The planned merger of two Roseburg, Ore., banks was abruptly terminated Friday when the board of Douglas National Bank rejected the $35.4 million offer of rival South Umpqua Bank.

Douglas National officials, who could not be reached for comment, offered no reason for the decision. In a prepared statement, its board said, "We determined it is in the best interests of our shareholders to decline the offer from South Umpqua."

But sources close to merger talks said that Douglas' management thwarted the deal to protect their jobs-despite generous stock options and severance packages offered to senior executives.

"The deal was fair; it was a solid price," said Tom Savinar, an analyst at Black & Co., an investment banking firm in Portland, Ore. "This was an emotional decision."

The announcement ended four months of roller coaster negotiations between the two banks, whose main offices are a block apart in Roseburg, a small town in southwest Oregon.

On April 20, South Umpqua made an unsolicited-and unwanted-$40 million bid for $96 million-asset Douglas National and its parent, United Bancorp. That was soon followed by a $37 million white knight offer from Cowlitz Bancorp., Longview, Wash.

Cowlitz rescinded its offer June 4 after South Umpqua sweetened the pot to $43.2 million-3.66 times book value. However, South Umpqua shaved its bid by $4 a share July 17 after learning that Douglas National's employee stock ownership plan was underfunded.

Douglas National officials publicly called the reduced bid too low but nonetheless formally considered it while also hoping to solicit competing proposals. They attracted expressions of interest from other banks-but at $10 to $12 a share, sources said-well below South Umpqua's $18 per share offer.

United's stock plunged 15% after the announcement Friday, to $12.50 a share. In over-the-counter trading late Monday, the stock was being bid at $8.50.

A disappointed South Umpqua chief executive Raymond P. Davis summed up the experience this way: "You can lead a horse to water, but it doesn't have to take a drink."

"It's a hard pill to swallow," said Mr. Davis, adding that he may pursue Douglas National again at a later date. "We still think it was a heck of deal that was fully priced."

The biggest disappointment, Mr. Davis said, was that the transaction was never presented to Douglas National's shareholders for a vote. Mr. Davis said he was convinced they would have approved it.

Mr. Savinar of Black & Co. agreed. "It seems unfortunate the shareholders didn't have the chance to vote because a great deal of issues were worked out," he said. South Umpqua, with $258 million of assets, will continue to be a tough competitor for Douglas National, he said, asking whether shareholders "will still do business with the bank."

The deal would have created Oregon's third-largest community bank, with more than $400 million of assets.

Despite the rejection, Mr. Davis remained upbeat. South Umpqua is pursuing other potential deals, he said, one of which could be announced this year.

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