After resisting pressure from an activist shareholder for months, Palfed Inc. of Aiken, S.C., parent of Palmetto Federal Savings Bank, announced last week that it is seeking a merger partner.
The news forced a temporary halt Friday in trading of Palfed stock. The price had risen 15% in four days, from $17.75 on the morning of Sept. 8 to $20.375 Thursday afternoon. Palfed was trading this Tuesday afternoon at $21.38.
Directors and shareholders have been debating Palfed's future for months.
In April, Mid-Atlantic Investors, a Columbia, S.C.-based partnership that controls 9.9% of Palfed, persuaded investors holding a majority of voting shares to support a sale. However, the resolution was nonbinding on management.
Palfed's subpar performance has made shareholders restless; $664 million-asset Palmetto Federal has not returned more than 0.6% on assets since 1992.
Howard Hickey Jr., executive vice president and general counsel at Palfed, insisted Monday that the decision to seek a merger partner is unrelated to the April stockholder vote.
The company said in a proxy statement last spring that it was "always willing to consider a sale ... at a substantial premium if such an opportunity arises." But the board objected to putting the thrift up for auction, according to the proxy.
Mr. Hickey said the shareholder vote was not about whether to sell but how. "We are not in business to hold an auction," Mr. Hickey said. "We are in business to make money for our shareholders."
H. Jerry Shearer, managing partner of Mid-Atlantic Investors, said he doesn't care how a deal comes about as long as the thrift is sold.
"We were looking for value to be maximized," Mr. Shearer said. "If the board does its fiduciary duty" and allows interested institutions to submit bids, he said, Mid-Atlantic Investors will be satisfied.
Although unfamiliar with the Palfed case, Chris Hargrove, president of Professional Bank Services Inc., Louisville, Ky., said most community banks confronted by hostile shareholders eventually agree to sell.
However, banks willing to battle can strengthen themselves for the fight by giving longer terms to directors, he said. And many banks require a supermajority vote to override board decisions.