A bidding war has erupted in serene southwest Oregon for Roseburg-based Douglas National Bank.

Spurning an unsolicited, $40 million offer from hometown rival South Umpqua Bank, Douglas' parent, United Bancorp, agreed Monday to sell to Cowlitz Bancorp of Longview, Wash., for about $37 million.

But Wednesday South Umpqua raised its bid to $43.4 million, or about 2.8 times book value, encouraged by two prominent Douglas National shareholders.

"We feel strongly that Douglas should not be sold to an out-of-state holding company," said Sid Leiken, one of the shareholders. "The credit needs of our residents and businesses should be met first before deposits are sent out of state." Mr. Leiken helped found Douglas in 1959 and is its former chairman.

Raymond P. Davis, president and chief executive officer at $258 million- asset South Umpqua, said the $43.4 million offer is his bank's third for Douglas since late April. Douglas' directors, he said, have not responded to any of them.

"Here's an opportunity to create the third-largest community bank in the state, with more than $400 million of assets, and they won't even come visit with us," Mr. Davis said. "It's tragic."

Douglas officials were not available to comment on South Umpqua's latest bid. But in an interview Tuesday, after announcing the Cowlitz deal, Douglas president and chief executive officer Neil Zick said that Cowlitz had promised to permit $115 million-asset Douglas National to keep its name, employees, and board of directors.

"In looking at our options, we felt it was real important to keep as many of our employees on board as possible," Mr. Zick said.

Benjamin Namatinia, chairman and chief executive officer of $192 million-asset Cowlitz, said his company emerged as a "white knight" to save Douglas from the potential takeover. Estimating that a Douglas-South Umpqua merger would cost more than 40 jobs, he urged Douglas' board to consider the impact on the community before accepting South Umpqua's latest offer.

At least one banking analyst was critical of Douglas' decision to merge with Cowlitz. That deal, slated to close in the fourth quarter, would create a regional banking company with $300 million of assets and 10 branches.

From a shareholder perspective, it would make more sense for United to merge with a fast-growing local bank than a company based in a slow-growing market more than 200 miles away, said Robert J. Rogowski, principal at Columbia Financial Advisors in Seattle.

He said United's executives seem more interested in preserving their jobs than in achieving the best deal for shareholders. "This is a triumph of management over shareholder value," Mr. Rogowski said.

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