In a deal reminiscent of 1980s corporate "greenmailing," an aggressive shareholder has agreed not to meddle for 10 years in the affairs of a small Iowa thrift that bought back some of his stock at a premium.

As part of a recent repurchase program, Horizon Financial Services Corp., Oskaloosa, Iowa, bought back 18,500 shares from Jerome H. Davis of Connecticut and his family.

The $63 million-asset thrift said it paid $16.25 per share for Mr. Davis' stock; the average paid in the overall buyback of 23,500 shares was $16.04. It also said the Davises' premium was about "3.2% above the latest price offered to Horizon for smaller blocks of stock."

Greenmail, also known as a "bon voyage bonus," was a tactic employed by major companies in the 1980s that wanted to induce a corporate raider to go away. The practice was uncommon at financial institutions, particularly ones as small as Horizon, said Christopher Zinski, a lawyer at Schiff Hardin & Waite in Chicago.

Mr. Davis and his family have agreed not to acquire additional shares of Horizon nor to solicit proxies opposing company policy; they also agreed to vote in favor of certain management proposals for 10 years.

The Davises retain about a 6.3% stake in Horizon.

Horizon is one of a slew of newly public thrifts in the Midwest and Northeast that have been targeted by aggressive shareholders. It is the first, however, to induce a shareholder to side with management as part of a stock repurchase.

Horizon officials and New York attorney David M. Perlmutter, who returned a call made to Mr. Davis, didn't want to discuss specifics of the agreement. But observers noted that the premium paid for the Davises' stock wasn't that significant.

Still, greenmail "is exactly what it is," Mr. Zinski said. "You take a toehold in a company and (push) for a company to be sold. Or you do what Davis is doing and have your interest bought out. You're able to bring the pressure to the company either way. There's nothing illegal about it."

But Horizon president and chief executive Robert W. DeCook denied the agreement was greenmail. "That's not how I would characterize it," he said, explaining that the thrift merely saw the block of Davis stock as a fast way to complete its repurchases. "Nobody would say that if it wasn't Jerome," he said.

Mr. Davis is known for opening deposit accounts in mutuals he expects will go public, then pushing for a sale when they do.

The repurchase followed Mr. Davis' efforts, beginning last September, to pressure Horizon to sell the company. At the time, the Davis family owned a 9.9% stake, and the stock was selling at $13 a share. Mr. DeCook has stressed that the company is not for sale.

Although most managements resist such pressure, occasionally the aggressive stockholder succeeds: This week, $90 million-asset First Ashland Financial Corp. in Kentucky agreed to sell to Camco Financial Corp., Cambridge, Ohio. Mr. Davis, an investor in First Ashland, had pushed the company's board to sell.

Meanwhile, Mr. Davis has agreed to withdraw a lawsuit against Pittsburgh-based Great American Federal Savings and Loan Association. The suit, which was the first legal challenge to the local-depositor preference in federal mutual-to-stock conversion rules, had sought to invalidate the $621 million-asset thrift's local-depositor preference in a public offering.

The suit, filed by Mr. Davis and five other out-of-state depositors, accused directors of acting out of self-interest in giving priority to stock orders from locally based depositors, including the directors themselves.

Stock orders from the plaintiffs were completely filled in the offering, however, removing the primary grounds for the suit.

A separate suit was filed by Thrift Depositors of America, challenging Office of Thrift Supervision approval for Great American's conversion. This suit will also be dismissed.

Jonathan D. Epstein contributed to this article.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.