Wells Financial Corp.'s announcement Monday that it is buying back nearly 86,000 of its shares omitted one significant detail: The amount falls well short of the 150,000 shares it said it wanted to repurchase in order to delist its stock and go private.
Now the small Minnesota thrift - which wants to go private to lighten its regulatory burden and lower its compliance costs - could be facing a proxy battle as it aims to stave off a hostile takeover.
Indeed, one of Wells' shareholders, a Pleasantville, N.Y., hedge fund, Opportunity Partners LP, has offered to buy it at a much higher price than Wells offered in its buyback.
Contacted late Monday, Lonnie R. Trasamar, the $232 million-asset thrift's president and chief executive, would not say why the response to the offer failed to meet the company's goals. But he insisted that Wells has the same ultimate aim: to get its shareholder count under 300 so that it can go private. (Wells is based in the city of that name and is no relation to Wells Fargo & Co.)
He said it could achieve this through a reverse stock split, which under Minnesota law would not require shareholder approval.
But it appears some shareholders who had initially committed to selling their stock back to the company would prefer that Wells take Opportunity's offer instead.
Just two weeks ago Wells said it had commitments to buy back 164,000 shares at between $29.50 and $31.50 per share, which would have gotten it below the 300-shareholder threshold.
However, the Securities and Exchange Commission advised Wells to extend the buyback offer, scheduled to close Nov. 19, to Dec. 3, so that shareholders would have more time to review Opportunity's offer of $35 per share.
Apparently many shareholders changed their minds, because Wells announced Monday that it was buying back 85,606 shares, or 7.3% of the outstanding shares, for $31.50 per share.
John Blaylock, a senior associate with Alex Sheshunoff Management Services Inc. in Austin, said it makes perfect sense for a company the size of Wells to go private. He said his firm sees companies of a similar size spend as much as $400,000 a year on SEC-related compliance.
But he said that Wells may be forced to consider the Opportunity offer because of its fiduciary duty to shareholders and the laws of the state where it is organized.
Though a large number of shareholders could have tendered shares to make up the 85,606, there is still a process under state law for dissenters' rights, and that could give Opportunity a chance to make another bid or receive a large payout for its investment.
"It all depends on how difficult the parties want to make it for each other, because it gets expensive and the press is not always all that good," Mr. Blaylock said of the process to take Wells private.
Opportunity acquired an 8.64% stake in Wells in late October, about a month after Wells announced its plan to go private. On Nov. 10 it offered to buy the company for $33 a share, and eight days later it upped its price to $35, or about $37.5 million. Wells' board rejected both offers.
Phillip Goldstein, Opportunity's general partner, said his company is still considering its options and that a proxy fight is not out of the question.
He said he also expects that some of the shareholders who agreed to sell their shares back to Wells could sue the company because the tender offer was below market value. Wells' stock closed at $31.95 on Dec. 3. (It closed at $32 Tuesday.)
"They took advantage of the unsophisticated investors who sold below market. I think that is a breach of fiduciary duty," Mr. Goldstein said.
Opportunity sent a letter to Wells on Dec. 2, reiterating its $35 per share offer and saying shareholders, not directors, should decide whether to accept Opportunity's offer.
Opportunity also offered to put $1 million in escrow as a termination fee. It said in its letter that if its bid falls through and it cannot raise the funds to buy Wells, it will pay the thrift company the $1 million.
