The breakup of the corrugated paper manufacturer Temple-Inland Inc. could create a significant acquisition opportunity for a large bank looking to bulk up in Texas and California.
Under intense pressure from the noted corporate raider Carl Icahn, the Austin company said Monday that it plans to
Guaranty would be spun off into a stand-alone company, though when pressed during a conference call Monday, Temple-Inland's chairman and chief executive, Kenneth Jastrow 2nd, said the board would consider selling the thrift instead if the right offer came along.
But even if Guaranty became its own company, industry observers say it likely would not remain independent for long.
Dan Bass, managing director for Carson Medlin Co. Investment Bankers in Houston, said that a number of large, out-of-state banks have been eyeing Guaranty for years, because of its strong retail operations in two of the nation's most vibrant states. Guaranty has 110 branches and the No. 9 deposit share in Texas, as well as 54 branches in California, according to Federal Deposit Insurance Corp. data.
"For someone wanting to get big in Texas, there is a lot of opportunity," he said. "These are some market-share numbers where someone not in the market could really make a splash."
Companies that he said would be interested in Guaranty include U.S. Bancorp of Minneapolis, SunTrust Banks Inc. of Atlanta, Royal Bank of Canada's RBC Centura Banks Inc. of Raleigh, and Wells Fargo & Co. of San Francisco. Of the four, only Wells has retail operations in Texas. All four said they would not discuss market speculation.
Aside from Guaranty, Temple-Inland said it plans to spin off its real estate unit, Forestar Real Estate Group, and its timberland operations, retaining only the manufacturing of corrugated packaging and building products.
The transformation is expected to be completed this year, Mr. Jastrow said.
Investors appear to be in favor of the plan, which the company said would "maximize" value for shareholders. Temple-Inland's stock rose 12.9% Monday, closing at $62.01 a share.
Mr. Icahn has been accumulating shares in Temple-Inland since November; he now owns a 6.7% stake. He said last month that he believes the company is undervalued, and that the best course of action would be for it to split itself up. This month he said he intended to nominate a slate of four directors to the board.
In a press release Monday, Mr. Icahn applauded the decision to spin off the three business lines. Temple-Inland's management and board "should be commended for listening to the concerns that we and other shareholders expressed."
Last year Guaranty's earnings rose 3.9% from 2005, to $133 million, according to FDIC data.
Bain Slack, an analyst with KBW Inc.'s Keefe, Bruyette & Woods Inc. in Atlanta, said he believes the market would value Guaranty at $2 billion as an independent company, simply because of its branch network. He predicted that it would fetch as much as $3 billion if it were sold.
"If they were to sell versus operate it as a stand-alone, it would be worth more, because you have other acquirers who want some scale in these states bidding up the price," Mr. Slack said.
John Blaylock, the associate director of Sheshunoff & Co. Investment Banking in Austin, said that Guaranty has slipped under the radar, and that a lot of people would be surprised to learn it is one of the largest financial institutions in Texas. (The largest is the $26 billion-asset USAA Federal Savings Bank in San Antonio, but it is largely an online bank.)
Guaranty has not been growing as fast as other financial institutions in its market, he said, and as its own company it would be under pressure from Wall Street to grow more quickly or sell itself.
Still, the family that founded Temple-Inland, the Temple family, still owns a large chunk of the parent company and could end up holding a big stake in the spun-off thrift. In other words, Guaranty would be sold only if the family wanted to sell it.
Guaranty "is a prime target for an acquirer looking to get into the largest and fastest-growing states in the country," Mr. Blaylock said. "The question really is going to be on the shareholder level — how the ownership of the company is going to come out."
