Sometimes patience pays off.
Rebuffed in its bid to acquire a large stake in PFF Bancorp Inc. of Rancho Cucamonga, Calif., the Illinois holding company FBOP Corp. is now buying all of PFF for the bargain-basement price of $30.5 million.
FBOP already owns a 9.85% stake in PFF, and in late 2007 PFF's management objected to FBOP's efforts to increase its stake to 24.9%.
But that was before the real estate meltdown in the Inland Empire left PFF with so many bad loans to home builders that it is projecting a whopping $204 million loss for its fiscal fourth quarter. Analysts have been saying for weeks now that a sale was inevitable.
The $16.3 billion-asset FBOP is paying just $1.35 per each of PFF's shares — a far cry from the average of $13.62 it paid for PFF shares it acquired in a series of transactions in October.
The $4.4 billion-asset PFF would be rolled into FBOP's California National Bank subsidiary, with the Los Angeles bank acquiring 38 branches in Riverside and San Bernardino counties. California National has 68 branches, most of them in the Los Angeles and San Diego areas just to the west of where PFF operates.
Gregory A. Mitchell, California National's president and chief executive officer, said in an interview that despite PFF's asset-quality problems, it "is an extraordinarily strong retail franchise."
He is also bullish on the counties it is entering, both of which have been hard hit by the real estate downturn.
"While the area is currently troubled, it has tremendous promise," Mr. Mitchell said.
PFF's deal to sell itself came just in time, said Joseph Gladue, an analyst at B. Riley & Co. LLC.
It owed $44 million on a secured commercial bank loan that was due Monday. But because of the deal, PFF said it managed to extend the maturity on the loan until June 16 of next year.
"The company had some capital and liquidity issues," Mr. Gladue said. "It basically had two choices: it had to do a capital raise or sell the company."
PFF announced June 5 that it planned to raise $460 million in a private placement of equity and debt, but it terminated those plans Monday.
PFF did not return calls seeking comment, but in the announcement of the deal with FBOP, Kevin McCarthy, PFF's president and CEO, said, "After much thoughtful consideration, our board of directors determined that this transaction is in the best interests of our stockholders, creditors, customers and employees."
PFF's stock has lost 96% of its value over the past 52 weeks as its loans troubles arose and grew worse by the quarter.
But the biggest part of the plunge in value — 69% — came after April 30, when PFF projected a $159 million loss for the quarter that ended March 31. It has since increased the projection to $204 million. The company is late filing its quarterly and annual results with the Securities and Exchange Commission, but said Monday that it planned to do so within 15 days.
Mr. Mitchell said his company has no regrets about investing in PFF — earlier or now.
Though California National would absorb all of PFF's loan portfolio, Mr. Mitchell said PFF's asset-quality problems are "identifiable and manageable" and were largely driven by market conditions.
"We spent a lot of time doing due diligence, and we have a proven history of working through problem assets," he said. "Right now we are studying the best way to resolve it."
Mr. Gladue said the deal price works out to about 20% of PFF's tangible book value.
"Such a low price should provide a lot of cushion for the buyer to take the losses and still be able to make money on the deal," he said.
The deal is expected to close by the end of September, and PFF agreed to several covenants restricting its activity until then.
The company said it would not pay dividends, issue debt, or increase lines of credit. PFF noted that it previously agreed to similar provisions with the Office of Thrift Supervision.
As part of its deal for PFF, the privately held FBOP agreed to lend it $7 million immediately. The loan would enable PFF to keep its bank adequately capitalized.
In exchange FBOP received a secured note convertible into preferred stock, with voting rights equivalent to 19.9% of PFF's outstanding shares.
PFF's stock closed at $1.25 a share Monday, up 5.9% from Friday's closing price.
