Investors and analysts who listened to CapitalSource Inc.'s earnings conference call early Thursday morning expecting to gain more insight on the Maryland real estate investment trust's pending acquisition of TierOne Corp. were disappointed.
CapitalSource had said Monday that its board had given John Delaney, its chairman and chief executive, the authority to either terminate the deal for the Lincoln, Neb., thrift company or renegotiate the terms, and its head of investor relations began Thursday's call by saying that CapitalSource would not comment further on the issue and would not take questions about TierOne, on the advice of its lawyers.
What Mr. Delaney did say, when pressed during a question-and-answer session after his 30-minute presentation, was that if the deal falls through, CapitalSource, of Chevy Chase, is committed to lowering its funding costs by gaining access to deposits.
Among the "avenues" it is exploring: obtaining a Utah industrial loan charter. The company applied for the charter in 2005 and its application is still pending.
"Our view is unchanged," Mr. Delaney said. "Deposit-based funding is still attractive."
CapitalSource posted a fourth-quarter loss of $15 million, or 7 cents a share after reporting a profit of $60.3 million, or 34 cents a share, for the fourth quarter of 2006.
David Chiaverini, an equity analyst with Bank of Montreal's BMO Capital Markets, said he was not entirely surprised that Mr. Delaney spoke primarily of the earnings performance. But the CEO's silence on TierOne should not be taken as a sign that the deal is dead, Mr. Chiaverini said.
"They were just exercising caution," he said.
CapitalSource announced in May that it had agreed to acquire the $3.5 billion-asset TierOne for $652 million, or $34.46 a share, in cash and stock.
But much has changed since then. CapitalSource's market value has dropped by about 36% and TierOne's asset quality has deteriorated. Initially it was TierOne investors — including its largest shareholder — who spoke out against the deal, citing the decline of CapitalSource's stock, though in December shareholders ultimately voted in favor of the deal.
Now, however, it appears CapitalSource may be getting cold feet. It said late Monday that Mr. Delaney had been given unilateral approval to call off the deal or renegotiate the price anytime after Feb. 17 — the deadline for either company to walk away from the deal without penalty.
"The credit performance at TierOne turned out to be worse than expected," Mr. Chiaverini said.
TierOne said Monday that it was still committed to the deal.
