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Cadence shareholders must weigh claims merger information

Investor suit alleges merger terms designed to benefit Cadence execs, board more than shareholders

Cadence Bank shareholders have until Dec. 9 to dissect terms of a pending acquisition of the regional bank and gauge claims in an investor lawsuit that the deal is tilted to benefit Cadence executives and board members at their expense.

Shareholders are scheduled to vote Dec. 9 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 uniformed about key aspects of the acquisition and the process that went into the Cadence board recommending approval of the deal.

Starkville-based Cadence and its financial advisors “have breached their fiduciary duty by causing Cadence to file a proxy statement with materially inadequate disclosures and material omissions,” the suit claims.

The suit asks for compensatory damages but does not seek to stop the merger, which is targeted for completion by the end of the first quarter.

It alleges terms of the acquisition enrich Cadence executives and board members at the expense of shareholders. It further charges that securities broker Keefe, Bruyette & Woods Inc stood to gain by providing a favorable analysis of terms of the deal.

Specifically, the suit alleges Cadence Chairman & CEO Lewis Mallory Jr., President & COO Mark Abernathy, Cadence Financial Corp., Community Bancorp LLC, and 10 additional members of Cadence’s board of directors concealed details in a proxy statement to public shareholders in order to complete “a transaction which protects and advances the interests of Cadence’s management team who are using this opportunity to benefit themselves.”

Of Cadence’s11.9 million shares, bank executives and directors who make up the “insider” investors own 10.59 percent.

The suit further charges that Keefe, Bruyette & Woods Inc.,  a New York investment firm that been hired to help find a buyer for the bank, may stand to profit from the sale as it “purchase(s) securities from and sell(s) securities to Cadence and CBC.”

The suit questions why the proxy statement did not disclose the projections that Keefe, Bruyette & Woods Inc used in arriving at the opinion that the price to be paid for the Company is fair.  Senior management teams of Cadence and Community Bancorp prepared the undisclosed projections, the suit says.

The suit further claims that the proxy statement 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.

Brualdi’s suit called the transaction one that “protects and advances the interests of Cadence’s management team who are using this opportunity to benefit themselves.”

Brualdi did not return several phone calls seeking clarification on the claims Mallory and Abernathy stand to receive three times their base salaries and one year’s worth of medical premiums after turning over control. Cadence executives cite specific language in the proxy statement that says the additional compensation will be made only if they are terminated in the first year of the new ownership.

“They would have to be terminated within a year of the consummation of the transaction,” Cadence said in an e-mail statement.

The suit states that Mallory and Abernathy will be entitled to payments equal to 2.99 times their base salaries plus an amount equal to 12 times their monthly medical insurance premiums which amounts to $907,997 and $738,318.00, respectively.

“Notably, neither Mr. Mallory nor Mr. Abernathy would receive these lucrative payments at this time absent the sale of the company,” the suit states but does not mention the termination provision.

Brualdi targets Community Bancorp for culpability with a charge the investment group “aided and abetted” Cadence officials and financial advisors in their breach of fiduciary duties to Cadence’s shareholders by, among other things, obligating  Cadence to pay a termination fee of $4.5 million under certain conditions and requiring Cadence to agree to not solicit possible other buyers.

Cadence would be subject to up to $7 million in penalties if it were to scrap the acquisition arrangement with Community Bancorp after the deal received shareholder approval. Payments would include reimbursement of a $2 million penalty payment to Trustmark National Bank after Cadence backed out of an acquisition deal with the Jackson bank. Community Bancorp would be in line to receive expense reimbursement of $1 million, according to the proxy statement.

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