Shares of TierOne Corp. fell sharply Tuesday on news that its planned sale to CapitalSource Inc., a Chevy Chase, Md., real estate investment trust, could be in jeopardy.
Late Monday, CapitalSource said that its board had given John Delaney, its chairman and chief executive, the authority "to either terminate the merger or negotiate new terms for the transaction" with the Lincoln, Neb., company.
Terms announced in May gave either party the right to walk away from the deal if it did not close by Feb. 17. TierOne said Monday that it is still committed to closing the deal.
CapitalSource initially agreed to pay $652 million, or $34.46 per share, cash and stock, for the $3.5 billion-asset TierOne. The deal is waiting for approval from the Office of Thrift Supervision.
TierOne's shares fell 12.8% Tuesday, to $15.17, while CapitalSource rose 2.7%, to $16.90.
David Chiaverini, an equity analyst with Bank of Montreal's BMO Capital Markets, said some of CapitalSource's uptick was driven by general market conditions, though shareholders cheered the announcement that it would "pay less or scrap the deal altogether."
Jeff K. Davis, a senior research analyst at First Horizon National Corp.'s FTN Midwest Securities Corp., said CapitalSource investors likely have soured on the deal, because TierOne is grappling with increases in nonperforming loans, particularly in Nevada and Florida. CapitalSource could walk away and find another thrift to buy, whereas TierOne is unlikely to find another suitor, Mr. Davis said.
As a result, CapitalSource has "TierOne over a barrel," he said. "The issue is going to be how much of a haircut can TierOne take."
