income, the executives is viewed as having done a less-than-great job of positioning Star Banc for the decade.
Crown Jewels in the Distance
He is years away from having a crown jewel on the order of Midwest Payments System, the huge data-processing network operated by Fifth Third.
After making his pitch to unknowing shareholders and brushing off Fifth Third, Mr. Waddell jetted off to France on vacation.
While he was gone, Fifth Third's Mr. Schaefer sent his own message to Star Banc's shareholders. He announced Fifth Third was offering $38 to $40 a share for Star Banc, sending its stock soaring.
Within days, an investor filed a purported class-action lawsuit against Star Banc directors, alleging breach of fiduciary responsibilities by walking away from the Fifth Third offer.
Dictating a response from Paris, Mr. Waddell said Fifth Third was making "unfriendly overtures," and decried the bank's "lack of sincerity" in going back on a promise not to pursue its merger proposal further without the approval of Star Banc's board.
A few days later, he sent a letter to shareholders, repeating the rejection he earlier made in private and saying how directors had "faithfully discharged their responsibilities."
Professional Assistance
Mr. Waddell also marshalled help from professionals with whom he previously had done business.
He brought in Secura Group, a Washington-based consulting and lobbying firm; the Financial Relations Board, a Chicago-based financial public relations firm; and the Chicago-based law firm of Jenner & Block. Citing ongoing litigation, a company spokesman declined to comment on the specific tasks assigned to each consulting group.
Mr. Waddell also sent your impassioned letters to employees: "Tell your customers this is an unwelcome gesture and one Star Bank will combat," he wrote in one missive.
On a weekend in late April, Mr. Waddell and Mr. Schaefer were booked at a weekend retreat for Cincinnati civic leaders.
Mr. Waddell skipped the event. A Star Banc spokesman was quoted in The Cincinnati Enquirer as saying: "The fact that Mr. Waddell is staying in town directly reflects the Star Banc work ethic and our commitment to remaining independent."
Support from Analysts
Behind the scenes, Mr Waddell campaigned for support from analysts. In a phone conversation with Mr. Cummings, Mr. Waddell said Star Banc was underappreciated on Wall Street and predicted that the brightest days were yet to come.
With Fifth Third's stock already trading at one of the highest multiples in the industry, Mr. Waddell said, it seemed that Star Banc had a greater potential for share appreciation. He said healthy rivalry between the two institutions had served Cincinnati well.
On the other hand, some experts argue the marriage of Star Banc and Fifth Third would lay the foundation for a super-regional banking company that would be more competitive and less vulnerable to takeover. That would bolster the city's chances of keeping control of its economic fate.
Mr. Waddell's rejection of the Fifth Third's bid has also sparked some legal problems. According to Gene Mesh, the Cincinnati attorney seeking class certification on a suit against Star Banc, numerous investors contacted him after Mr. Waddell refused Fifth Third's offer.
The drop of $5.625 a share in Star Banc's common stock since Mr. Waddell rejected the deal "is clear and compelling evidence of the damage done to shareholders," he said. Star Banc closed Tuesday at $31.875.
