An big investor in SWS Group (SWS) has objected to the Dallas company's planned sale to Hilltop Holdings (HTH).
Lone Star Value Management, which owns about 800,000 shares of SWS stock, wrote in an open letter to the company's board that it believes the sale price is too low, while claiming that SWS failed to run a proper auction. The $9 billion-asset Hilltop agreed last week to pay $7.88 a share in cash and stock to buy all remaining shares in SWS, parent of the $1.3 billion-asset thrift Southwest Securities. Hilltop, also based in Dallas, owns roughly 24% of SWS.
"By entering into a merger agreement with Hilltop it is clear that the [SWS] board has not fulfilled its fiduciary duty and has failed, for the second time in three years, to obtain maximum value for the long-suffering shareholders of SWS," Jeffrey Eberwein, Lone Star's chief executive, wrote.
Lone Star's objections refer to two offers previously rejected by the SWS board, which includes Hilltop Chairman Gerald Ford. Hilltop made an unsolicited offer to buy SWS for $7 a share in cash and stock in January. Lone Star argued at that time that the offer was inadequate because SWS' book value at Dec. 31 was $8.25 a share. Esposito Global then made an unsolicited cash offer of $8 a share in February.
The SWS board also turned down Sterne Agee's offer to buy the company for $7.50 a share in cash in 2011, instead entering into a $100 million financing deal with Hilltop and Oak Hill Capital Management.
"We are left with no choice but to seriously question a deeply flawed process that, for the second time in three years, has seen the board reject a higher, all-cash offer in favor of a transaction favorable to Ford and has seen the board fail to run a proper auction process," Eberwein wrote.
Representatives at SWS and Hilltop did not immediately return calls seeking comment. The deal is expected to close by the end of this year.
Oak Hill said in a filing last week that it would waive relevant provisions in a credit agreement it has with SWS that would otherwise restrict or impair its sale to Hilltop. Oak Hill said its stake in SWS stood at roughly 21%.