The proposed sale of Atlantic Coast Financial (ACFC) in Jacksonville, Fla., did not sail with investors.

Shareholders rejected Bond Street Holdings' $13.1 million, or $5-per-share, offer on Tuesday, Atlantic Coast said in a news release.

The $784 million-asset bank had needed a majority of the outstanding shares to be voted in favor of the deal. It said it fell short, and that a proposal to adjourn the shareholder meeting to give it time to solicit more votes also failed.

Atlantic Coast needed to sell to buck up capital to meet regulatory demands and fix other problems, its executives have argued.

It will now pursue alternatives that had been demanded by activist investors such as former Chairman Jay Sidhu, though it has argued that they had a lower chance of success. The board "will begin to evaluate other strategic alternatives immediately, including a possible recapitalization," Atlantic Coast said in the release.

Proxy advisory firms had disagreed about whether shareholders should approve the deal.

Institutional Shareholder Services had favored it, describing Bond Street's offer as "reasonable" and agreeing with the company that the deal was the best way for Atlantic Coast to resolve its problems and avoid a regulatory crackdown. However, Glass, Lewis & Co. recommended that shareholders vote against the deal because of dissension among Atlantic Coast's directors and the possibility that a recapitalization might work.

The deal sparked controversy from the moment it was proposed in February.

Initially, Bond Street had agreed to pay $2 per share up front and hold $3 per share in escrow to cover any potential shareholder suits. Bond Street later withdrew the holdback after criticism by Sidhu and others about that aspect of the deal and others.

Sidhu, along with fellow director Bhanu Choudhrie, own roughly 7% of the company and have spent the last few months exchanging biting letters with the company.

Their core argument was that the offer, at 33% of Atlantic Coast's stated tangible book value, was too low. Shareholders would be better served if Atlantic Coast stayed independent and raised additional capital, Sidhu has said.

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