In mid-summer, Cadence Bank executives got the not-unexpected advice to forget about trying to solve the bank’s capitalization problems through an $80-million common stock offering.
So Cadence put the word out that it wanted a buyer. How it finally came to find not one but two buyers and make deals with both of them is detailed in a proxy statement the bank filed with the SEC.
By July, more than 40 days had elapsed from a 90-day deadline set by the Comptroller of the Currency for Cadence to raise significant amounts of additional Tier 1 capital in order to meet and maintain minimum Tier 1 leverage and risk-based capital. Cadence asked Keefe, Bruyette & Woods to make queries to potential investors or buyers.
Of the eight entities that expressed interest and signed non-disclosure agreements, only Community Bancorp put its interest in writing, the proxy filing states.
By Aug. 8, Community Bancorp wanted exclusive rights to negotiate a deal, but had not yet said what it would pay. A money range didn’t come until Aug. 24, when Community Bancorp estimated a price range of 50-cents to $1.50 per share of Cadence’s common stock. The offer appealed to Cadence enough to lead it to agree to pay for outside consultants to do due diligence on Community Bancorp’s behalf.
The next day, Trustmark put a $3 a share stock transaction offer on the table, but hinged the offer on getting the Treasury Department to discount 60 percent of Cadence’s $44-million Troubled Asset Relief Program, or TARP, funds. Treasury later refused.
On Aug. 26, Cadence asked Community Bancorp to cease its due diligence evaluation. Disappointed but not discouraged, Community Bancorp asked to stay in the picture and to be allowed to do an on-site review of Cadence’s loan portfolio.
Meanwhile, Cadence says, “We entered into a non-binding letter of intent with Trustmark… During the exclusivity period, we suspended all meetings and discussions with CBC.”
But Trustmark’s need for a big discount on the TARP remained – and ultimately would kill the deal.
The end of the first week of September saw Community Bancorp get back into the bidding in a big way. It’s new price range: $2 to $3.50 per share of common stock, conditioned on satisfactory due diligence.
“We notified Trustmark of another party’s continued interest,” Cadence says.
Trustmark’s edge further eroded with Treasury’s refusal to deeply discount the TARP repayment. This caused Trustmark to reduce its proposed price per share of Cadence common stock from $3 to $2 and to adjust the exchange ratio of Cadence-to-Trustmark stock based upon the closing price of the Trustmark common stock price of $20.64 on Sept. 14.
Trustmark dug in the next day, refusing to budge from its lowered offer and asking Cadence to sign a draft of definitive agreement without further negotiation.
Cadence responded by refusing to renew the exclusivity period that expired on Sept. 15.
“On Sept. 16, we sent CBC a draft merger agreement for its consideration and encouraged CBC to submit a proposal to us by Sept. 20,” Cadence says.
“On Sept. 17, CBC presented us with a proposal for $2.50 in cash per share of our common stock as well as payments to the U.S. Treasury for the TARP Preferred in excess of $38 million, conditioned on satisfactory due diligence and reaching an acceptable agreement with the Treasury regarding the TARP Preferred,” Cadence adds.
Trustmark, on the sidelines but figuring it still had a play to run, insisted on a definitive agreement by Sept. 20 or it would walk away.
Cadence took the Trustmark deal on Sept. 20, figuring time had run out on Community Bancorp’s efforts to complete due diligence and settle on a price with Treasury for repaying the TARP money.
Community Bancorp did not see it that way, and by the end of the month, it told Cadence the $2.50 a share offer was firm.
“On Sept. 30, we notified Trustmark that we had received an ‘Acquisition Proposal,’” Cadence says.
Oct. 5 brought a final counter offer from Trustmark: a 25-cent increase in the per share price.
That sweetener failed to nudge Cadence away from the Community Bancorp offer.
On Oct. 6, Community Bancorp was officially in and Trustmark was out.
Community Bancorp wants to keep it that way.
To that end, it has insisted in the definitive agreement that Cadence must ignore advances from suitors while the merger is pending.
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