Days before a showdown proxy vote at Damen Financial Corp., the Chicago-area community bank has agreed to sell itself to a closely held neighbor.
Chicago-based MidCity Financial Corp. said it would pay $51.9 million in cash for $220 million-asset Damen of Schaumburg, Ill. Damen stockholders are to get $18.35 per share.
MidCity is a five-bank holding company with $1.6 billion of assets.
The deal was announced three days before Damen's annual meeting, at which a dissident group led by Paul Duggan was expected to win board seats.
The dissidents have been urging the former thrift to sell for more than a year, but bank officers and directors had resisted. The group wanted to win seats on the board, then negotiate a sale.
Mr. Duggan, who controls 9% of Damen's shares, said he is not convinced that selling to MidCity is in shareholders' best interests. He said he would wait until details are released on fees paid to investment bankers and compensation for executives.
Mr. Duggan also questioned the announcement's timing.
"I would think if they did this this week, they think they're losing" the proxy fight, he said in an interview. "It strikes me as bitter on their part."
A bank analyst said Damen's board may have agreed to the MidCity deal with Mr. Duggan in mind. The deal price is 1.2 times Damen's book value and 27 times its earnings-a relatively high price for the underperforming company, said Stephen Skiba, an analyst at ABN Amro in Chicago.
Damen reported a return-on-assets of 0.87% at yearend; most banks its size maintain an ROA of at least 1%. The company also had an efficiency ratio of 69.19%, but similarly sized institutions aim to keep theirs in the 50s.
In exchange for a higher cash price, however, the board agreed to cancel all unvested stock options and bonus plan shares set aside for executives. That agreement should sit well with shareholders and deflate any opposition Mr. Duggan could stir up to the deal, according to Mr. Skiba.
It sounds as though "management gave up a little to get a higher price and to get Duggan to go away," he said.
Janine Poronsky, a Damen vice president, said its board tried to secure the highest price possible for shareholders. "If those vested shares were included, there would have been a lower price," she said.