Analysis: Vote Backs Sale - and Directors Who Oppose It

With preliminary results tallied, California hedge fund Genesis Financial Partners is already claiming victory in its long proxy battle with a Massachusetts thrift.

But in a dispute closely watched by the New England community banking industry, officials of Central Co-operative Bank said they're not giving up yet, offering a more positive interpretation of the mixed messages from the shareholder voting.

Final results of the shareholder vote on two nonbinding Genesis proposals are not expected to be released until sometime today at the earliest.

The early count of proxy votes appeared to indicate overwhelming support for proposals to dismantle Central's antitakeover measures and to sell the Somerville thrift, said Stephen Gordon, president of Genesis' general partner, Gen Fin Inc., at Central's annual meeting here Monday.

In fact, he said, repealing the antitakeover clauses appears to be supported by a majority of all shares outstanding, not just of the ones voted.

"The shareholders have voted to eliminate the antitakeover provisions and sell the bank," Mr. Gordon said at the meeting. "What will management do?"

Central officials refused to confirm the result or say exactly what they would do, pending release of the final tally. But they indicated in interviews that they might not comply with the two nonbinding resolutions, even if they indeed have been approved.

They claimed that support for selling the $310 million-asset thrift was coming from short-term investors aligned with Newport Beach-based Genesis, not from the thrift's traditional shareholders.

And they pointed out that shareholders also overwhelmingly reelected two outside directors known to oppose a sale, although the directors were running unopposed. This indicates "there doesn't seem to be much support for the sale of the bank," said Central president and chief executive John Doherty after the meeting.

"We're going to follow the wishes of all the shareholders, especially the long-term shareholders," he said. "Our directors are the ones who set policy, and they are unequivocally against the sale of the bank at this time. Period. And they so stated publicly. We don't run this bank for the speculators and the quick-buck artists."

Nevertheless, a Genesis victory would suggest Central's legal efforts to hold off the California fund may have backfired.

Ignoring the vote's outcome could further antagonize a shareholder base already dissatisfied by the thrift's handling of the fight with Genesis, particularly high legal expenses that have sapped profits. (The thrift hired Skadden, Arps, Slate, Meagher & Flom, an expensive Wall Street law firm known for defending managements against hostile takeover attempts.)

"The vote's the vote," said James Moynihan, senior vice president of Advest Group in Boston. "If the majority of shareholders vote in favor of a sale of the bank, how do you argue against that? It's the shareholders that own the company, not the board or management."

But victory could prove hollow for Genesis if Central refuses to act on the resolutions.

Ultimately, there may be little that shareholders can do. "A shareholders' remedy, absent mismanagement, is simply to vote for new management, and they clearly have not chosen to do so," said Peter W. Coogan, partner in the Foley, Hoag & Eliot law firm in Boston.

Central's stock price rose after the meeting, as it has all year, touching an all-time high of $18.25 a share during Tuesday's trading and closing Wednesday at a 52-week high of $17.88.

The battle has attracted attention in Massachusetts, where Genesis has waged and lost two previous proxy battles - at Abington Savings Bank and Lawrence Savings Bank. Among the roughly three-dozen people at Monday's meeting were chief executives of several other local banks.

"Most people in eastern Massachusetts have been following each of these cases closely," said Arthur H. Meehan, chairman and chief executive of Medford Savings Bank. "We're a publicly owned institution, and we're interested in what happens at shareholder meetings, especially when there are disagreements. It's educational."

Regardless of the vote's outcome, with Genesis barred from taking any further action against Central under terms of a settlement agreement, it won't be Mr. Gordon leading any further struggle. "I'm a purely passive investor now. I'm going to the beach," he said after the meeting.

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