Despite a promise to cut expenses by roughly $20 million a year, Keystone Financial Inc. is under pressure to put itself up for sale.
Activist investor Seymour Holtzman is urging fellow shareholders to vote for a plan that would require Harrisburg, Pa.-based Keystone to find a buyer. He contends that the $7 billion-asset company is undervalued but would fetch a premium well above its current stock price if it were sold.
"This is a valuable franchise," Mr. Holtzman said, "and I think an acquirer would be willing to pay substantially above market for it." He owns about 170,000 shares of Keystone stock.
The shares were trading at $31.25 at midday Tuesday, 25% below their 52- week high.
Mr. Holtzman made clear that he is satisfied with management and said he is pleased with the steps the company is taking to reduce costs by 10% a year. But he said a larger bank could buy Keystone and cut 20% to 50% of its overhead.
"Shareholders will be much happier if it became part of a larger institution," Mr. Holtzman said.
Keystone is asking shareholders to reject Mr. Holtzman's proposal that it immediately seek a buyer. A vote will be held at its annual meeting May 20.
In its proxy filed April 9 with the Securities and Exchange Commission, Keystone urged shareholders to consider the potential for long-term returns over the short-term gains a sale might produce.
There is "no indication that an immediate sale ... would be in the best interests of the corporation and its shareholders," Keystone said in the filing. "If it were, then there would scarcely be a corporation in the country that should not be sold immediately."
In an interview, Keystone chief financial officer Donald F. Holt questioned Mr. Holtzman's timing.
He said the company's restructuring-in which it is combining seven subsidiary banks under one name-illustrates its commitment to controlling costs. He also pointed out that the company's performance ratios are in line with those of its peers.
"We've been very proactive in trying to make Keystone the best organization it can be," Mr. Holt said, "so the timing of this raises questions that our situation has not been reviewed thoroughly."
Mr. Holtzman is well known in business circles for his run-ins with corporate managers.
His investment firm, Jewelcor Management of Wilkes-Barre, Pa., is engaged in a proxy fight with Massachusetts retailer Designs Inc. Jewelcor is trying to replace five of the company's six directors.
Mr. Holtzman also delayed the merger of two upstate New York banks last year until the buyer, Ambanc Holding Co., agreed either to take steps to sell itself or put Mr. Holtzman on its board. He was named to the board of Amsterdam, N.Y.-based Ambanc this month.