Embattled N.C. bank steels itself for proxy fight
KS Bancorp in Smithfield, N.C., which is trying to fend off a hostile takeover, is also preparing for a shareholder revolt.
The $374 million-asset company said in press release Thursday that investor Phillip Lewis is considering a proxy battle for a board seat.
“There is a possibility that … Lewis’s materials may be received by shareholders before they receive the board’s proxy materials,” Harold Keen, KS Bancorp’s president and CEO, said in the release. “We respectfully ask that our shareholders not take any action … until they have had a chance to receive and review the company’s proxy materials.”
The warning came two weeks after KS Bancorp was dealt a legal blow in its effort to fend off a hostile takeover by First Citizens BancShares in Raleigh, N.C.
The North Carolina Business Court on March 21 granted the $34.5 billion-asset First Citizens’ request for a preliminary injunction barring KS Bancorp from taking any action under a shareholder rights plan its board approved in early February.
The injunction will be in effect until the litigation is resolved.
First Citizens, which owns 9% of the $374 million-asset KS Bancorp's stock, filed a lawsuit on Feb. 15 looking to throw out the rights plan, arguing that it was discriminatory and diluted the value of the shares it already owns.
In a decision backing the injunction, Judge Gregory McGuire determined that KS Bancorp isn’t allowed to implement a rights plan that discriminates between the shareholders. First Citizens “has demonstrated a likelihood of success on the merits of its claim for declaratory judgment,” McGuire wrote in his decision.
KS Bancorp’s right plan, commonly known as a poison-pill provision, was set to trigger if First Citizens’ stake reached 15%. At that point, all of KS Bancorp’s other shareholders would have received rights to buy more of the community bank’s stock at a discount.
First Citizens had been amassing a stake in KS Bancorp after receiving approval from the Federal Reserve to buy up to 80% of the smaller bank’s stock. The authorization was set to expire on March 19, though First Citizens can request an extension that could go to Dec. 19.
KS Bancorp had argued in legal documents that First Citizens’ actions had scared away a commercial lender and had harmed its ability to court wealth management clients, among other things.
The banks’ quarrel goes back to last June, when First Citizens offered to buy KS Bancorp for $33 a share. KS Bancorp, which was reorganizing into a Subchapter S corporation, was in the midst of reducing its shareholder ranks.
In mid-July, First Citizens increased its offer to $35 a share, or roughly $45.9 million, and issued a press release publicizing its efforts.
“We are disappointed by KS Bancorp’s rejection of our offer without any discussion,” Frank Holding Jr., First Citizens’ chairman and CEO, said in a press release that disclosed the takeover bid. “We believe that KS Bancorp shareholders will favor the immediate liquidity at a substantial premium that our acquisition proposal would provide.”
Keen said in a press release that First Citizens’ initial offer “did not rise to a level of pricing” to persuade the board to sell. The hostile takeover is “evidence that First Citizens’ corporate culture is not in line with KS Bank’s community banking values,” he added.
Keen later said the board would evaluate the improved offer.
Lewis, an insurance agent in Greenville, N.C., has voiced his support for First Citizens’ bid.
“I’m quite certain Mr. Keen wasn’t planning on paying us shareholders $35 a share in his attempt to reorganize the bank to an S corporation, where the board and management would have greater control,” Lewis told Business North Carolina last summer.