Hibernia Corp.'s stalled deal to buy a Louisiana community bank is showing new signs of life, but executives at both companies said Friday that the outcome is far from certain.
The $14 billion-asset New Orleans bank has settled a three-month lawsuit against First Guaranty Bank of Hammond, La., clearing the way for a shareholder vote on the deal. The proposed purchase was announced in July but stalled in September because of a price squabble.
Hibernia executives said there is growing belief that First Guaranty's board-which controls 20% of outstanding shares-may reject the deal.
"We don't think the board will actively support it," said Patricia C. Meringer, who is senior vice president, secretary, and corporate counsel at Hibernia.
Marshall T. Reynolds, chairman of $244 million-asset First Guaranty, confirmed that notion.
"The vast majority of the board is not for the deal," he said Friday. "A lot of people here have a problem with it."
Mr. Reynolds, who holds the largest stake, said he will honor his contract and vote in favor of the deal. Since the deal was announced, Mr. Reynolds has reduced his share from 41% of the company to 32%. The transaction needs two-thirds approval.
When it was unveiled, the purchase price was $78 million, based on a swap of 1.33 shares of Hibernia for each share of First Guaranty.
But Hibernia's stock, which was trading at $19.062 the day before the deal was announced, got caught in the market downdraft last fall and lost 20% of its value. Hibernia shares closed Friday's trading at $16.3125, up 6.25 cents.
"We accepted a preemptive bid" when the deal first came up, Mr. Reynolds said. Most board members, he said, "thought they had hit the lottery. Now, I think most would rather stay independent."
Unlike many recent mergers, Hibernia's deal with First Guaranty did not include a provision that could terminate the agreement if its stock dropped below a certain level.
Once the market started its free fall, First Guaranty's board became uncooperative, blocking progress because it wanted out, Hibernia said. First Guaranty contended the price was no longer fair and said its outside financial advisers were against it.
A lawsuit brought by Hibernia in September sought to force First Guaranty to take the deal to its shareholders.
"All we want is a chance to present it" to First Guaranty shareholders, Ms. Meringer said. "We are still convinced that the deal is fair." The settlement, reached this month, calls for First Guaranty to schedule a shareholders meeting.
Another requirement-that First Guaranty secure an opinion by an outside adviser that the deal is fair-has been met. That opinion, by Keefe Bruyette & Woods, will be included in proxy soliciations that will be sent in the coming weeks to First Guaranty shareholders.
Hibernia said it hopes First Guaranty will schedule the shareholders meeting in the next 40 to 65 days. "We hope to have the whole thing resolved by March or April," Ms. Meringer said.
The original plan was to complete the acquisition by the end of 1998. The Office of the Comptroller of the Currency approved it in November. Hibernia now says the deal might not be finalized before the end of the second quarter.