TierOne Corp. shareholders are to vote today on a proposed acquisition by a Maryland real estate investment trust, and indications are that the vote could be close.
CapitalSource Inc. in Chevy Chase, Md., announced in May that it would buy the $3.5 billion-asset TierOne, a Lincoln, Neb., thrift, for $652 million in cash and stock, or $34.46 per share.
But CapitalSource's share price has plunged about 38% since then, and now TierOne's largest investor, Private Capital Management, and an independent advisory firm, Proxy Governance, are urging shareholders to vote against the deal, citing the bidder's deteriorating market value.
The nation's largest shareholder advisory firm, Institutional Shareholder Services, however, has argued that CapitalSource's "credit quality and liquidity remain relatively strong" and is recommending that TierOne shareholders approve the deal.
Other large institutional shareholders contacted for this story declined to discuss how they plan to vote.
"It's up in the air," said Jim Sinegal, an equity analyst at Morningstar Co. in Chicago. "A lot of the shareholders are, likely, individuals in Nebraska, and it is tough to tell if those people are going to go with Bruce Sherman" — the chief executive of Naples, Fla.-based Private Capital — "or ISS."
The deal calls for TierOne shareholders to get $6.80 in cash and 0.675 share of CapitalSource stock for every TierOne share they own. But this deal was struck when CapitalSource's shares were trading at nearly $25. On Monday, the stock hit a 52-week low of $14.05, and it was at $15.52 in midday trading Wednesday. The decline is attributed to the overall financial industry downturn rather than any particular problem at the REIT, Mr. Sinegal said.
TierOne can ask for additional consideration if two triggers are hit at the time of government approval: The 10-day average closing price of CapitalSource stock is $21.98, or 15% less than its value when the deal was announced, and 15% less than the S&P 500 Financials Index.
That is a right TierOne's board plans to exercise, if needed, said Ed Swotek, the bank's senior vice president. Regulatory approval is expected late this year or in the first quarter.
John Delaney, CapitalSource's chairman and chief executive, said this month that the company is "very confident the TierOne transaction will close."
Speaking at the Friedman Billings Ramsey Capital Markets Investor Conference in New York on Tuesday, Thomas Fink, CapitalSource's chief financial officer and a senior vice president, said the company has no "intention to offer additional consideration."
TierOne can walk away from the deal without penalty if the triggers are met and the companies are unable to come to terms, Mr. Swotek said.
This is unlikely, though, analysts said, noting that TierOne's market value has also declined since the deal announcement. The company has seen a spike in nonperforming loans in its Florida portfolio, forcing it to take roughly $58 million of loan-loss provisions so far this year, according to bank filings.
"If this deal doesn't happen, TierOne is going to have to scramble and struggle through its asset-quality issues," said Jeff Davis, a senior research analyst at First Horizon National Corp.'s FTN Midwest Securities Corp. "And if they walked, CapitalSource could find another thrift to buy."
