Alliance in Virginia Pounding the Pavement for Proxies

Alliance Bankshares (ABVA) is getting a taste of what presidential candidates go through as it approaches a special meeting with shareholders Dec. 19.

The Chantilly, Va., company is set to be acquired by WashingtonFirst Bankshares. Their $24 million cash-and-stock deal has been approved by the boards of both companies and blessed by regulators, but Alliance is facing one final hurdle: getting approval from its shareholders.

The problem does not lie in selling the deal as two of the largest proxy advisory firms in the country have endorsed it. The problem is reaching the masses. Alliance's bylaws require two-thirds of the shares to vote for any acquisition. Insiders and institutional shareholders, those most likely to cast their votes, represent about 40% of shares, with the balance held by others, including retail investors.

Public companies usually have fewer individual shareholders, said Joe Morrow, the chief executive of Morrow & Co., a proxy solicitation firm not involved in the deal. "It is going to be like a presidential election. They'll have to get out there and get the vote."

The call for a foot battle has not been lost on the $521 million-asset Alliance, which hired proxy advisory firm Innisfree to help it reach its shareholders. Besides the proxy statement, the company and its proxy firm are sending out brochures and making calls. On Monday, the company announced in a press release that Glass Lewis & Co. has suggested shareholders vote in favor of the deal. Last week, it said Institutional Shareholder Services Inc. had issued a similar recommendation.

"We felt like we had five weeks, including Thanksgiving, to get this done in order to close by the end of the year," said William Doyle, the chief executive of Alliance. "We laid out a fairly proactive proxy program in the front end."

Alliance is about halfway through the process and so far it "is working as planned," Doyle said.

One of the biggest challenges has been communicating that since the company needs two-thirds of its shareholders to vote in favor of the deal, rather than two-thirds of those who vote, "inaction is the same as voting 'no,'" he says.

Though the regulatory approval and the outsiders' opinions should help, there are some factors that could hurt. The holiday season complicates the effort.

"The only time more difficult to get a retail campaign done is in August when everyone is on vacation," says Lawrence Dennedy, the chief administrative officer of MacKenzie Partners, a proxy solicitation firm.

Deals for less than par can also leave shareholders feeling unmotivated to vote, said Chip MacDonald, a partner at Jones Day.

"Shareholders might not be too anxious if the price is well below the five-year high, for instance," MacDonald said.

At the time of the May announcement, the deal was priced at about 86% of its tangible book value.

Should Alliance fail to get the two-thirds approval, the company could adjourn the meeting and reconvene at a later time. Doyle wants to avoid that.

"Ideally, we want to get something done the first time," Doyle said. "It could prompt mixed messages if we had to adjourn. It is not without precedent, but I'd just prefer to get it done within this first five weeks."

Alliance could use the threat of the fiscal cliff as additional motivation to get the deal done by yearend, observers say. Doyle said he'd rather focus on the message: that this is a good deal for shareholders.

The acquisition would be transformative, as the combined entity would have more than $1 billion of assets in the northern Virginia market, said Scott Cottrell, managing director of FJ Capital, a hedge fund in McLean, Va. FJ is an investor in Alliance and has voted in favor of the deal.

The deal is a good solution for Alliance, which has lost money for the last five quarters, Cottrell says. In 2011 the company agreed to sell itself to Eagle Bancorp (EGBN) in Bethesda, Md., but that deal collapsed later that year because of "irreconcilable differences."

To the other shareholders, Cottrell says: "Ask yourself where would your stock be without the deal?"