First California Omits Any Mention of Hostile Bid in M&A Doc

A hostile bid for First California Financial Group (FCAL) in May stunned the bank M&A world and nearly derailed a deal the Westlake, Calif., company had in the works.

But you would not know it from scanning the proxy statement that First California filed last week in connection with its February agreement to buy Premier Service Bank in Riverside for $2 million in stock.

The parties filed a joint S-4 with the Securities and Exchange Commission on Friday that shares highly selective details about First California's situation as it tries to complete the Premier deal.

Investors and analysts who read the document for tidbits about where First California might stand in its own "strategic review" announced on Aug. 1 were disappointed. The filing does not mention First California's decision to hire Keefe, Bruyette & Woods (KBW) to consider its options. Nor does it directly address the unsolicited $212 million offer from PacWest Bancorp (PACW) that First California rejected in May. PacWest's name does not appear in the document, though there is a reference to "recent events involving unsolicited offers" that are not explained.

First California is staying as mum as possible on those matters for several reasons, experts say. It legally can, they say, as the filing is on behalf of holders of 1.3 million shares of Premier who will vote to approve or reject the transaction at an upcoming special meeting.

The filing's purpose is to explain to Premier shareholders why it is being sold and what they are to receive for their interest in the $137 million-asset bank, experts say.

First California shareholders are not voting on the deal. That fact gives First California broad leeway to determine what is and is not material in discussing its own operations. Were First California shareholders getting a say in this deal, experts say, First California probably would have to be more up-front about its strategic circumstances.

"They don't have to discuss everything about the proxy contest," says Kip Weissman, a partner with law firm Luse Gorman Pomerenk & Schick in Washington who specializes in bank mergers but is not involved with First California.

It is also in First California's interest to keep in the dark any banks that might try to outbid PacWest, says Joe Gladue, an analyst with B. Riley who covers First California and other California banks. It does not want the market to know whether other suitors, or which ones, are in the mix, he says.

"It's very likely that they have had some preliminary discussions with other people about possible combinations," Gladue says. "You would not want to scare other potential suitors off and give them the impression that you are locked in with PacWest."

"And, of course, [the definition of] materiality is subject to some interpretation," he adds.

A First California spokesman declined to comment Thursday beyond the public filing. Premier officials did not return calls seeking comment.

The filing does not state what — if anything — would happen with the Premier deal should First California agree to sell itself.

The filing is necessary because First California is offering 300,000 publicly traded shares to pay for Premier, which trades over the counter. The filing is forthright about the activist investors who since January have been badgering the $2 billion-asset First California to consider selling.

The filing names four investors: the Pohlad family, Castine Capital Management, BassWood Capital Management and Loeb Offshore Management. It describes the content and timing of the regulatory filings that each has made calling on management to explore selling First California. Premier "does not know what impact, if any" the overtures will have on the transaction, the filing states.

The filing details how the parties had to amend the stock-based deal in July because First California's share price surged. It does not explain the cause of First California's elevated share price. First California's shares rose nearly 20% to $6.71 per share when PacWest's $7.25 per-share offer was disclosed May 8. First California traded at $6.95 on Thursday afternoon.

The filing simply notes that "following the signing of the merger agreement, the market price" of First California's shares "continued to increase" to a level that would have enabled First California to terminate the Premier deal. Under the initial terms, First California could cancel the deal if its share price at closing exceeded $5.03 per share. Under the amended terms, First California's shares have to close at $7.83 to trigger its termination rights.

The amended terms also enable Premier to terminate the deal should First California's shares be worth less than $5.79 at closing. So-called "caps and collars" are common in stock-based deals because stocks are volatile.