Illinois Deal Too Pricey? Maybe, Some Investors Say

Some Alliance Bancorp investors say the Hinsdale, Ill., company may have agreed to pay too much in its latest buyout deal.

Alliance announced in December that it would acquire Hometown, Ill.- based Southwest Bancorp in a deal worth $94 million, or two times book value. The deal, expected to close in the third quarter, would boost Alliance's assets from $1.5 billion to about $2 billion and make it the third-largest thrift in greater Chicago.

But Richard J. Nelson and Peter T. Kross, general partners of LaSalle Financial Partners LP, said Alliance may be overpaying. They have requested lists of shareholders from both companies, according to filings with the Securities and Exchange Commission.

"There is a lot of shareholder unrest," Mr. Nelson said. "At this point we're not opposing (the acquisition), but we basically have this concern about the price."

Another shareholder, who asked not to be named, echoed the LaSalle partners' concerns. "I'm not too fond of this deal," he said. "I think they're overpaying slightly."

However, Kenne P. Bristol, president and chief executive officer of Alliance, said the price was competitive and fair.

"It's economic," he said. "It's accretive to earnings right away."

Stephen Skiba, a bank analyst at ABN Amro Chicago Corp., said the shareholders have a legitimate complaint. A fair price based on Southwest's location and product lines would have been about 20 times per-share earnings, he said. Alliance has agreed to pay about 22 times Southwest's earnings per share.

"I'm not sure this is in the best interest of the shareholders," Mr. Skiba said. He added that Alliance's management has done a poor job selling the Southwest deal to large shareholders and the investment community. When the deal was announced, for example, Alliance did not hold the traditional conference call explaining it to analysts and investors.

But Alliance may be keeping a low profile because it has been burned before. In 1996, when Hinsdale Financial Corp. and Liberty Bancorp, Chicago, announced their plans to form Alliance through a merger of equals, a dissident used the question-and-answer portion of the conference call to organize against the deal. Shareholders nearly defeated the merger when it came to a vote that December.

This time, Mr. Bristol said, management has contacted shareholders individually to discuss the Southwest merger. "We received a very favorable response," he said.

Mr. Nelson said he and his partner have a 5.3% stake in Alliance and a 5.7% stake in Southwest. Should they launch an organized opposition and overturn the merger at the June 30 shareholder meeting, the investors would be a step closer to their ultimate goal: persuading Alliance to sell. After all, acquirers are typically not interested in banks that are merging.

But Wayne Bopp, a bank analyst at Robert W. Baird & Co. in Milwaukee, said Alliance is more attractive to buyers with Southwest than without it.

"The dissidents want them to sell right away," said Mr. Bopp, who favors the acquisition. "With this deal, the payday for Alliance will be bigger- it's just further down the road."

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