Banks that say they plan to go private almost always do so, but a Missouri company that wants to delist its stock is facing resistance from shareholders.
Last week during its annual meeting stockholders of First Bancshares Inc. of Mountain Grove rejected its proposal to go private through a reverse split in which it would pay stockholders with less than 500 shares $21 for each one.
Dozens of small banks have gone private in recent years to get out from under the costs of reporting to the Securities and Exchange Commission and complying with the Sarbanes-Oxley Act of 2002, said Walter G. Moeling 4th, a partner at Powell Goldstein LLP in Atlanta.
These efforts rarely go awry, Mr. Moeling said, and when they do, it is usually because the bank runs into capital issues and does not have the cash on hand to buy out the smallest shareholders — not because shareholders oppose the plan itself.
"I don't know of many cases where it has been voted down," he said.
Shareholders may have been influenced by an independent proxy advisory firm's advice to vote against the reverse stock split.
In a report issued last month, Institutional Shareholder Services Inc. said that First Bancshares' proposal would benefit only shareholders eligible for the buyout, not its largest ones. The remaining shareholders "would ultimately be left with no premium, a lack of disclosure, and less liquidity in regards to their holdings," the report said.
Calls to First Bancshares' president and chief executive, Daniel P. Katzfey, were not returned, but in a press release last week, the $249 million-asset company said that it had terminated its plan to delist its shares from the Nasdaq stock market, and that it would continue to report its financial results to the SEC.
The $21 price First Bancshares is offering its shareholders is 58% higher than where the stock was trading at midday Tuesday and 14% above its 52-week high of $18.40 on Feb. 25, three days after the offer was announced. The stock has not traded near $21 a share since March 2005.
According to the ISS report, First Bancshares wanted to go private because it would have saved about $200,000 a year by ending its SEC reporting, and it would have cut shareholder communication costs significantly.
Additionally, First Bancshares had not benefited greatly from being a public company, the report said. On average, fewer than 5,600 of its shares are traded each day.
It is unclear which shareholders opposed First Bancshares' plan, but Mr. Moeling said it is possible that those eligible for the buyout were not happy with the price First Bancshares was offering. Even though $21 would be a hefty premium over the recent trading range, shareholders could be holding out for an even higher price, he said.
The plan also could have been torpedoed by large shareholders, Mr. Moeling said. Such shareholders — and activist investors in particular — prefer companies to stay public, so they will have to continue reporting to the SEC, he said.
"When you go private, the flow of information goes right down," he said.
First Bancshares' largest independent investor is Jeffrey L. Gendell, who owns roughly 8% of the company's stock. His role in the failed effort to go private is unknown, but Mr. Gendell is known to be an activist investor who pressures underperforming banks to either sell themselves or make significant changes to improve earnings.
Calls to Mr. Gendell's Tontine Financial Partners LP offices in Greenwich, Conn., were not returned.
First Bancshares has been struggling of late. It posted a $31,727 loss for the first quarter, compared with earnings of $191,895 a year earlier. Its provision for loan losses climbed to $428,100, over 10 times what it reported a year earlier.
The company's First Home Savings Bank has been operating under a memorandum of understanding with the Office of Thrift Supervision since Dec. 31, 2006, because of deficiencies in its lending policies, recent operating losses, and the need to revise both the business plan and the budget to enhance profitability.
