An independent committee is urging National Processing Inc.'s minority shareholders to reject a $9.50-a-share offer from majority owner National City Corp. for the 12.4% stake it does not already own, according to a regulatory filing Tuesday.
The committee "has unanimously determined that the offer is inadequate and not in the best interests of the holders of shares other than the parent," according to documents the panel filed with the Securities and Exchange Commission.
The special committee was created this year at the behest of National City to consider proposals for National Processing, a leading merchant processor. The committee, which reached its decision July 8, is made up of people who are not affiliated with either company.
Cleveland-based National City, which spun off National Processing in 1996 for $16.50 a share, owns 87.6% of the Louisville, Ky.-based company, which handles credit card transactions, checks, and airline tickets. On June 23, National City boosted its offer to $9.50, from its initial offer of $7.50.
National City declined to comment. National Processing did not return phone calls.
From the outset, minority investors have been disappointed with the bid, saying that the company was worth more.
In the past year National Processing has streamlined its operations by divesting four languishing business lines and focusing on core operations.
National Processing's special committee said it believes the company to be worth $16.50 a share. Brock Vandervleit, an analyst at Keefe, Bruyette & Woods Inc., has said National Processing's value is at least $12 to $14 a share.
The special committee said National City's bid was "inopportune." The offer comes just before National Processing's second-quarter earnings report, which would reflect the company's improved business operations, the panel said.
"The shares were undervalued prior to the offer, rendering the premium represented by the offer price meaningless," according to the filing.
Investors' dissatisfaction with the bid has been apparent in three class actions filed against National City, National Processing, and National Processing's board. The suits-filed June 24 and 25-charged that both companies failed to uphold their fiduciary obligations.
National City may yet have some opportunities to win over shareholders. When the tender offer expires July 26, National City can purchase shares on the open market, Mr. Vandervliet said. And if it can amass a 90% stake, Ohio law would permit it to "do a squeeze-out"-that is, compel a merger, he said.
"Once they raise their shares above the 90% mark, there are no other buyers, and it is checkmate," Mr. Vandervliet said. "There is little recourse for the public shareholders."
Mr. Vandervliet lowered his rating on National Processing to "market perform," from "buy," shortly after National City announced its offer.
Shareholders, however, are undaunted. "We are taking a wait-and-see approach," said one investor, who asked not to be identified. "And investors still have an option. If they do not like the offer, they can get an appraisal rate and have a court set the price."