Cape Savings Bank's plan to go public and buy Boardwalk Bancorp Inc. is turning into a nail-biter.
The $620 million-asset mutual thrift in Cape May Court House, N.J., has raised $27.5 million from depositors and the community — roughly one-third what it needs to complete its initial public offering.
Now Cape Savings is in the midst of a syndicated offering that must raise a minimum of $50.7 million. If it fails to hit that target, its deal to buy the $445 million-asset Boardwalk in Linwood, N.J., for $101 million in cash and stock could be jeopardized.
Analysts who follow mutual-to-stock conversions say that selling the remaining shares could be a challenge in a difficult market but that they remain hopeful. "I wouldn't write the epitaph yet," said Theodore Kovaleff of Sky Capital LLC in New York.
Cape Savings announced in July that it intended to convert to a fully public company and simultaneously buy Boardwalk, but the market for thrift stocks has deteriorated significantly since then. Lately a handful of thrifts have canceled plans to convert because they could not sell the minimum number of shares required, and this month a Maryland deal similar to Cape Savings' fell through. The $578 million-asset Bradford Bancorp Inc. in Baltimore had to call off its deal to buy Patapsco Bancorp Inc. in Dundalk after weak investor demand left it unable to complete its IPO.
Damon DelMonte, an analyst at KBW Inc.'s Keefe Bruyette & Woods Inc., said he thinks Bradford had more factors working against it than Cape Savings does.
Bradford is in a less attractive market than Cape Savings, he said, and combined with Patapsco would have had about $800 million of assets, compared to more than $1 billion of assets for a post-merger Cape Savings.
Still, Cape Savings appears to be struggling to attract investors for its IPO. "They only sold a third of their shares so far. That's not a good sign," Mr. DelMonte said.
Officials at Cape Savings and Boardwalk did not return calls. But Cape Savings said in a press release Jan. 7 that it expects to complete the IPO and the Boardwalk purchase this month.
Cape Savings agreed to pay $23 a share for Boardwalk, and Boardwalk's stock is trading about $1 below that price.
Mr. Kovaleff said that, since Boardwalk shareholders would get half their payment in Cape Savings stock, Boardwalk's share price is "a good indicator" of how the market would value the Cape Savings shares. The difference between Boardwalk's share price and the deal price suggests that investors expect Cape Savings stock to trade about 10% below the offering price after it debuts.
Mr. DelMonte said shares of many recently converted thrifts have traded down and investors are particularly wary of a conversion that involves an acquisition.
"When banks do conversions and they are flush with capital, one of the concerns investors have is that they are going to go out and do a dilutive deal," he said.
In this case, Cape Savings is announcing plans to do that up-front, he said.
If the IPO closes at the minimum level, the price to tangible book value for the Cape Savings shares would be 105.82%, according to a filing with the Securities and Exchange Commission.
That is a higher valuation than a broad peer group. The median price to tangible book value for all public thrifts excluding mutual holding companies was 99% as of Thursday's market close, according to data from SNL Financial LC.
"It might be tough for people to get on board and say, 'Yeah, I'm willing to pay 105% of tangible book value for this bank,' " when comparable stocks are trading below book value, Mr. DelMonte said.
