Hanmi Financial in Los Angeles hit a roadblock in its plan to buy SWNB Bancorp in Houston.
The $405 million-asset SWNB
It is unclear what will happen next.
The $5.4 billion-asset Hanmi needs to propose new terms that are more attractive to SWNB's investors, industry experts said. Otherwise, the companies might have to walk away from the deal.
Failed shareholder votes are an unusual occurrence. While shareholder apathy is occasionally a factor, rejection typically occurs when a decline in a buyer’s stock price reduces a deal's value. Though a majority of SWNB shares backed the deal, the company needed the support of two-thirds of outstanding shares.
“It is a very rare situation where the board recommends something and shareholders ultimately disagree,” said Greyson Tuck, an investment banking adviser at Gerrish Smith Tuck.
Hanmi's stock has fallen by nearly 13% since it agreed to buy SWNB on May 21. The company agreed on Aug. 21 to increase the cash consideration from 20% to 30% in an unsuccessful effort to sway SWNB shareholders.
A sagging stock price also plagued Hanmi during negotiations, according to the proxy statement for the deal. There was concern among SWNB's directors in early May after Hanmi's stock price fell by more than 10% after it placed its initial offer. Hanmi addressed those worries by agreeing to issue a fixed number of shares and pay nearly $16 million in cash.
Hanmi has struggled with M&A over the past decade. Several times the company has
In 2010, it failed to secure regulatory support for a plan to
A Hanmi spokesman declined to comment. SWNB did not respond to a request for comment.
When a bank fails to secure enough votes to sell, the next move usually involves setting out a communication campaign to get the sale passed, Tuck said.
PrivateBancorp in Chicago in 2016 delayed the shareholder vote for its proposed sale to Canadian Imperial Bank of Commerce after a decline in CIBC's stock price threatened to derail the deal. CIBC increased the offer by 20%, and PrivateBancorp's investors approved the sale.
The deal between Hanmi and SWNB may need to be renegotiated, industry experts said. Another buyer could step forward if the deal cannot be salvaged, said Bob Wray, managing director at investment bank Capital Corp.
The proxy statement disclosed that three other banks submitted initial offers for SWNB earlier this year, though Hanmi's bid was the highest at that time. The filing also indicated that certain SWNB investors have a "need for liquidity" and a desire to sell while the stock prices for banks remain relatively high.
The agreement between Hanmi and SWNB has a $3.1 million termination fee and an expected third-quarter closing.
“It may open an opportunity for a different acquirer because the terms of deal have been outlined in public,” Wray said. “A different buyer is going to know the price and why people were unhappy. That potentially could drive another acquirer to step in and say, ‘We’ll give you what you're looking for.’”
After SWNB failed to get shareholder approval, Hanmi announced its first-ever stock repurchase program. The board authorized management to buy back up to 5% of the company's outstanding shares. On one hand, that could reduce the amount of stock and increase Hanmi's stock price.
But it could also be a sign that Hanmi is willing to walk away from SWNB, said Tim Coffey, an analyst at FIG Partners. Management could view the repurchase program as a better use of capital.
Christopher McGratty, an analyst at Keefe Bruyette & Woods, said he believes Hanmi wants to close the deal, given management's interest in expanding in Texas and the deposit-rich nature of SWNB's balance sheet.
"From our seat, it's challenging to estimate the probability that both parties will ultimately agree to revised merger terms or if the deal will be terminated," McGratty wrote in a Wednesday note to clients."To the extent both parties can't come to an agreement, the lost earnings isn't all that material ... though it could potentially make future M&A more challenging" for Hanmi.
