The clock is ticking on an Alexandria, Va., company formed last year for the purpose of buying banks.
Community Bankers Acquisition Corp., like most "blank-check" companies, had 18 months from its initial public offering in June of last year to secure a bank deal, or it would have to return investors' money, according to Securities and Exchange Commission filings.
Though it did announce in September that it was buying the $280 million-asset TransCommunity Financial Corp. in Glen Allen, that deal appears to be in danger of collapsing — and the December deadline for putting a deal together is looming.
TransCommunity's largest shareholders have said they plan to vote against the deal when ballots are cast next month, and without their support the $48.5 million stock deal is unlikely to proceed.
The opposition highlights one of the challenges blank-check companies face when trying to acquire banks: Shareholders generally would prefer to sell their companies to other banks.
And even if they favor a deal, there is no guarantee that investors in the blank-check company would go along. The proposed sale of a San Antonio community banking company to a Texas blank-check company was terminated last year when the buyer's investors recognized that they could actually make money faster if they voted against the deal.
Blank-check companies, also known as special purpose acquisition companies or SPACs, are public companies that have no operations but are formed with the intention of acquiring companies in specific industries. SPACs often are used to buy privately held companies that are considering going public but do not want to go through the filing procedures associated with an IPO.
But banking deals are not easy to execute, largely because of regulatory challenges and shareholder skepticism, industry observers said. Only a handful of the roughly 1,000 blank-check companies formed since the 1980s had been formed to buy banks and, to date, no deals have gotten done.
Last year Coastal Bancshares Acquisition Corp., a blank-check company in Houston, made what is believed to be the first attempt at a blank-check bank acquisition when it made a deal to buy Intercontinental Bank Shares Corp. in San Antonio. The deal fell through when Coastal's shareholders voted no, taking advantage of an arbitrage built into the prospectus. In short, they voted no because an opportunity existed to get a faster return by selling warrants in the blank-check company and dissolving it.
Community Bankers raised $55 million to buy banks, and when the TransCommunity deal was announced both companies touted it as the first-ever acquisition of a banking company by a blank-check company. Since then, though, three major TransCommunity shareholders, which hold just over 28% of the stock, have claimed in filings that the buyer would not be paying fair market value, and that a sale would dilute their interest in the company.
Northaven Management Inc., which controls 9.9% of TransCommunity's stock, wrote in a letter last month to the TransCommunity board: "Existing shareholders will have collectively lost approximately $12 million in intrinsic value upon the transaction's closing, or nearly 25% of the stand-alone value. In addition, current TCF shareholders would only share in approximately 30% of any upside."
Richard Brown, the president of Northaven, said in an interview Tuesday that this is the first time he has ever protested a board's decision since he started his New York firm 13 years ago.
"They should look at alternatives, because we think there could be someone that would be willing to pay a premium price," he said. "We think there is value in the company, and we think … [the board] has a responsibility to extract it."
The other large shareholders that have opposed the deal are Financial Stocks Capital Partners IV LP of Cincinnati, which holds 8.72% of the stock, and Paragon Associates LP, which has 9.7%.
Bradbury Dyer 3rd, general partner of Paragon, said that the price, even in the best scenario, is several dollars short from what he feels TransCommunity is worth as a stand-alone organization.
"In my opinion, there are plenty of bank holding companies in Virginia, which is a very attractive banking state, that would love to acquire TCYF and, No. 1, pay fair value and, No. 2, … produce lots of synergies and cost savings, benefiting all shareholders," he said.
Neither Bruce Nolte, the president and chief executive officer of TransCommunity, nor Gary A. Simanson, the president and CEO of Community Bankers, returned calls for comment.
But it is not just shareholders of selling companies that are skeptical. Investors in the blank-check companies themselves — typically hedge funds — have found that they are not too interested in acquiring banks.
The reason, said Pam O'Quinn, a partner in the Dallas office of the law firm Hunton & Williams LLP, is hedge funds want to own big chunks of companies, but if they owned 10% or more of a bank, they would have to register as a bank holding company with the Federal Reserve Board — a hassle hedge funds do not want.
