Roslyn Bancorp's pricey deal for T R Financial Corp. was pitched into uncertainty Thursday as Roslyn's stock price fell below an allowable range for the deal to close.
The chairman of T R Financial, while acknowledging the development, said his company was proceeding as though the merger would happen.
"A walk-away would be premature," said John M. Tsimbinos, who is also chief executive at T R Financial, the holding company for Roosevelt Savings Bank.
There is still opportunity for Roslyn shares to rebound in time for the merger's planned closing at yearend, said Mr. Tsimbinos, who holds 7% of T R Financial's shares. "We're very optimistic about our prospects."
Despite the vote of confidence, the deal between the New York thrifts points to a potential pothole in the road toward industry consolidation. Deal premiums are high and stock-the currency for most deals-has been slipping in value as the broader market sags.
"When you're doing a share exchange there is the risk that the market will weaken," said Thomas F. Theurkauf, banking analyst at Keefe, Bruyette & Woods.
Megadeals like Citicorp's planned merger with Travelers Group and BankAmerica's pairing with NationsBank Corp. are also employing stock and could become vulnerable if the market turns seriously sour.
Parties to these and other mergers might be forced to renegotiate or even walk away from deals in the event a company's shares fall sharply while the transactions are pending, market watchers said.
"If we continue to have a downdraft in the banking group it will become an issue," Mr. Theurkauf said.
The Roslyn-T R Financial deal slipped into uncertainty when shares reached a level that made the deal undervalued, on paper.
Under terms of the merger, Roslyn's share price had the leeway to fall as much as 15% more than a group of comparable thrift stocks. On Thursday, a leading thrift index-similar to the grouping Roslyn is compared with-was down just 3%, while Roslyn was off 21%.
The decline has occurred since May 22, when the thrifts reached their accord. To formally scuttle the deal, the decline would have to be sustained on average for 15 consecutive days.
A bigger slippage in the broader thrift index could help Roslyn narrow the gap. But T R Financial still has the option to scrap the deal if Roslyn shares slide below $20.72 and remain there on average for 15 days. A sustained slide would, at the very least, give T R Financial grounds to demand a higher price, if not end the merger completely.
That drop is possible, given shares' recent downward trajectory. The stock fell $4.0625, to $23.5625, on May 24, when the companies announced their deal.
Some observers say that Roslyn shareholders, because of the slide in value and the deal's high cost-3.9 times book value-might decide to vote down the merger.
Mr. Tsimbinos discounted the doubters, saying recent fluctuations in the stock's price do not necessarily signal that shareholders are against the teaming.
He also staunchly defended the deal. The operations, both based in the suburbs east of New York City, have "many complementary strengths," he said. "I am very confident this will work out."
Roslyn shares closed Thursday at $21.875, down 25 cents, and T R Financial shed 62.5 cents to close at $41.4375.
The activity occurred as broader markets were struggling to post a gain. The Standard & Poor's bank index was up 0.72% , the Dow Jones industrial average 0.76%, and the Nasdaq bank index 0.25%. The S&P 500 rose 1.12%.
