It is down to the wire for a special-purpose acquisition company to complete its deals for two small Virginia banking companies.
If Community Bankers Acquisition Corp. in Great Falls does not win shareholder approval to acquire TransCommunity Financial Group in Glen Allen and BOE Financial Services of Virginia Inc. in Tappanhanock by Saturday, the deals could be terminated, and the buyer — formed for the purpose of acquiring community banks — could be forced to dissolve.
Shareholders of both TransCommunity and BOE have approved the deals, but Community Bankers has delayed its shareholder votes three times since last month, saying it wanted "to provide management additional time to solicit proxies for the proposed business combination."
Most recently on Friday, Community Bankers pushed back the votes to today, and this time it is offering a glimmer of hope that it may be able to save the deals. It said it has found investors who were willing to buy shares from those who are against the deals, and it has sweetened the pot for the new investors by giving away some of the organizers' options and warrants.
Special-purpose acquisition companies, also known as blank-check companies, are public companies that are formed with the intention of making purchases in specific industries.
Community Bankers was formed June 8, 2006. Like most special-purpose acquisition companies, it gave itself a deadline for completing its first deal, saying in its offering prospectus that if it did not have a deal done within two years, it would dissolve and return shareholders' money.
Those terms would seem to give Community Bankers another week to win over its shareholders, but its agreement with TransCommunity calls for that $48.5 million stock deal, announced in September, to be done by May 31.
Community Bankers announced the deal to buy BOE for $52 million in September. The intention is to combine the two sellers, creating a $535 million-asset company.
Industry observers speculated that Community Bankers' shareholders could be dragging their feet because they stand a chance of getting a quicker return on their investments if the deals do not go through. Given the uncertainty in the banking business these days, investors might want to take their profits while they can, observers said.
"It's all a financial play," said Gray Medlin, the managing director in the Raleigh office of Carson Medlin Co. "It is all about dollars and cents for the strictly financial players, but the bank merger business, at its best, is about a lot more than that. There is little long-term vision in blank-checks, and good bank investors have to be long-term players."
Community Bankers officials did not return calls to American Banker.
Several blank-check companies have been formed in recent months to buy financial institutions, but it is believed no bank acquisitions have ever been completed using that model.
In 2006, Coastal Bancshares Acquisition Corp. in Houston had a deal in place to buy Intercontinental Bank Shares Corp. in San Antonio. Coastal, but it fell apart later that year after investors voted against the deal, taking advantage of an arbitrage built into blank-check prospectuses. Coastal Bancshares was forced to dissolve as a result.
A similar situation could be playing out at Community Bankers. According to its prospectus, investors in its initial public offering got units of one share, along with one warrant for each unit they bought. Initial investors bought the units for $8 each and could then sell the warrants, thus reducing their cost.
Warrants for the company traded a year ago at 80 cents each, according to American Stock Exchange data. The liquidation amount at March 25 was $7.72 a share, a Securities and Exchange Commission filing showed, so an investor who bought a unit in Community Bancshares IPO, sold the warrant a year ago, and then took the payout could earn 52 cents a share.
In arranging to buy out the shareholders more interested in arbitrage than owning a bank company, Community Bankers' founders hope that the two bank deals will get done. If they are approved, new investors would receive one warrant and one option for every four shares of common stock they had acquired.
