Its stock is on the rise, but Atlantic Coast Financial (ACFC) has a blunt message for investors: stop dreaming and sell.
Bond Street Holdings is set to buy the Jacksonville, Fla., company for $5 a share. Yet Atlantic Coast's stock amid a bullish market and a tense squabble with Jay Sidhu, its former chairman was at $5.49 Friday afternoon.
Following a deal announcement, the seller's stock typically hovers just beneath the deal price, analysts say. A seller's stock trading above it indicates that investors expect the takeout price to rise.
"The market is signaling that it believes there is potential for another bidder to emerge or the buyer is going to pay a higher price," says Jeff K. Davis, managing director of the financial institutions group at Mercer Capital, who is not involved in the deal.
Atlantic Coast says nothing is brewing and that it has run out of options.
"There is no transaction before [Atlantic Coast] stockholders other than the Bond Street transaction and, if there was something further to disclose in this regard, the company would do so," a spokesman said in an email.
Sidhu, who along with another investor owns 7% of Atlantic Coast, has rallied hard against the deal since its announcement in February, mostly because he says the price is too low at 33% of tangible book value.
In recent letters to the board, Sidhu says the company is worth $8 a share and noted that Ameris Bancorp (ABCB) is acquiring Prosperity Bancorp in nearby St. Augustine, Fla., for 89% of tangible book value.
In regulatory filings, Atlantic Coast has detailed its hunt for "strategic alternatives" that started in late 2011 when it hired Keefe, Bruyette & Woods.
A pool of 36 potentially interested parties was halved to those who entered into confidentiality agreements. From there, six, including Bond Street, indicated further interest. The other five walked away for various reasons.
The $784 million-asset company's Atlantic Coast Bank unit is adequately capitalized, meaning it is troubled but not in imminent danger of failing. However, it is in violation of regulatory order that called for higher than normal capital ratios.
Its nonperforming assets are improving; the ratio of nonperforming assets to total assets was 3.9% at the end of the first quarter, a 40-basis point improvement from the end of 2012. Like many community bank parents, the holding company says it is burdened with high-cost debt and its auditors have expressed doubt about its ability to continue independently.
Companies rarely talk down their condition, but Atlantic Coast has essentially told its investors that no one but Bond Street wants it and if they reject this deal the bank is at risk of failure.
"Your vote of approval [is] critical to protecting not just the current value, but the entire value of your investment in Atlantic Coast Financial from being at high risk," the company said in the underlined and bolded section of a letter to shareholders on Thursday. "Notwithstanding statements made by dissident director, Jay Sidhu, there simply are no other viable alternatives to protect your investment and the future of the Atlantic Coast Financial banking platform."
Sidhu said in a letter on Monday that 26% of the company's ownership has come out against the deal.
"We believe [Atlantic Coast] stockholders will vote down the Bond Street transaction," Sidhu said. The shareholder vote is scheduled for June 11; the Federal Reserve Bank of Atlanta said this week it had approved the deal.
Atlantic Coast had another bolded message for its shareholders in its Thursday letter.
"Do not be misled by Sidhu," it read. "Trusting Sidhu's math is a risky proposition."