KS Bancorp in Smithfield, N.C., has developed an escape plan of sorts to avoid a hostile takeover.
The $374 million-asset company wants to become a Delaware corporation, the Triangle Business Journal in Raleigh reported after obtaining the proxy statement for the company’s annual meeting set for May 29.
KS Bancorp, currently incorporated in North Carolina, told investors that it believes Delaware would be more sympathetic to a shareholder rights plan it passed earlier this year, the filing said.
The plan, enacted in February to fend off unwanted advances from First Citizens BancShares in Raleigh, was temporarily blocked by the North Carolina Business Court. Judge Gregory McGuire suggested when he granted First Citizens’ request for a preliminary injunction that the plan could discriminate against First Citizens, which already holds some KS shares.
Becoming a Delaware corporation would allow KS “to take advantage of the certainty provided by extensive Delaware case law,” the proxy said. Delaware courts “have routinely upheld the decisions of boards … to adopt customary rights plans in response to abusive or hostile takeovers.”
The move could also increase the indemnification and reduce the personal liability for KS’s directors, the proxy said.
The plan requires the backing of a majority of KS’s shares. KS Bancorp would retain is North Carolina bank charter.
Shareholders will also vote on a plan to reduce the number of authorized shares from 25 million to 4 million, which would lower the annual franchise value tax the company would have to pay to Delaware. KS estimated that the annual cost would be $35,000.
The proposal could prove to be symbolic move to send a message to First Citizens. KS could opt to scrap the plan within 12 months of the annual meeting, the proxy said.
A call to Harold Keen, KS Bancorp's chairman and CEO, was not returned.
The quarrel between the companies goes back to last June, when First Citizens offered to buy KS Bancorp for $33 a share. KS at the time was looking to become a Subchapter S corporation. In mid-July, First Citizens raised its offer to $35 a share, or roughly $45.9 million, and issued a press release publicizing its efforts.
KS’s board rejected both overtures.
First Citizens began amassing a stake in KS Bancorp earlier this year after the Federal Reserve granted its request to buy up to 80% of the shares. While First Citizens built its holdings to 9%, it was looking to buy enough stock to increase its stake to 24% when KS created the rights plan.
The rights plan would be triggered if First Citizens’ stake reached 15%. At that point, all of KS's shareholders other than First Citizens would receive rights to buy more KS Bancorp stock at a discounted price. Those terms prompted First Citizens to seek the preliminary injunction.