Did lackluster second-quarter earnings at Community Trust Bancorp Inc. of Pikeville, Ky., hurt its chances of winning a bidding war for another Kentucky bank?
Community Trust announced May 31 that it had agreed to buy Eagle Fidelity Inc. of Williamstown for $37 million in cash and stock.
Three weeks later the owner of First Corbin Bancorp in Corbin, Ky., went directly to Eagle Fidelity shareholders with an unsolicited, all-cash offer valued at $40.8 million.
It is unclear whether shareholders at the privately held Eagle Fidelity are seriously considering the hostile offer, but an analyst who follows Community Trust said he expects them to do so.
His reason: Community Trust's share price has fallen about 4% since the company announced on July 17 that its second-quarter earnings fell 10% from a year earlier. Its stock is down more than 9% since the deal for the $156 million-asset Eagle Fidelity was announced. Community Trust's midday Monday trading price of $30.54 would make the value of the Eagle Fidelity about $35.1 million.
"Given the recent decline" in Community Trust's shares, "the cash offer is superior on an after-tax basis," said David W. Darst, an analyst at First Horizon National Corp.'s FTN Midwest Securities Corp. of Nashville.
The $3 billion-asset Community Trust could restructure the deal terms, of course, but it has given no indication it would do so. Officials at Community Trust did not return calls from American Banker.
Meanwhile, an outfit called 1st Hamburg LLC, controlled by First Corbin founder Terry E. Forcht, is trying to gain control of the $137 million-asset Eagle Fidelity by winning over shareholders.
According to a posting on its Web site, 1st Hamburg has wanted to acquire Eagle Fidelity since 2004 and already owns 7% of its shares.
Its offer of $45 per share is about 10% higher per share than Community Trust's offer, and Mr. Forcht has given Eagle Fidelity shareholders until Aug. 3 to accept it.
Mr. Forcht created the $848 million-asset First Corbin when he combined nine community banks he owns under the holding company. Neither he nor officials from Eagle Fidelity returned calls, but the Web posting said that Eagle Fidelity would become part of First Corbin if Mr. Forcht succeeded in gaining control of it.
A deal for Eagle Fidelity would be strategically important because it would bring the eventual buyer into higher-growth markets in northern Kentucky. Eagle Fidelity has a 50% share of the deposit market in Grant County, where it is based. Neither Community Trust nor First Corbin has operations in Grant County.
When it announced the deal, Community Trust said it would issue 544,137 shares and pay $18.5 million in cash to Eagle Fidelity shareholders.
Though Mr. Darst said he believes the unsolicited offer is the better one on a cash basis, he said Eagle Fidelity's management could have other reasons for sticking with Community Trust's offer.
"Some members of management likely would want the stock and the opportunity to grow with" Community Trust, "which will not be possible under the all-cash deal," Mr. Darst said.
Another consideration is taxes. Those receiving only stock would not have to pay long-term capital-gains taxes, Mr. Darst said.
