Washington Bank Pulls Plug on Acquisition After Stock Surge, SEC Ruling

A Spokane, Wash., bank company has called off its merger agreement with a neighboring bank, citing its own soaring stock price and the Securities and Exchange Commission's refusal to approve the deal's structure.

United Security Bancorp., with $235 million in assets, in May announced plans to acquire $69 million-asset Wheatland Bank of Davenport, Wash., in a pooling-of-interest transaction. Since then, United Security's stock has soared from $13 to about $19 per share, increasing the sale price of the deal by nearly 50%.

United Security had offered Wheatland shareholders 2.5 shares of common stock for each share of Wheatland stock in a deal worth $12.5 million.

The surge in United Security's stock price tells only half the story, however.

The all-stock deal also collapsed in part because the SEC denied the pooling-of-interest request. The grounds: Wheatland paid out larger dividends to shareholders last January than it did in 1996.

"Without pooling, (United Security) couldn't justify economically taking us on," said a disappointed Roger H. Underwood, chairman and chief executive officer at Wheatland.

Pooling-of-interest allows two companies to merge as equals, with the larger company paying shareholders of the smaller company in stock. But to avoid the appearance that action may have been taken in contemplation of a merger, the SEC prohibits companies from increasing dividends within a two- year period of a merger.

No such regulations exist for cash acquisitions.

William C. Dashiell, president and chief executive officer at United Security said he wasn't aware during the merger discussions that Wheatland had increased its dividend. Mr. Dashiell said he hoped a deal with Wheatland could be worked out in the near future. He said the company would concentrate on its planned acquisition of $58 million-asset Bank of Pullman, which is scheduled to close later this month.

The bank won't have to deal with pooling-of-interest problems in that proposed merger.

United Security is paying $11.9 million in cash for Bank of Pullman.

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