A Chicago-area banking company is altering its stock structure to make its shares more attractive to investors and potential acquisition targets.
First Oak Brook (Ill.) Bancshares, with $1 billion of assets, said it plans to combine the two classes of stock it has maintained since going public in 1985. Under the current structure, one class pays dividends, and a second has voting rights.
The new structure, which shareholders are to vote on at the May annual meeting, would have only one class of stock, and it would combine voting rights and dividend payments.
The two-class system, uncommon among banks, is not popular with analysts or institutional investors. It has prevented First Oak Brook from using stock in acquisitions, and it has punished the company's stock price, said Rosemarie Bouman, chief financial officer. "It really hit us last year," when stock-swap mergers reached all-time highs. It's hurt our ability to do deals."
The two-class stock structure also is problematic because public shareholders typically hold the dividend-paying stock and company insiders, most of the voting shares.
Acquisition targets and institutional investors would both want First Oak Brook's voting shares, but giving up those shares would probably mean ceding control of the company to an outsider, Ms. Bouman said.
Analysts applauded the new stock structure.
"I think it will be a positive for their stock price," said Stephen Skiba, bank analyst at ABN Amro in Chicago. The company's nonvoting shares have traded at about two times book value though other banks its size fetch as much as four times book.
Still, First Oak Brook would have to wait before hitting the acquisition trail. Accounting regulations would bar the company from stock-swap deals for two years after the restructuring.