A Virginia bank company formed for the purpose of buying community banks has struck its second deal before the first one has closed.
The so-called “blank-check” company, Community Bankers Acquisition Corp. in Alexandria, announced Friday that it would buy the $294 million-asset BOE Financial Services of Virginia Inc. in Tappahannock for about $52 million of stock.
Its plan is to merge BOE with the $223 million-asset TransCommunity Financial Corp., a multibank holding company in Goochland, Va., that Community Bankers said in September it had a deal to buy for $48.5 million of stock.
TransCommunity’s president and chief executive officer, Bruce B. Nolte, who would become CEO of the resulting company, said in an interview Friday that the second deal would proceed after the first one closes. However, several of TransCommunity’s largest shareholders have already said they plan to vote against selling to the blank-check company, which raises questions about whether that deal will get done.
Further complicating matters is that Community Bankers Acquisition faces a deadline for completing a deal or being forced to liquidate.
The blank-check company’s president, Gary A. Simanson, did not return calls from American Banker, but Mr. Nolte played down speculation that the first deal is in jeopardy.
Though declining to speak about the shareholders opposed to TransCommunity’s deal, he said the company’s directors had voted unanimously in favor of both deals.
“I think this is a home run for our investors and for the communities we serve,” he said. Merging with Community Bankers Acquisition Corp. would “enable our company to grow more rapidly than it would be able to do otherwise.”
Three TransCommunity shareholder groups that, combined, own more than 28% of its shares, have disagreed. Northaven Partners LP, Paragon Associates LP, and Financial Stocks Capital Partners IV LP have all filed objections to the deal with the Securities and Exchange Commission. They argued that TransCommunity would fetch a better price if it were sold to an existing banking company.
“We believe this transaction deprives us of a significant portion of the franchise’s intrinsic value while severely limiting our participation in future growth,” John M. Stein, the president of Financial Stocks Capital Partners IV, wrote in a Nov. 2 letter. “Moreover, our efforts to engage TransCommunity management in dialogue have been rebuffed, while you have not provided a compelling, or even a satisfactory, explanation as to why the merger is in the best interests of the shareholders you serve.”
Mr. Nolte said the proxy statement for the deal has not yet been sent to TransCommunity and Community Bankers shareholders and that it would now be rewritten to reflect what is now essentially a three-way deal involving BOE.
The deal for BOE, the holding company for Bank of Essex, has been in the works since shortly after the TransCommunity deal was announced, Mr. Nolte said.
BOE chairman and CEO Alex Dillard did not return calls Friday, but he said in a press release that TransCommunity and Community Bankers Acquisition “share in our vision for a strong, Virginia-based community bank that focuses on the needs of the local customer.”
BOE’s shares soared more than 40% on news of the deal. Yet despite this move, Lew Sosnowik, an analyst at Koonce Securities in Bethesda, Md., said, “The market is not hyperexcited by this merger.” He explained that BOE investors are to receive $42.50 per share, yet the stock climbed to only $36 by Friday afternoon.
“That raises the question why,” he said. “One of the reasons is, it’s a paper transaction.”
He added that there could also be a lack of enthusiasm for the deal because Community Bankers, at this point, is essentially a shell without a track record or assets other than what it wants to buy.
Community Bankers was established in June 2006. Like most blank-check companies, it said in its prospectus that it would have an acquisition agreement in place within 18 months or else would return investors’ money. It would then have six months to close the deal, which would give it until June 2008 to complete one or both acquisitions.
