The defection of four commercial lenders led First Horizon National in Memphis, Tenn., to successfully obtain a lower exchange ratio for its purchase of TrustAtlantic Financial in Raleigh, N.C.
The lenders resigned from TrustAtlantic on Nov. 6 two weeks after the company agreed to sell itself to First Horizon for $80 million and ended up opening up an office for HomeTrust Bancshares. First Horizon concluded that the departures, which also included two support staff, would jeopardize TrustAtlantic's business prospects and, as a result, constituted a material adverse effect under the merger agreement, according to a recent regulatory filing.
Though rare, such events can give buyers a reason to walk away from a deal.
Executives from both companies, along with a representative from FIG Partners, held a conference call in mid-November to discuss the defections. First Horizon indicated that a price reduction could be necessary, while also requesting a "detailed review" of TrustAtlantic's loan portfolio to assess the risk of customer attrition.
After multiple discussions, First Horizon insisted in early December that the deal's exchange ratio should be lowered to 1.3261 shares of First Horizon stock for each TrustAtlantic share, or a nearly 7% decrease from the original ratio. TrustAtlantic agreed to the change in mid-December even though management and board had disagreed that the defections constituted a material adverse effect.
"After discussing, TrustAtlantic's board concluded that it was in the best interest of TrustAtlantic's shareholders to proceed with the merger with the reduced exchange ratio," the filing said. An amended agreement was reached on Dec. 16.