Under pressure from institutional shareholders, California's SC Bancorp is selling.
The $507 million-asset company agreed Tuesday to be acquired by Laguna Niguel, Calif.-based Monarch Bancorp, a growing Orange County banking company with deep pockets.
Monarch, which is also buying Newport Beach-based California Commercial Bankshares, would pay about $107 million worth of stock, or about 2.1 times book value, for the Anaheim-based parent of Southern California Bank. The merger, which would boost earnings immediately, is expected to close by yearend.
"We are becoming a major institution in Southern California," said Hugh S. Smith Jr., chairman and chief executive officer of Monarch.
"In today's economy, you need to be a little bit bigger than we are currently, and this helps us get bigger."
Monarch is majority owned by La Jolla-based Castle Creek Capital and investor John M. Eggemeyer 3d.
SC Bancorp has been under heavy fire for six months from the New Jersey investment group Basswood Partners LP.
The Paramus-based partnership, normally a passive investor, has blasted SC for poor returns and for planning acquisitions that Basswood said would be costly to shareholders. Instead it had urged a sale.
Basswood, which owns 9.75% of SC's stock, was calling for shareholder approval of a proposal to expand SC's board and nominate three directors, including a Basswood general partner.
In late December, Franklin Resources, a San Mateo, Calif.-based institutional fund run by well-known shareholder activist Michael Price, echoed Basswood's call for a sale.
SC initially resisted these calls but then hired investment banker Credit Suisse First Boston Inc. in early December to review its options.
"I applaud management and directors, and I think they did the right thing," said Bennett Lindenbaum, general partner of Basswood. "They picked a good partner, and I think the combined entity is going to be a very attractive investment going forward."
SC president and chief executive Larry Hartwig conceded that the decision to hire Credit Suisse was "partly in response to shareholder issues" but asserted that it was also "to evaluate the company's strategic plan." And he said there was no direct tie between the pressure and the decision to sell to Monarch.
Together with the pending purchase of California Commercial, slated to close this quarter, the acquisition of SC would make Monarch the largest banking company in prosperous Orange County.
After the closing of the California Commercial merger, Monarch intends to change its name to Western Bancorp, conduct an 8.5-1 reverse stock split, and apply to be listed on the Nasdaq National Market. After both mergers, Monarch would have 2,200 shareholders. u