An ability to quickly strike a deal helped CenterState Banks in Winter Park, Fla., gain a coveted toehold in Atlanta.

The board of Charter Financial in West Point, Ga., which agreed to sell to CenterState for $360 million in late April, had grown concerned that any delay in announcing or completing a sale could reduce the pricing, according to a regulatory filing tied to the merger.

Directors were “concerned that rising interest rates and a changing business cycle could potentially lead to lower earnings and lower bank valuations … which might negatively impact the merger consideration that Charter stockholders might receive,” the filing said.

Charter also wanted a speedy sale because its data processing contracts were up for renewal in mid-2019, creating a concern that higher contract termination fees could reduce the eventual merger consideration.

The $10.3 billion-asset CenterState, which was looking for a commercial operation to supplement a correspondent lending business in Atlanta, wasn’t the only bank to make an offer for Charter. Another unnamed bank actually put out a higher initial bid, though it needed more time to reach an agreement because it had other deals pending.

The details of the $1.6 billion-asset Charter’s sale reinforce a warning that investment bankers have been issuing for months: Institutions that want top dollar should consider selling now while stock prices seem to be hovering at or near a zenith.

Charter’s board began to seriously consider its future late last summer.

The company’s first contact with John Corbett, CenterState’s president and CEO, took place at a November conference hosted by Sandler O’Neill. During that conference, Charter executives also met representatives of two other banks that it thought might be interested in an acquisition.

Sandler in late December provided Charter with a list of 33 potential merger partners, which the investment bank divided into three tiers. Eight banks, including the three institutions Charter executives met at the November conference, had the highest marks for their “financial and execution capacity” and “having a reasonable near-term interest in pursuing a possible transaction,” the filing said.

Charter executives, including Chairman and CEO Robert Johnson, again met with the three banks from the Sandler conference in January and February, based on a belief that those institutions had the greatest strategic fit and a desire to enter or expand into Atlanta.

Following a Jan. 29 meeting, Johnson and his team determined that one of the banks was keen on a deal. By April 19, that bank had announced a “significant merger transaction” that reduced the chances that it would want to tack on another deal, the filing said.

While the regulatory filing never identified that bank, Renasant in Tupelo, Miss., agreed on March 29 to buy Brand Group Holdings in Lawrenceville, Ga., for $453 million.

The other unnamed bank told Charter executives on Feb. 22 that it could potentially pay $24 a share, or $363 million based on Charter’s outstanding shares on Dec. 31. Due to pending acquisitions, the bank said it could not begin negotiations until late in the second quarter or early in the third quarter.

CenterState, however, was eager to make a move, indicating on Feb. 22 that it could pay $22 to $23 a share for Charter, or a minimum of $333 million. A tenth of the consideration would have been cash. The offer came after Corbett and Johnson, along with other executives, visited several Charter branches.

Of equal importance: CenterState indicated it was ready to begin preliminary due diligence to “quickly arrive at a more concrete view of valuation,” the filing said.

That message spoke to Charter’s board, which harbored a concern that the recovery cycle could be nearing an end. Directors were also worried about the bank’s challenges attracting and retaining skilled talent in West Point, a community located about 80 miles southwest of Atlanta. Also, rising price expectations had made it more expensive for the bank to become an acquirer.

During a Feb. 26 meeting, Charter’s investment bank suggested that, if talks with CenterState fell through, management could always approach other possible buyers, including the one that wasn’t prepared to enter negotiations. Charter and CenterState entered into a non-exclusive agreement, with non-disclosure clauses, two days later.

CenterState on March 19 pitched an acquisition valued at $23 a share, or $348 million. Despite a counteroffer from Charter, CenterState held firm on its price. It did, however, agree to a $2 million reverse termination fee should the merger fail to gain regulatory approval for reasons unrelated to Charter.

The companies also agreed on a price-based termination fee if the volume-weighted average of CenterState’s common stock over a 20-day period fell by more than 15% and underperformed an unnamed bank stock index by more than 15%, the filing said.

Charter’s board on April 19 realized that an appreciation in the company’s stock price, which rose by 11% between March 27 and April 19, had diminished the price offered by CenterState. But directors also knew that the other companies it had seriously considered were still not in a position to pursue a deal.

Directors at Charter and CenterState unanimously approved the deal at separate meetings on April 24. The merger, which is expected to close by the end of this year, was announced later that day.

The deal will allow CenterState “to expand our franchise … with a stable organization built upon a strong core deposit base and deeply rooted in the communities they serve,” Corbett said in a press release announcing the agreement. “We are particularly excited to be able to have a traditional banking presence in the Atlanta area — a market we know well.”

Johnson, who owns about 4% of Charter’s stock, is set to receive about $2.8 million in compensation when the deal closes, including cash, the value of unvested options and other accelerated payments, the filing said. His brother, Curti, who is also Charter’s general counsel, will receive roughly $744,000.

Lee Washam, CharterBank’s president, will join CenterState as its regional president for Georgia. He is also set to receive about $1.7 million in compensation when the deal is completed.

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