First California Financial Group's decision to turn down a buyout offer from PacWest Bancorp (PACW) has angered at least one of the company's largest shareholders.

Basswood Capital Management, which owns a 5.2% stake in First California (FCAL), said in a letter to the company's board Thursday that it "will not hesitate" to call a special meeting to oust the entire board if it does not reconsider PacWest's $212 million offer.

"Make no mistake about it: if you continue down the path of ignoring the best interests of [First California's] stockholders, we intend to take all necessary action to ensure that your stonewalling does not cause harm to us and our fellow stockholders," Matthew Lindenbaum, a principal at New York-based Basswood, said in the letter filed with the Securities and Exchange Commission.

Los Angeles-based PacWest approached First California on May 3 with an offer to buy all of First California's shares at $7.25 each, or a 32% premium above its share price at the time and roughly 1.67 times its tangible book value. Five days later the $5.4 billion-asset PacWest announced that First California had spurned its bid.

For its part, the $2 billion-asset First California, based in Westlake Village, insists it did not reject the offer - it just asked for more time to consider it. Among its objections to the offer were that PacWest wanted exclusive negotiating rights and that it failed to provide "satisfactory answers" to certain questions about terms of the deal.

First California's investors have been pressuring the company for months to find a buyer. Though First California is profitable, the investors in January said that its strategic plan to maximize shareholder value through organic growth and failed-bank acquisitions was "inadequate" and urged it to hire an investment banker to help it explore its options. The company did hire an investment banker in late January, then a month later announced plans to buy the $141 million-asset Premier Service Bank in Riverside, Calif.

In its letter to First California's board, Basswood's Lindenbaum said that the company's stated explanation for refusing to negotiate with PacWest was a "flimsy excuse." The decision, he wrote, "causes us grave concern and, in our view, is simply old-fashioned retrenchment at work and is not consistent with your fiduciary duties."

In a research note to clients Friday, D.A. Davidson analyst Gary Tenner said that while First California would prefer to remain independent, its takeout seems inevitable.

"It seems to us that the process currently underway will eventually result in a sale of the company to [PacWest] or potentially another institution," Tenner wrote. "While a higher bid from a third party is possible, we view the $7.25 offer submitted by [PacWest} as a very competitive offer and above what we had previously estimated First California could garner in a sale."

Tenner raised his price target from $6 to $7.25. Since PacWest went public with its offer Tuesday night, First California's shares are up 24%, to $6.94 late Friday.

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