Central Bancorp Inc.'s move to rid itself of an insurgent investor by buying its stake for an above-market price in a privately negotiated deal has angered other institutional investors and prompted at least one, Sandler O'Neill Asset Management LLC, to dump its shares of the Massachusetts company.
With the insurgent group, PL Capital LLC of Naperville, Ill., out of the picture, Central is much less likely to sell itself - something PL Capital and some other investors have pressed it to do over the years.
Sandler, a joint venture with the New York investment bank Sandler O'Neill & Partners LP, would not disclose how many shares it owned. It sold them on the open market Monday, a week after Central bought PL Capital's 154,268 shares for $33.25 each - 75 cents more than the market price at the time.
Terry Maltese, the president of Sandler Asset Management, said he asked the $508 million-asset Central to buy its stake for the same price it paid PL Capital, but that the bank refused.
"As a shareholder, we would have liked to have been offered the same deal," Mr. Maltese said. He called it "egregious" that a publicly traded company would offer a premium to only one investor.
"I think it's wrong to treat one group of shareholders different from another," Mr. Maltese said. "It gets worse when you find out that the … [favored] shareholder was an insider."
Two of PL Capital's investors, Richard J. Lashley and Richard J. Fates, were on the boards of Central Bancorp and its thrift subsidiary, Central Cooperative Bank. They resigned from both Sept. 17.
Anton V. Schutz, a fund manager with Mendon Capital Advisors Corp., which owns 7.6% of Central, called its private deal with PL Capital "disgusting."
Central, of Somerville, "behaves as if it is not a publicly traded company," Mr. Schutz said. Its deal with PL Capital, he said, amounted to "misbehavior that should be attracting some attention" from regulators. Unlike Sandler, though, Mendon intends to keep its Central shares, Mr. Schutz said.
Central's biggest outside investor, Jeffrey F. Gendell, who owns 9.7% of the company, did not return a reporter's call. William P. Morrissey, Central's senior vice president, declined to comment, and Mr. Lashley, who is one of PL Capital's principals, said the group's agreement with Central prohibits it from commenting.
PL Capital had been represented on Central's board of directors since 2002, when shareholders elected Mr. Fates and Garrett Goodbody, another member of the group. (Mr. Goodbody died in May 2003.)
Despite its presence on the board, the group's relationship with management was tense. The group had pressed Central to sell itself since it first invested, in July 2001.
For its part, Central spent almost $200,000 in the 2002 shareholder elections fighting to keep the PL Capital nominees off the board. It then sought to deny them seats on Central Cooperative Bank's board after their election.
Like most banking companies, Central had routinely appointed members of the holding company board to the subsidiary's board. When Mr. Fates and Mr. Goodbody were bypassed, the group successfully sued to get them on the bank board.
Central has always made money, but its performance has never been stellar. It netted $2.94 million in its 2004 fiscal year, which ended March 31, and reported a $454,000 profit for the quarter that ended June 30. But its return on equity for the April-June quarter was 3.98%, well below average for thrifts with $500 million to $1 billion of assets. In the five calendar years before 2004 its highest return on equity was 10.72%, in 2002. Its return on equity for the 12 months that ended Dec. 31, 2003, was 7.43%.
A number of investors, including PL Capital, argued that the company would be better off selling itself and taking advantage of the premium prices outside acquirers have proven willing to pay for Boston-area banks and thrifts. Central, founded in 1915, has eight branches in the Boston area.
Mr. Schutz, who manages Mendon's Burnham Financial Services Fund, said the prospect of consolidation is one of the factors that make small New England institutions such as Central so attractive to investors.
"One of the themes in the region has been consolidation, and Central has an attractive franchise," Mr. Schutz said.
