Another community banking acquisition appears to be in danger of unraveling unless the seller is willing to lower its asking price significantly.
Gold Banc of Leawood, Kan., revealed Tuesday that its planned sale to the Kansas investment group Silver Acquisition Corp. had hit another snag and that Silver wanted to renegotiate the deal. If an agreement cannot be reached by Nov. 24, Gold said, the $672 million cash deal, announced in February, could be terminated.
Though it is rare that buyers demand to renegotiate the purchase price before a deal closes, Gold's early-morning announcement had a familiar ring.
Last week Carver Bancorp Inc. of New York said it wanted to restructure its deal for Washington's Independence Federal Savings Bank because it said Independence's already shaky financial condition had worsened since the February announcement of the deal.
Meanwhile, PNC Financial Group Inc.'s chief executive, James E. Rohr, has said that the Pittsburgh company would walk away from its deal for Riggs National Corp., also of Washington, if Riggs' well-documented legal and regulatory issues are not resolved in a timely manner.
At issue in each case is the "material adverse effects" clause that is standard in merger agreements but rarely invoked. Such clauses give the buyer the right to renegotiate the terms of a deal or cancel it if the seller's financial condition deteriorates. How and when those clauses get invoked can be a matter of some dispute, however, as the Carver-Independence example showed.
Gold said in its Tuesday press release that it had received a letter from Silver in which Silver said it believed Gold's financial condition would be harmed by the settlement of a lawsuit and loss of principal or income from high-yield bonds in Gold's portfolio.
The $4.2 billion-asset Gold said in the release that on Sept. 13 it was notified that three agricultural borrowers had sued it in Oklahoma, alleging they had been charged excessive fees and interest.
Malcolm "Mick" Aslin, Gold's CEO, said in an interview that he could not predict the outcome.
"I believe both parties still intend to work hard to save the deal, but I don't know whether hard work will ultimately be enough or not," he said.
Unlike Independence - which has refused to renegotiate with Carver - Mr. Aslin said that Gold's directors would consider adjusting the asking price, though he would not say how low they would go. Silver's initial offer was $16.60 per share.
"There's clearly a level that we and most of our shareholders would agree the company is worth more on a stand-alone basis than it would be at that price," he said.
Still, Gold shareholders did not take the news well. Gold's stock, which closed at $15.54 Monday, dropped overnight and opened at $13.91 Tuesday. It continued to drop throughout the day and closed at $13.80.
The Silver deal was originally scheduled to close in late July but was delayed by an information request to Silver from the Office of Thrift Supervision. That delay followed an announcement in June that Gold was the defendant in a qui tam, a secret lawsuit filed on behalf of the federal government by a private citizen. The suit charged that Gold violated the Federal False Claims Act in connection with its government-guaranteed agricultural loans.
A $16 million settlement in principle for that suit has been approved by the U.S. District Attorney, and negotiations on the final terms are taking place.
Daniel E. Cardenas, an analyst with Howe Barnes Investments Inc. in Chicago, said: "We don't see too many deals where there is a change in pricing structure."
Mr. Cardenas said renegotiating adds layers of uncertainty because the board of directors has to agree to a new deal price and then the shareholders need to approve it.
"They could renegotiate the deal and the shareholders could come back and say, 'We don't like the way you renegotiated the deal,' " Mr. Cardenas said.
