The largest shareholder at Union Financial Group, Swansea, Ill., is trying to block the company's sale to St. Louis' First Banks Inc. and is instead pushing for a deal with a smaller Missouri bank that the shareholder says will preserve the company's "community spirit."

But Union Financial's board is arguing that the O'Brien family, which owns a 38% stake in the company, is not being up front about its motives. In a letter to shareholders, chairman Ralph Korte pointed out another possible motive - that a sale to Reliance Bancshares Inc. and not First Banks would put more money in the pockets of the O'Brien family.

Union Financial, which has assets of $361 million, put itself on the block a year ago and announced in July that it had agreed to be sold to $5.9 billion-asset First Banks for $26.8 million in cash. First Banks beat out three other bidders, all from Missouri: Reliance in Des Peres, Royal Bancshares Inc. of St. Louis, and Manchester Partners LLC, a St. Louis investment firm.

The family of A.J. O'Brien, Union Financial's chief executive officer from 1974 to 1997, is urging shareholders to vote against the First Banks' offer and consider that of $89 million-asset Reliance.

In a July 30 letter, Denis J. O'Brien said the family, "decided to back the Reliance offer because of our belief that the community banking spirit and the family atmosphere created … by our father … would be best served by Reliance and not First Banks."

First Banks has offered to pay Union Financial shareholders $11 in cash for each share owned. The Reliance offer, on the other hand, would have paid the O'Brien family $13.44 for their shares and all the other stockholders $10.50, Mr. Korte wrote in his letter to shareholders.

Thomas G. Barnett, Union Financial's president and CEO, said the board ultimately accepted First Banks' offer because it "was the best deal for all shareholders, and not one particular group."

Mr. Barnett said it is his expectation that if shareholders approve First Banks' offer - a vote is to be held sometime next month - Denis O'Brien will go to court to stop the sale. He added, however, that the burden of proof was on Mr. O'Brien to show that $11 per share was not a fair value.

Attempts to reach the O'Brien family for further comment were unsuccessful.

Allen H. Blake, First Banks' president and chief operating officer, said he has participated in 50 or 60 acquisitions in his 17 years at the company and that this is the first proxy battle he has seen that involved a shareholder with as much as 38% of the stock. Still, he said he was confident First Banks' deal with Union Financial will win out.

"When it comes right down to it, 62% of shareholders are going to be better off with our deal," Mr. Blake said.

Meanwhile, First Banks is pressing on with its plans to expand in its home state. On Aug. 2 it announced it had agreed to buy $256 million-asset Plains Financial Corp. of Des Plaines for $36.5 million in cash. That deal is expected to close in the first quarter of 2002.

The expansion plan is "a continuation of a strategy we've had for years and never done anything with," Mr. Blake said. He added that since prices for banks have become more reasonable, his company was looking to do more shopping, especially in the Chicago market.

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