Florida Bank Gets Earful About Deal from Former Chairman Sidhu

Fifteen hundred words. In writing.

Jay Sidhu promised he would have more to say about Atlantic Coast Financial's (ACFC) deal to sell itself to Bond Street Holdings, and he delivered.

Sidhu — the veteran banker who resigned as chairman of Atlantic Coast in Jacksonville, Fla., last year and who still owns a 6.6% stake with Bhanu Choudhrie, another disgruntled shareholder — bashed the deal in a sweeping letter to the board last week.

He dislikes a lot about it, especially that the price tag of $5 per share equals a third of Atlantic Coast's tangible book value.

"We do not believe that the terms ... are fair to, or in the best interest of, ACFC's stockholders," the March 26 letter says. "We also do not believe that the process the board followed in considering and approving the merger was adequate."

Sidhu, who is also chairman and chief executive of Customers Bancorp (CUUU) in Wyomissing, Pa., was out of the country when the deal was announced in late February, and the letter was his first filing on the subject with the Securities and Exchange Commission.

Since his resignation, Sidhu has urged Atlantic Coast to stay independent, oust three directors and more aggressively pursue a recapitalization.

Sidhu says in the letter that he opposed the Bond Street deal as a director. Perhaps anticipating Sidhu's disapproval, Bond Street and Atlantic Coast set aside $2 per share of the consideration to cover any potential shareholder fights. Sidhu, unsurprisingly, took offense at that provision.

"The contingency is not related to any earnout or similar situation where there is risk-sharing between buyer and seller," the letter says. "Here, the additional $2 is being held back to provide indemnity for ACFC stockholder claims — claims that you knew or should have known were likely, particularly given the low price being offered."

The holdback is likely to have a "coercive effect" on Atlantic Coast's shareholders, the letter says.

"Objecting ACFC stockholders have only one avenue of redress - filing suit against the company," the letter says. "But a holdback like this, that is specifically designed to apply if an ACFC stockholder sues, creates an impossible dilemma for stockholders because any claims they might bring could adversely impact the consideration they ultimately receive."

Sidhu protested the $650,000 termination fee payable to Bond Street, because it discourages other potential buyers from making rival offers.

He also called out the fairness opinion issued by Stifel Nicolaus because Bond Street's chairman, Daniel Healy, was also a director at KBW, which Stifel acquired earlier this year.

"In our opinion, the fairness opinion provided by Stifel is totally inadequate," the letter says. Stifel "should have resigned from this engagement due to an obvious appearance of conflict."

Atlantic Coast responded to Sidhu's letter on March 29, saying "we are not surprised." In a filing with the SEC, the company says Sidhu and Choudhrie had proposed a rights offering with standby commitments of $25 million, priced at $3 per share. Atlantic Coast reviewed the proposal with its advisors but concluded that the plan presented too many challenges, particularly in getting regulatory approval, the response said.

Sidhu, Atlantic Coast and Bond Street declined to comment beyond the filings.