The upstate New York bank that won't be bought has turned to an erstwhile suitor to help pull off an important stock offering.
Two months after flatly rejecting three merger entreaties by Hubco - and one week after rebuffing an offer from First Empire State Corp. - MSB Bancorp agreed to sell 600,000 shares of cumulative convertible preferred to New Jersey-based Hubco as part of its stock offering to finance a major branch purchase.
Conversion of the preferred - which would occur after three years, unless Goshen, N.Y.-based MSB is acquired first - would give Hubco an 18% stake in MSB's outstanding common.
Hubco will pay a premium for the preferred of 20% above MSB's offering price on the common. The preferred, which will have a dividend of 8.75%, can also be redeemed by MSB after three years.
On Jan. 4, MSB priced its common at $18 a share for the 1.1 million- share common-stock offering, making Hubco's price for its preferred $21.60 a share. The offering was expected to close Wednesday. MSB's purchase of seven First Nationwide Bank branches, which the offering is financing, is expected to close Friday.
The agreement with Hubco comes after MSB turned down persistent attempts by Hubco to buy the thrift, including a $35-a-share offer, 1.4 times MSB's book value. It also comes just as MSB rejected a $26 per-share offer from Buffalo-based First Empire State.
But officials at both $461 million-asset MSB and Hubco stress that they view the preferred purchase by Hubco as only an investment. And MSB president and chief executive William C. Myers said he's "not worried at this time" that Hubco could use its stock ownership as leverage for another buyout effort later.
The two banks reached the agreement after Hubco approached MSB's adviser, Bear Stearns & Co., to indicate the company's interest in buying preferred stock if it were available, said Kenneth T. Neilson, president and chief executive of Hubco.
"We think that it's a good dividend yield, and the preferred stock is from a bank in a good market area, so we thought it was a good investment for us," Mr. Neilson said. "We'd be happy if they did choose to talk to us at some time, but we're looking at this really as an investment."
MSB, which had 1.6 million shares outstanding in mid-1995, made the stock offerings to finance its $39 million purchase of the First Nationwide branches, with about $495 million in deposits. The acquisition will give MSB the top deposit market share in three upstate New York counties and is expected to give it an immediate earnings boost.
Several institutional shareholders and analysts have criticized the deal, calling it highly dilutive to book value and questioning the thrift's ability to complete the offering. However, the Hubco deal is expected to greatly boost those chances, observers say.
"It does strengthen the offering," Mr. Myers said. But he added that "the offering was not out of the picture without them either."
Critics of the deal have also attacked MSB's rejection of the two buyout offers. Institutional investor Kahn Brothers Co. last week called the rejections "misguided at best."
