The largest shareholder of Six Rivers National Bank in Eureka, Calif., is trying to derail its sale to North Valley Bancorp and encouraging the directors to renegotiate with its hometown rival.
And though Charles D. Aalfs seems unlikely to win a majority to his side, he may still be able to kill the deal.
Mr. Aalfs owns 11.7% of Six Rivers' shares. In a letter sent this month to Six Rivers' shareholders he said he intends to vote them against the planned $25 million sale to Redding, Calif.-based North Valley.
He also urged Six Rivers' board members to renew discussions with $424 million-asset Humboldt Bancorp if Six Rivers shareholders reject North Valley. Mr. Aalfs is also a Humboldt stockholder.
Buying Six Rivers would bring North Valley's assets to $500 million. The deal was announced last fall after $208 million-asset Six Rivers rejected a fourth unsolicited bid from Humboldt.
Responding to Mr. Aalfs' letter with one of its own, the Six Rivers board told shareholders that Mr. Aalfs "misstates the care that went into our decision" to be acquired by North Valley.
"We believe his judgement has been shaped by his historic attachment to Humboldt and his position as one of its large shareholders," the March 16 letter said.
Humboldt had been pursuing Six Rivers since 1997, and last offered $31 million for it. But Six Rivers, which had asset problems in 1998 and 1999, spurned the offers, saying it could receive more money once it resolved its troubles.
Humboldt, meanwhile, has moved on. The company is acquiring Global Bancorp of Napa, Calif., and has not publicly expressed any desire to reopen talks with Six Rivers.
Theodore S. Mason, Humboldt's president and chief executive officer, is traveling this week and was not available for comment.
Mr. Aalfs said in his letter that despite North Valley's strong performance, he still believes a deal with Humboldt would offer Six Rivers shareholders stronger returns over the long haul. He specifically cited Humboldt's ongoing strategy of acquiring small banks and expanding its fee income sources.
"Humboldt has the momentum, growth opportunities, and experienced management that will provide increased shareholder value in the years to come for all shareholders," he wrote.
Observers predict that Six Rivers will obtain the two-thirds vote necessary to approve the North Valley deal. But they warned that Mr. Aalfs could break up the deal by opting to exercise so-called "dissenter rights," which empower a major shareholder to cash out a company's stock at fair market value.
Under such a scenario, Six Rivers would be forced through third-party arbitration to buy out Mr. Aalfs' 126,000 shares for cash. In effect, that would abolish the transaction's pooling-of-interests accounting treatment, and force North Valley to restructure the merger under the purchase method - something North Valley would be unlikely to do, observers say.
Mr. Aalfs was out of the country and could not be reached for comment. But Michael Cushman, North Valley's president, said that because of the poor market for bank stocks he doubts Mr. Aalfs would elect to trigger his dissenter rights.
"He could suffer a huge loss," Mr. Cushman said. "He is likely to see the value of his shares fall to less than book value."
Six Rivers and North Valley shareholders are to vote on the merger March 28.
