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Bond Street Holdings has agreed to pay a premium of nearly 50% for the struggling Atlantic Coast, the companies announced Tuesday. Atlantic Coast announced it was exploring the possibility of a merger more than a year ago.
February 26 -
Customers Bank is buying a commercial loan portfolio based in New England from Flagstar. The deal would reunite Jay Sidhu with some valuable former employees.
February 6 -
Less than a year after stepping down as chairman of Atlantic Coast Financial (ACFC) in Jacksonville, Fla., Jay Sidhu is seeking to oust three members of the company's board and replace them with a new slate of directors.
February 20 -
Atlantic Coast Financial (ACFC) of Jacksonville, Fla., reported a narrower loss in the first quarter than in previous quarters as it reduced its overhead and reiterated that it is still considering selling itself.
May 2
Any buyer offering Jay Sidhu a fire-sale price on his shares in a Florida bank ought to be prepared to wrangle with the veteran dealmaker.
On Tuesday, Bond Street Holdings in Weston, Fla., announced it would
Bond Street would pay $13 million for the $784 million-asset Atlantic Coast — or just 32.6% of its tangible book value . And $2 per share of the $5-per-share, all-cash offer is being tucked away in case investors balk at the low valuation and fight the deal.
The provision is unusual but is a good way to put the onus of shareholder claims on the seller in advance of the deal closure, observers say.
"The problems of the seller in a merger become the problems of the acquirer," says David Baris, a partner at BuckleySandler and executive director of the American Association of Bank Directors. "The acquirer takes on all the rights and obligations of the acquiree."
Baris says he has never been involved in a deal where a contingency or deferred payment was established for a possible shareholder lawsuit that has not been filed.
Executives of the $3.24 billion-asset Bond Street said they are giving Atlantic Coast a fair deal, but decided it was a good idea to bake the cost of any shareholder claims into the consideration.
"We think this is a very attractive outcome for their bank and shareholders," says Kent Ellert, president and chief executive of Bond Street's Florida Community Bank unit. "It gives it the capital it needs."
There is no guarantee of a shareholder fight, but Bond Street added the cushion because "it is prudent in any transaction to anticipate contingency costs that might be involved," Ellert said.
Sidhu, who built Sovereign into a $90 billion-asset powerhouse through a series of acquisitions, was out of the country and declined to say whether he plans to mount a challenge to the Bond Street offer. However, the often colorful Sidhu left the door wide open.
"Will have plenty to say about it after I return," he wrote in an email.
The low valuation may disappoint many shareholders. In the five hours since the deal was announced, at least three law firms that handle class actions announced investigations into the deal.
Deals for troubled banks remain difficult, so agreements often include terms tied to the outcome of particular risks, observers say.
"We are seeing a lot of holdbacks, mostly on loan losses, but also litigation losses and shareholder suits," says Ernest J. Panasci, a partner at Stinson Morrison Hecker in Denver. "Buyers want to take as little risk as they can so they push it onto the seller."
Shareholder claims are typically settled rather than go to court, says Chip MacDonald, a partner at Jones Day. So long as the Bond Street reserved enough, shareholder claims are surmountable, he says.
Dissident shareholders might have a tough time proving that Atlantic Coast could have found a better offer, given the environment for dealmaking in Florida and the amount of time Atlantic Coast has been shopping, MacDonald says.
"It's good to see some activity in Florida," MacDonald says.
Atlantic Coast hired Stifel Nicolaus & Co in November 2011 to help it explore strategic alternatives, including a recapitalization or a sale and reiterated its
"We have delivered a clear and compelling offer to shareholders," Ellert says. "This is the only viable offer for this bank to accept at this time."
Earlier this month, Sidhu said in a letter to shareholders where he nominated three directors that the board has not fully examined other alternatives, such as pursuing a recapitalization.
"A majority of the board has failed to fully explore this strategic option," Sidhu wrote the board on Feb. 15.
According to data from the Federal Deposit Insurance Corp., the company's Atlantic Coast Bank reported a loss of $6.36 million for 2012, narrowing its loss nearly 29% from a year earlier. The bank was well-capitalized by traditional standards with a leverage ratio of 5.13% and a total risk-based capital ratio of 10.58%, but fell short of an order from the Office of the Comptroller of the Currency that calls for the bank to have a leverage ratio of 9% and a total risk-based capital ratio of 13%.
