Regulators have blessed PremierWest's (PRWT) sale — now it's shareholders' turn.
On Tuesday shareholders of the $1.2 billion-asset company in Medford, Ore., will vote on whether to accept $16.6 million in cash, 43% of the company's tangible book value, from Starbuck Bancshares, the holding company of AmericanWest Bank.
In the last few weeks PremierWest has issued three press releases laying out the reasons for the deal and reminding its shareholders to vote. It needs at least half of its outstanding shares to vote in favor of the deal to get it approved, so not voting is essentially a vote against the deal.
Calls to the company were not returned, but in its press releases, it has repeatedly reaffirmed that the deal is the best option for its troubled PremierWest Bank.
"The board of directors and management determined PremierWest needed to substantially increase its capital base to meet regulatory requirements and remain competitive," James M. Ford, president and chief executive, said in a press release on Feb. 6. The board "concluded that a merger with Starbuck was the best option for our shareholders."
Institutional Shareholder Services and Glass Lewis, two leading proxy advisors, recommend that shareholders vote in favor, the company said in the same release.
Sellers' rallying of shareholders, particularly in low-priced deals, is common. Shareholders of the selling bank often hold on to hope that a higher premium is possible, and it is the job of management to be aggressive in its message, observers say.
"A proactive effort to educate your shareholders and get the deal approved strikes me as prudent and a wise strategy," says Lori Buerger, an attorney at Schiff Hardin. She is not involved in the PremierWest deal.
"Not every board member or shareholder understands the realities of the market and psychologically still expects valuations that were reached six or seven years ago," she says.
It is unclear if PremierWest is merely being proactive or if there is a dissenter. There doesn't appear to be any activist shareholders trying to derail the deal, based on filings with the Securities and Exchange Commission.
"I think it is pretty above board and informational," says Jeff Rulis, an analyst at D.A. Davidson, which represented PremierWest in striking the deal. "They are just trying to get the message out there. There could be some concern in garnering a majority vote."
PremierWest Bank was well-capitalized at yearend, with a leverage ratio of 8.95%. However, it is still under considerable credit stress. Its nonperforming assets made up 4.21% of total assets. That is part of the reason why the deal makes sense, the company says.
The bank is considered to be attractive long term, specifically because of its deep roots in its community. Its core deposits make up more than 96% of its $1.02 billion in deposits.
Still, it appears that selling the company was an arduous task.
PremierWest received only one other offer, despite contacting 21 entities, according to its proxy statement for the deal. The other bid "was withdrawn after due diligence and was less attractive than the merger terms with Starbuck."
Additionally, the Treasury Department holds $41.4 million of preferred stock in PremierWest through the Troubled Asset Relief Program; that has complicated PremierWest's ability to get an infusion of capital from private-equity firms, the company says.
"Efforts to raise capital from private equity and institutional investors have not been acceptable to the U.S. Treasury… and any capital raise would be highly dilutive to existing shareholders," the company said in press release on Feb. 13.
Starbuck agreed to redeem PremierWest's Tarp shares at par, and the Treasury agreed to waive $6.6 million of accrued dividend payments.