Anchor Bancorp in Laney, Wash., had to lower its asking price in order to entice reluctant buyers.

The $465 million-asset company struggled to sell itself after making it known in July that it had hired an investment bank to evaluate strategic alternatives. Management also faced pressure from a pair of activist investors who had succeeded in gaining board seats.

Those issues help explain why Anchor agreed to sell itself to the $15 billion-asset Washington Federal in April for $64 million in a no-premium deal relative to its tangible book value. The price was also 3.3% lower than another bid that fell through earlier in the sale process, according to a regulatory filing tied to Anchor’s pending sale.

Anchor’s filing reveals the heavy influence of activist investors, who had pressured the company to find a buyer, as well as the accommodations sellers sometimes have to make after they test the market.

Joel Lawson IV and Joseph Stilwell, who collectively own about 18.4% of Anchor’s stock, clearly played a role in the company’s sale. Representatives for the investors at various times chaired the company’s strategic planning committee, which had an integral role in the sales process.

Anchor’s first serious offer came after the company’s investment bank put it in touch with an unnamed institution. But the company, which offered to pay $27 a share in late June, walked away a month later for undisclosed reasons.

When the talks fell through, Anchor’s board took a series of steps that set the stage for a sale.

The company issued a press release on July 25 disclosing that it had hired an investment bank to evaluate strategic alternatives. The investment bank eventually put together a list of 13 potential buyers, and a consultant estimated that Anchor could sell for $27.50 a share.

Anchor’s strategic planning committee, which was chaired by Lawson’s board representative at the time, had reservations about the valuation, the filing disclosed. The committee had doubts about the consultant’s growth assumptions and its views of economic conditions. The estimate only took into account all-cash offers.

The committee’s concerns played out as the sale process “ultimately produced lower proposed prices,” the filing said.

Conversations with potential buyers began to pick up in late July, when Washington Federal first contacted about a possible transaction.

Anchor’s investment bank identified an unnamed bank in early September that it considered a “strong candidate,” although there were worries a deal would have antitrust issues because of a market overlap.

While that company first offered $28 a share in mid-October, it eventually reduced its bid to $27 over concerns unrelated to the antitrust issue. The company “was surprised” by the costs associated with Anchor’s phantom stock plan, a type of employee benefit plan that gives senior management the benefits of stock ownership without actually giving them the stock. Concerns also surfaced over the amount of construction loans on Anchor’s books.

Another potential suitor, which had at least $564 million in assets but had never completed a whole-bank acquisition, also brought up Anchor’s construction lending. The company, which also raised concerns about Anchor’s pro forma liquidity and capital, walked away from talks.

Anchor stepped up efforts to find a buyer in mid-December, reaching out to the first bank that showed interest. It also contacted a group that advises financial institutions. In January, Anchor asked its investment bank to contact three institutions, including Washington Federal, to “see if they would have any interest in a transaction with Anchor at a lower pricing.”

Washington Federal and another unnamed institution expressed interest in a reduced price.

Washington Federal on Feb. 6 offered to buy Anchor for $57.1 million, or roughly $22.67 a share, in an all-stock transaction. The other bank presented an all-stock offer that priced Anchor at 95% of its book value.

Anchor on Feb. 15 countered Washington Federal's offer with a proposal of $63.9 million, or $25.50 a share. Washington Federal accepted and the companies began to finalize a deal.

Washington Federal conducted due diligence, determining that there were no issues that would force it to lower its offer. The parties negotiated a 13% floating-rate exchange ratio collar with a 13% double-trigger walkaway provision.

The boards at Anchor and Washington Federal approved the merger on April 11; it was announced the following day.

Jerald Shaw, Anchor’s CEO, is entitled to a lump-sum payment of $1.2 million tied to the merger, while Chief Financial Officer Terri Degner is set to receive about $750,000, the filing said.

The filing also revealed how involved Brent Beardall, then Washington Federal’s president, was in negotiations. Beardall, who became the company’s CEO in April when Roy Whitehead retired, was the executive who initially contacted Anchor. He also played a big role looking at Anchor’s financials and reviewing any potential regulatory snags.

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