How to Secure an M&A Deal Amid Internal, External Disruptions

BBCN Bancorp's board faced relentless internal and external pressure to pursue a merger with Hanmi Financial, even as BBCN was making progress in talks to buy Wilshire Bancorp.

BBCN agreed in early December to buy Wilshire for $1 billion in a deal that will combine Los Angeles institutions and cement the surviving company's status as the nation's biggest Korean-American bank. Hanmi attempted to derail the merger, offering to merge with BBCN in a deal valued at $1.6 billion.

Hanmi actually made separate overtures to merge with either BBCN or Wilshire, according to a filing tied to the BBCN-Wilshire deal. Four BBCN directors also hired their own law firm and investment bank in late November in hopes of asserting more influence over the process.

BBCN's board found out in August that certain unnamed directors had been in communication with the $4.2 billion-asset Hanmi about a possible merger. BBCN's board agreed at its Aug. 25 meeting that only Dale Zuehls, its lead independent director, would be authorized to hold future discussions with Hanmi.

Zuehls informed Joseph Rho, Hanmi's chairman, that any overtures would need to go through him or Kevin Kim, BBCN's chairman and chief executive. On Sept. 2, Rho responded by suggesting that the companies "explore the possibility of a merger." A week later, Steven Koh, Wilshire's chairman, suggested to Kim over lunch that their banks should also consider a combination.

BBCN's board decided at its next meeting that it would require considerable resources to conduct due diligence on both Hanmi and Wilshire. BBCN's investment bank reported that, while either deal "could present an attractive opportunity," a merger with the $4.7 billion-asset Wilshire "could have a higher earnings per share accretion and a lower tangible book value earn back period." As a result, the board unanimously voted to explore a merger with Wilshire, and Kim sent a letter to Wilshire sharing that view.

Talks between Wilshire and BBCN took place over the next few weeks, covering topics that included Wilshire's ownership in the combined company and the deal's exchange ratio, though the two sides could not reach an accord on exclusivity. In late October, 10 BBCN directors — with one abstention — authorized the $7.9 billion-asset company's investment bank to continue negotiations with Wilshire.

Hanmi resurfaced in early November, contacting a Wilshire director in an effort to spur talks about a merger. A special committee agreed on Nov. 4 to ignore Hanmi's inquiry; later that day Wilshire and BBCN agreed to a 60-day exclusivity period.

Undeterred, Hanmi sent a letter to BBCN's Zuehls on Nov. 9 "requesting an opportunity to commence exploratory merger discussions," the filing disclosed. About a week later, a majority of BBCN's board voted to continue negotiating with Wilshire; through unanimous vote, the directors instructed Zuehls to inform Hanmi that BBCN was not in a position to discuss a potential merger.

By that time, Hanmi had hired its own investment bank and legal adviser, and each of those firms reached out to BBCN's representatives in mid-November to press for a merger. On Nov. 18, an article in the Korea Herald reported that BBCN was in talks to merge with Wilshire. Shortly thereafter, BBCN and Wilshire began circulating drafts for a definitive agreement.

Hanmi on Nov. 20 sent a letter to BBCN's board — followed by a press release a few days later — proposing a deal that would give BBCN's investors 64.6% ownership in a combined company. The offer represented an implied 9.1% market discount for Hanmi's shareholders, the filing claimed. BBCN asked its investment bank to compare the offer to the Wilshire transaction.

Matters took a turn on Nov. 24, when a law firm hired by four unnamed BBCN directors contacted BBCN's outside counsel to request "certain documents," the filing disclosed. The directors' investment bank was eventually allowed to make a presentation to BBCN's full board.

BBCN and Wilshire kept making progress, agreeing to a $40 million termination fee and holding talks with state and federal regulators about their plans to merge.

BBCN's board met on Dec. 4 to discuss the Hanmi proposal and ongoing negotiations with Wilshire. The directors — on a nine-to-four vote — approved working to finalize the Wilshire merger. Two days later, a divided BBCN board approved the merger agreement; the deal was announced the next morning.

Koh will be chairman of a newly rebranded company, while Kim will serve as president and chief executive. The new filing did not disclose the name BBCN will adopt once the deal is completed.

The filing, however, shed more light on dysfunction that culminated in the resignation of two BBCN directors earlier this year.

Emotions boiled over last month when C.K. Hong and Kiho Choi, in letters shared by BBCN in recent regulatory filings, criticized the company's corporate governance and Kim's leadership. The directors, who resigned from BBCN's board, have also accused the company of misleading investors about why they resigned.

BBCN, in separate regulatory filings, claimed that the men resigned after they were informed of plans to exclude them — along with two other unnamed directors — from a slimmed-down board. The recent filing revealed that current directors Sang Hoon Kim, retired CEO of an online publishing firm, and Peter Kim, who owns transportation and warehousing businesses, will retire before its annual meeting.