SEC filing gives shareholders details on process for selecting merger partner.
NEW YORK — With the clocking ticking down to a Dec. 9 Cadence Bank shareholder vote on an acquisition of the bank, Cadence has tentatively settled an investor lawsuit that claimed that the merger terms are tilted to benefit Cadence executives and board members at the expense of investors.
Shareholders must decide whether to approve the bank’s acquisition by Houston banking investment group Community Bancorp in a deal that will settle the bank’s $44 million in Troubled Asset Relief Program, or TARP, debt and pay $2.50 in cash per common share. Cadence, a $1.7 billion regional bank whose shares are traded on Nasdaq (CADE), would become private under the new ownership.
The suit, filed in New York in Oct. 28 by attorney Richard Brualdi on behalf of investment firm RSD Capital Management LLC, says shareholders will go into the Dec. 9 vote uninformed about key aspects of the acquisition and the process that went into the Cadence board recommending approval of the deal.
John Boydstun, Cadence spokesman, said shareholders will have the information contained in a Dec. 1 8-K Securities & Exchange Commission filing when they convene in Starkville, but other terms of the proposed settlement can’t be disclosed until the New York Supreme Court, where the suit was filed, approves the settlement.
“We don’t know what the timing of the court will be,” he said.
In the 8-K filing, Cadence addressed a claim in the lawsuit that a proxy statement to shareholders regarding the merger omitted details that include the bank’s projected worth, how many potential buyers were contacted before the merger deal, how many expressed interest in acquiring Cadence and the criteria used to select those potential buyers.
Cadence’s new filing says Cadence directed its financial advisor, Keefe, Bruyette & Woods Inc. (KBW), in July to approach private investors that might be interested in providing capital to or acquiring Cadence. KBW assisted Cadence senior management in identifying private investors with experience investing in financial institutions and with the resources and ability to complete a transaction on the timeframe contemplated by Cadence, the filing said.
At the direction of Cadence, KBW contacted 12 potential private investors in July and early August, including Community Bancorp, the Houston group with which it has the pending deal.
KBW also assisted Cadence senior management in identifying financial institutions that would, based on their financial and regulatory capital positions, be able to close a transaction with Cadence. KBW contacted five financial institutions, all of which expressed an interest in acquiring Cadence or entering into a non-disclosure agreement.
KBW used a “Selected Peer Group Analysis” to select the five financial institutions. Factors considered in the analysis included comparable shared similar business characteristics, the geographic areas in which the comparable companies operated, the types of customers served by the comparable companies, and the size of the comparable companies’ businesses.
The 8-K filing states that KBW assumed an offer price range of 50 cents per share to $1.50 per share “based on its subjective judgment of prices that might be realized in the context of a capital raising transaction that did not involve the payment of a control premium by an acquirer and taking into account trading prices for Cadence’s common stock at the time.”
Cadence noted it its filing that the agreement to make the additional disclosures to stockholders “does not constitute an acknowledgment that these additional disclosures are required under any applicable state or federal law, statute, rule or regulation.”
Under terms of the proposed settlement, Cadence expects it will be asked to pay attorney fees and expenses incurred by the investors.
Investors filed the suit in the New York court because Cadence is a member of New York-based Nasdaq.
The suit sought compensatory damages but did not seek to stop the merger, which is targeted for completion by the end of the first quarter.