AmSouth Bancorp has finally cleared the last hurdle before acquiring a large Florida thrift, but not before having to sweeten the deal.
AmSouth, which is based in Birmingham, Ala., announced last Sept. 13 its plans to acquire Clearwater-based Fortune Bancorp for $285 million, or 1.63 times the thrift's tangible book value. By last Thursday, when AmSouth finally ended the pricing period, the value of the deal -- scheduled to close next week -- had increased to $287 million, or 1.71 times book.
The extra $2.5 million will go to holders of Fortune's preferred stock. These preferred shareholders had balked at the original terms of the deal and forced AmSouth to renegotiate, thereby holding up the transaction for several weeks.
$1.81 More a Share
The bottom-line effect is negligible to AmSouth, which has $13.2 billion in assets. But it represents an additional $1.81 a share in cash to Fortune's preferred shareholders, on top of the $1.33 a share in AmSouth stock or cash equivalent they had been scheduled to receive.
There are unconfirmed rumors that arbitragers who had been shorting Fortune's common stock were heavily involved in the Fortune preferred shareholder group and stood to benefit whether the deal was renegotiated or fell through.
AmSouth spokeswoman Sally B. Hawley declined to comment.
The acquisition of Fortune culminates an astonishing buying spree by AmSouth. Between January and September of last year, AmSouth acquired six banks and three thrifts, mostly along Florida's west coast, boosting the size of its franchise in the Sunshine State sixfold to $6 billion in assets.
Once in a Lifetime
AmSouth officials have said they believed the were taking advantage of a one-in-a-lifetime opportunity to build market share in Florida. And in fact, very few sizable independent financial institutions remain in the state.
With $2.6 billion in assets and 46 offices, Fortune was the centerpiece of AmSouth's expansion. Without it, the other deals might not have made as much strategic sense.
"Fortune provides the super-structure for all the smaller acquisitions they did and everything else just fits in like a puzzle," said analyst Samuel J. Beebe with Robert W. Baird & Co. in Tampa.
For that reason, AmSouth found itself over a barrel last month when the preferred shareholders threatened to scuttle the deal a week before Fortune's annual meeting in Clearwater.
"They called us and said we would have to offer some additional cash consideration," Ms. Hawley said.
Question of Interpretation
Normally, preferred stockholders don't have voting rights, except in extraordinary circumstances. In this case, language in the 1992 preferred stock offering circular could be interpreted to require two-thirds approval by preferred shareholders in case of an acquisition. AmSouth decided not to contest this interpretation to save time.
In addition, AmSouth stock has risen slightly since the deal was announced -- to $32.26 a share last Thursday from $31.80 -- which made the additional payment less onerous.
The subsequent renegotiation had no effect on the price received for Fortune's common shares.