Two California rivals, UCBH Holdings Inc. and Cathay General Bancorp, have both gained regulatory approval to buy Great Eastern Bank of New York - but the betting is on Cathay.
Cathay has already exercised its options to buy a 41% stake and could foil UCBH by voting against its deal. If it does so, Great Eastern would accept Cathay's offer, observers say.
Great Eastern's board is not talking but seems to be retreating from its position that it would consider only UCBH's offer.
Late Wednesday, Great Eastern said that though it was still moving ahead with its deal with UCBH, it had asked Cathay to make a definitive offer by Jan. 4.
"From the beginning of this process, our board has been committed to seeking a sale highly favorable to all shareholders equally," said William J. Laraia, Great Eastern's president and chief executive, in a press release. He said that though he believes the UCBH deal meets that standard, it permits Great Eastern "to consider offers which are 'materially superior.' "
The battle began in September, when the $6 billion-asset Cathay, of Los Angeles, announced that it had a deal to buy 41% stake in Great Eastern. It also said that it intended to negotiate with shareholders to try to acquire the remaining 59%.
Great Eastern's management viewed the plan as hostile and began soliciting other buyers. On Oct. 13 it said it had agreed to sell itself to the $7.3 billion-asset UCBH, of San Francisco, for $103.6 million. (The figure was reduced to $97.4 million to reflect a lower estimate of the value of Great Eastern's facilities.)
Days later Cathay offered to buy the entire bank for $112 million, though it later said it would probably trim its offer after conducting due diligence.
Great Eastern's management has said that it would prefer to sell to UCBH, despite Cathay's higher offer. But as a major shareholder, Cathay could block a UCBH deal, because New York law says a bank merger requires approval by two thirds of shares voted.
Scott Carmel, an analyst for Moors & Cabot Inc. in Boston, said that Great Eastern would be out $4.5 million if it had to pay UCBH a breakup fee. He said that a subsequent sale to Cathay could compensate.
Cathay could become the majority shareholder by picking up just 10% more shares, he said - but he thinks Great Eastern's board "will give in much before that" and sell to Cathay.
Cathay, UCBH, and Great Eastern cater to Chinese-Americans. Lana Chan, an analyst at Bank of Montreal's Harris Nesbitt, said that competition among such banks is fierce in California, and that the fight for Great Eastern underscores the need for companies like Cathay and UCBH to expand outside their home state.
California has the largest Chinese-American population. In second place is the New York City area; buying Great Eastern would roughly double either rival's assets there.
But "for the one who loses Great Eastern, it's certainly not the end of the world," Ms. Chan said. "There are nine other Chinese-American banks [in the New York area] that they could go after."
UCBH said it plans to pursue Great Eastern now that it has received approval from the Federal Deposit Insurance Corp. and the California Department of Financial Institutions.
Though Cathay has promised to vote against it, anything could happen, said Jonathan H. Downing, UCBH's executive vice president, on Tuesday.
For instance, he said, though Cathay has exercised its options to buy 41% of Great Eastern's shares, Cathay's directors could decide not to execute the trades.
"We are continuing to rigorously move forward to a closing [of the deal with Great Eastern] in the first quarter of 2006," he said.
No vote of Great Eastern shareholders has been scheduled, but analysts contend that UCBH is pushing for one so that it could at least get the breakup fee.
