Capital Bank Corp. of Raleigh, N.C., rejected a higher per-share offer from another private-equity firm in favor of a $181 million bid from North American Financial Holdings for a majority stake in the company.
In a preliminary proxy filing with the Securities and Exchange Commission, the $1.7 billion-asset Capital Bank said the North American deal hinges on the Treasury Department's taking a 50% discount on its $41.3 million investment — including any unpaid dividends — under the Troubled Asset Relief Program. Capital Bank has said it may use some of the proceeds of the investment to repay Tarp money.
The Tuesday filing also said that the deal would trigger lucrative payments to top executives, including a $3.35 million payment to Chief Executive B. Grant Yarber, as a result of a "change in control" clause in their retirement plans.
Capital Bank did not name the other bidder or the competing bid, and calls to Capital and North American were not returned.
Capital Bank said in its filing that after evaluating both offers, it determined that North American's offer was more certain to close and provided more growth opportunities. "The financing for the transaction with the [other] private equity firm was not as secure as [North American's] readily available cash, and regulatory approval for the alternative transaction was less certain as to both timing and likelihood of approval," the filing said.
North American plans to use the Capital Bank brand for all of its current and future majority-held banks. But Capital Bank said the structure resulting from the private-equity investment would not meaningfully expand its existing branch service area.
The deal was also a better value for shareholders, the filing said, because it would provide a "much larger" capital infusion, even though the rejected offer had a higher price per share. Under the accepted deal, North American will buy 71 million shares of common stock at $2.55 each.
The North American deal also entitles top Capital Bank executives to additional financial benefits because the transaction qualifies as a change in control of the company under their employment agreements. In addition to Yarber, several executives would receive lump sum payments ranging from $600,000 to $1 million when the deal closes, under the company's executive retirement plan.
Executives who leave the company with "good reason" or are dismissed without cause after the investment are entitled to severance worth up to three times their annual base salary, depending on when they leave, the filing said. They are also entitled to a lump-sum payment to cover health insurance premiums during the severance period.
Christopher Marshall, a North American executive who is set to become Capital Bank's chief financial officer, said in an interview last week that the assets of North American's bank holdings will total more than $5 billion when the deal closes. He said there is "sufficient capital" to double the bank's size.