Successful and hostile are two words almost never are used to describe the same acquisition bid in banking, so CB Bancshares Inc.'s decision to reverse course and sell to its hometown rival Central Pacific Financial Corp. after a protracted battle certainly qualifies as a rarity.
But perhaps not a total surprise.
Honolulu-based CB Bancshares was able to extract a much richer premium and protection for its employees and cited those concessions as key to its change of heart. Analysts said the unusual dynamics of the Hawaiian banking market may also have made resistance a much more difficult, if not untenable, proposition.
In a deal announced Friday, Central Pacific agreed to tack on an extra $20 million, bringing its unsolicited offer for the $1.9 billion-asset CB to $420 million. That's nearly 50% higher than the $2.2 billion-asset Central Pacific's original bid of $285 million in March 2003. The cash-and-stock transaction is valued at $91.83 a share, or a 26% premium over the $73.13 closing price for CB's stock Thursday.
"The substantial improvement in Central Pacific's merger offer represents an attractive premium for CB Bancshares Inc. shareholders and reflects our recent record performance as well as the future value of the company's franchise," Ronald K. Migita, CB's president and chief executive officer, said in the press release announcing the agreement. "Central Pacific's commitment to maintain a strong presence in the communities we serve and not lay off employees involuntarily as a result of the merger will ensure that the economic impact of our merger is a positive one."
Hostile merger and acquisition attempts in banking are rarely successful: Of the 48 between 1994 and 2003, only four succeeded, according to Sheshunoff Information Services Inc.
While Central Pacific's higher offer sealed the deal, other factors specific to Hawaii also contributed to CB's capitulation.
"There are aspects unique to this market: limited growth opportunities, no obvious white knight for CB," said Joseph Morford, an analyst with Royal Bank of Canada's RBC Capital Markets in San Francisco. "So if CB didn't do this merger, there would be this question whether they could really deliver the same value to shareholders that they could capture by accepting the increased offer from Central Pacific."
Central Pacific's asset size would increase to $4.3 billion, making it the fourth-largest banking company in the state.
The deal is expected to close in the third quarter. Clint Arnoldus would remain Central Pacific's CEO. Neal Kanda, currently its chief financial officer, would become the president and chief operating officer.
Mr. Migita would not have a management role at Central Pacific but would serve as its nonexecutive chairman. However, two members of his staff would have management positions - Dean Hirata, CB's chief financial officer, would do the same job for Central Pacific, and Doug Wells would become the chief credit officer.
"The key to this working is the management team," Mr. Arnoldus said in a conference call Friday. "We've always said that our goal in doing this deal was to take the best people from both companies and create a really formidable community bank."
On April 15, Central Pacific gave CB's board one more week to accept a $400 million offer made in December. That extension led analysts to speculate that Central Pacific had sweetened the deal, and that the two companies were finally in serious negotiations.
The takeover bid has been one of the most contentious in recent memory. After CB rejected the original offer last spring, Central Pacific pressed on, asking and receiving approval for the bid from state and federal regulators. Throughout the process, the companies accused each other of criminal wrongdoing and encouraged investors, employees, and even customers to get involved in the fight.
Mr. Morford said Central Pacific would become a more formidable competitor, particularly for the state's smaller business customers.
The $9.9 billion-asset First Hawaiian Bank and the $9.5 billion-asset Bank of Hawaii Corp., both of Honolulu, dominate the state's deposit market; each has a share of 30%, according to the Federal Deposit Insurance Corp. The $6.5 billion-asset American Savings Bank FSB, also of Honolulu, is third, with a 18.44% share. Central Pacific currently has 8.13%, while CB has 5.60%.
Central Pacific said it expects the acquisition to be accretive to earnings in the first full year after the deal closes. CB's stock soared 17%, to $85.40 a share, and Central Pacific's fell 6.5%, to $25.10.
Also Friday, Central Pacific said its first-quarter earnings fell 8% from a year earlier, to $7.9 million. Revenue was flat, while noninterest expenses, mainly salary and benefits, jumped 16%.
