Some analysts and investors are criticizing an upstate New York thrift's proposed acquisition of eight First Nationwide Bank branches, just as officials are pitching a public offering to investors.
Several investment bankers are calling the 50% dilution from the deal devastating for MSB Bancorp's shareholders. As a result, they're questioning whether the Goshen-based thrift will be able to complete the offering successfully.
The offering is expected to be priced as early as today, possibly at about $20 - the price at which on Friday.
Ultimately, some critics say, the $39 million branch acquisition may not go through if the stock offering is unsuccessful. If the deal collapses, MSB would have to pay a breakup fee of $4.5 million.
Supporters of the deal point to the dramatic increase in MSB's market share and an immediate near-doubling of earnings. The thrift would gain 54,000 new accounts and would dominate three counties in upstate New York, including fast-growing Orange County.
"It looks to me like it's a win-win," said Arnold Danielson, president of Danielson Associates Inc. in Rockville, Md. "When you get a chance to double your size in a good market, the long-term earnings potential should more than make up the dilution from having to raise capital."
MSB chairman and chief executive William C. Myers was not available for comment.
MSB is buying the branches of San Francisco-based First Nationwide, with $493 million in deposits, for an 8% deposit premium. MSB, which currently has $465 million of assets, plans to issue almost 1.7 million shares in a public offering to raise capital for the purchase.
Skeptics say the purchase will harm shareholders by diluting tangible book value by more than 50%, even after the offering. Book value is currently about $25.
And it's likely to take the thrift about eight years to recoup that loss, said Martin S. Friedman, vice president of Friedman, Billings, Ramsey & Co., Arlington, Va.
"That's detrimental to the long-term viability of the company," he said. "I just think that dilution is too much. In this day and age, I don't know if that's worth it."
Shareholders were even more outraged to learn that MSB simultaneously rejected repeated merger offers from Hubco, a Mahwah, N.J., bank holding company, for as much as $35 per share - 1.4 times the thrift's book value - but never informed shareholders.
"The deal was very, very poor for the shareholders," said Charles H. Brandes, managing director of Brandes Investment Partners in San Diego, which owns 2.3% of MSB stock. "I've never even seen anything really quite as bad in a long time and I'm very much against the deal. Even with the earnings accretion, they still can't earn enough money to justify turning down a price of $35 or even $25."
