Territorial Bancorp in Honolulu, which postponed a shareholder vote on its pending sale to Hope Bancorp in Los Angeles, remains committed to the deal and averse to a
The investor group that composes the other would-be buyer — led by
Territorial, which had twice before rebuffed the Blue Hill overtures, said this week it sent a letter to shareholders touting the merits of Hope's offer, including substantial scale and a dividend that is higher. They also reiterated and expanded on their concerns about the Blue Hill-led plan, calling it risky and laden with uncertainties. The $2.2 billion-asset bank said that the offer was made on behalf of investors who are largely unidentified and without evidence that they have the financial wherewithal to follow through on their offer or the expertise to secure regulatory approvals.
Territorial postponed a shareholder vote on the Hope deal from Oct. 10 to Nov. 6.
Territorial executives were not available for an interview in time for this article. The letter to shareholders was signed by Allan Kitagawa, Territorial's chairman and CEO.
The $17.4 billion-asset Hope, which agreed in April to an
In the letter to shareholders this week, Territorial's directors said the merger with Hope would "create a stronger, more diversified regional bank with an expanded footprint and diversified offerings to drive future growth." It would provide shareholders "with compelling value and the opportunity to participate in the considerable upside of our combined business.
"We urge you to consider the concrete and compelling opportunities that the Hope Bancorp merger will create and not be distracted and deceived by Blue Hill's illusory, non-binding, highly conditional preliminary indication of interest," they added.
In late August, the Blue Hill-led group made its initial cash offer and valued Territorial at $12 per share. It has since upped that to $12.50 per share. "We put another $4 million on the table. We think our offer is clearly superior," Landon said in an interview. "I don't know all their circumstances," he added, referring to the Territorial board. "I'm not judging that, but we're trying to make this as attractive as we can."
Landon said he understood Territorial's concern that some uncertainty permeated the Blue Hill offer. But he said it was not unusual for investors to request anonymity until negotiations are progressing, and Landon said he and Blue Hill were eager to meet with Territorial's directors to provide more information and answer their questions.
"I keep hoping we get to discuss this with them, interact with them," Landon said. "This should be a friendly transaction with us."
Jason Blumberg, managing member of Blue Hill, said Wednesday that Territorial has issued misleading arguments about his group's offer and overstated the merits of the Hope deal. This included the dividend increase. Territorial shareholders would see a big jump only because the bank had cut its dividend from 23 cents to a penny over the past year. Importantly, he added, the price offered by Hope is much lower than that proposed by Blue Hill and low by industry standards.
"Shareholders should reject the fire-sale price that Hope is paying for Territorial," Blumberg said in a statement Wednesday. "It is unfortunate that Territorial's board has resorted to delays and misinformation instead of engaging with a better offer. The board is giving shareholders little choice but to emphatically oppose the merger with Hope."
River Run Bancorp near Boston said it would acquire Rollstone Bank and Trust, adding to a string of industry combinations as M&A activity gathers momentum in the second half of 2024.
Territorial, however, said it would have to pay Hope a $3 million termination fee to pursue the investor group's offer. The Blue Hill offer involved investors buying at least 70% of Territorial through a process that involved the group acquiring convertible preferred stock, then enabling Territorial to use the proceeds to commence a tender offer. If investors were unable to tender at least 70% of Territorial's stock, however, the deal would fall through.
"Abandonment of the Hope Bancorp merger and the failure of the Blue Hill transaction to materialize would leave Territorial significantly weakened in the aftermath of two failed deals with significant standalone business risks," Territorial's directors said in the letter.
"Blue Hill does not have committed financing, and its suggested transaction is dependent on numerous conditions, including its ability to overcome significant regulatory hurdles in a regulatory process that Blue Hill has not yet started," they added.
Landon countered that proxy advisor Institutional Shareholder Services recommended that Territorial shareholders vote against the Hope offer. He noted that ISS agreed with him that the Federal Reserve's decision to cut interest rates in September — and its signal that more reductions lie ahead — could lower banks' borrowing costs, bolster loan demand and boost the potential for stronger earnings and share prices among banks. This, Landon said, includes Territorial.
Given "the fact that the merger agreement restrictions accepted by the board limit its ability to engage with a competing bidder, and the improved outlook for financial institutions, the proposed merger with Hope does not appear to maximize value for shareholders," ISS said in its report.
"Despite some uncertainty," the Blue Hill offer "appears sufficiently credible to mitigate the downside risk of rejecting the proposed merger — as reflected by the fact that shares are currently trading above the implied merger consideration," ISS added.
Territorial's stock closed Tuesday at $10.50.
Landon said he and the Blue Hill group are not seeking a proxy battle. "We're interested in preserving Territorial as a Hawaii institution," he said. He assured that the investors in his group have the money needed to back their offer and the industry experience necessary to earn regulatory approvals.
Territorial's board is not buying that argument.
"As a standalone company, Territorial would face the same business and value downside risks that Territorial faces today as a small, monoline one- to four-family loan focused bank with limited scale," the directors wrote. "Unlike the Hope Bancorp stock-based transaction, Blue Hill's cash-based transaction creates immediate tax consequences, which could leave Territorial shareholders with less — in some cases substantially less — than the $12.50 per share consideration."
They also said Blue Hill had provided "no assurances as to whether it would reduce employment levels, change employee compensation or benefits, or reduce investments in communities after it gains control of Territorial." The directors also said they had not been made aware of who would make up the local management team that Landon and company promise, noting that the known investors are not based in Hawaii.
"Blue Hill has not shared any detailed business plan, including specifics on board, management, strategy, resources, capital planning, policies and procedures if it were to gain control of Territorial — all of which are required in the regulatory process," the Territorial directors said.
