Virginia Financial Group Inc. of Culpeper and FNB Corp. of Christiansburg say they have pushed back the closing date for their deal until early next year, because they figure shareholders have other things to do this holiday season than read proxy materials.
But some FNB shareholders who have vocally opposed the deal have another theory: The companies do not have enough votes to get it done and are trying to buy more time.
The deal, announced in July, had been scheduled to close by yearend. It would create the largest banking company based in Virginia, with $3.1 billion of assets and nearly 70 branches. Virginia Financial's chief executive said when the deal was announced that he envisioned expanding into new markets after it closes, including Virginia Beach and North Carolina.
However, the companies have not convinced some FNB shareholders that the deal, billed as merger of equals, is a good one. A dissident group calling itself the FNB Corporation Shareholders Committee argues that FNB actually is selling itself to Virginia Financial for an inadequate price. Since the summer the group, which includes three FNB directors, have been lobbying other shareholders to vote against the deal.
The companies initially hoped to send shareholders ballots in mid-November but held off because the Securities and Exchange Commission had not approved the proxy materials. The next target date for mailing out ballots was Dec. 18, but in a joint press release last week, Virginia Financial and FNB said that even though the Federal Reserve Board and state regulators have approved the deal, the shareholder vote would be delayed until after the holidays.
In a follow-up interview Wednesday, William P. Heath Jr., FNB's president and CEO, gave another reason for delaying the vote: The SEC still has not approved the proxy materials.
"We want to get that date approved as soon as we can," Mr. Heath said. "We've had an ongoing dialogue with the SEC. We hope their position will be known sooner than later. But we don't control that."
He dismissed speculation that FNB does not have the votes to close the deal. "Based on general conversations [with shareholders], we feel like we have the votes necessary to make this transaction work," he said.
Kendall Clay, a member of the dissident group and one of three FNB directors who voted against the deal in July, disagreed with that assertion.
"If they thought they had the vote, they would have pushed it to a vote in November, when it was first scheduled," he said in an interview Wednesday. "I think they realize that this organized effort against them has strength, and they did not put it to a vote then. I think the same thing happened on the December date."
Under the terms of the original deal, Virginia Financial would pay about $240 million in stock for FNB, or $32.43 a share. FNB shareholders would receive 1.585 common shares of Virginia Financial stock for each of their shares.
However, FNB shareholders who did not like the exchange ratio then like it even less now. Since the deal was announced Virginia Financial's share price has dropped about 16.2%, to $16.99 late Friday.
"This deal has gotten worse and worse," said Daniel D. Hamrick, another member of the dissident group and another FNB director who voted against the deal. He said his company could get as much as 2.5 to 2.7 times its book value from a buyer.
Mr. Heath, though, said there is no premium for FNB shareholders because the deal is a merger of equals. There would be equal representation on the combined holding company's board — 12 members each from both FNB and Virginia Financial — as well an equal number on the subsidiary bank's board.
The two companies would be collapsed into one under a new name that has yet to be determined, he said. Additionally, its headquarters would be in Charlottesville, and the main bank and operations center would be in Christiansburg.
"In order to pay somebody a premium, you have to have an offsetting reduction in expense," Mr. Heath said. "In our case, we're not having to close any branches. We're not having to reduce staff in our commercial lending area, because we don't have any market overlapping to speak of, except in Lynchburg."
Dissenting shareholders also argue that the deal would eliminate many jobs, though Mr. Heath said that only 30 to 35 overlapping positions are likely to be cut, and that the companies hope to find new positions for all those employees.
Stephen M. Moss, an analyst with Janney Montgomery Scott LLC, said he thinks FNB shareholders eventually will approve the deal.
Though the shareholders would not get a premium, the deal's long-term effects would be positive, Mr. Moss said. In the long run shareholders would get "a better earnings stream," something investors watch closely when considering a stock.
"You're not getting the immediate pleasure of a premium for FNB, but over time it can work out if it's executed properly," he said.
Mr. Moss also questioned the dissidents' claim that FNB could get 2.5 to 2.7 times book value, given the "current market conditions" and the location of its branch network in the slow-growing southwestern part of Virginia. "Just looking at potential buyers for FNB, it would be shocking to get that premium."
The dissidents have a relatively small percentage of the total shares outstanding, he said, and he would be surprised if they were able to block the deal.
"But they've been very vocal, and obviously it's been getting some press," Mr. Moss said, "and it's going to cause people in the local community to take a closer look."
