South Umpqua Bank, Roseburg, Ore., has shaved its buyout offer for hometown rival Douglas National Bank by $4 a share, to $18-adding another twist to the complicated takeover battle.

The $258 million-asset South Umpqua said Douglas National's earnings will be lower than expected because its employee stock ownership plan is underfunded.

South Umpqua chief executive Raymond P. Davis acknowledged that the problem in Douglas National's ESOP caught him off-guard.

"I think we were more surprised than anybody," said Mr. Davis. "But we're prepared to close the deal by the end of the year."

But Neal Zick, president and CEO of $95.6 million-asset Douglas National, was not so sure.

Douglas' board will consider South Umpqua's revised proposal, he said, but could invite bids from other in-state banks that have expressed interest.

"We don't think South Umpqua's due diligence justified the lower bid," Mr. Zick said, adding that Douglas National also could remain independent.

Under the revised offer, the tax-free stock transaction is valued at $35 million. If the deal is completed, the resulting institution would be Oregon's third-largest community bank.

The bidding for Douglas National began April 20 when South Umpqua made an unsolicited bid of $40 million. The smaller Roseburg bank then agreed to be bought for $37 million by Cowlitz Bancorp, Longview, Wash.

However, on June 4, South Umpqua sweetened its bid to $43.2 million, and Cowlitz rescinded its offer.

It was not known whether Cowlitz would reenter the bidding contest; bank officials could not be reached Tuesday to comment.

"Each merger has many twists and turns," said Bob Rogowski of Seattle- based Columbia Financial Advisors. "This is just one more in the saga."

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