Community Bank of Oak Park River Forest acknowledged today in a press release that it has been targeted for a hostile takeover by one of its largest shareholders, First American Bank Corporation.
But Community Bank President and CEO Walter Healy said in the press release that First American’s offer letter contains “a number of misleading or inaccurate statements” concerning the value of the company and its earnings, among other things.
Neither Healy nor Marty Noll, chairman of the board of Community Bank, could be reached for comment.
First American owns 11 percent of the bank’s private stock, making it the second largest stockholder. First American claims in a Sept. 29 offer letter to shareholders that Community Bank has failed to create a market for shares and has “diluted” the value of stock “while some of the company’s value was silently transferred to management and their friends.”
The Community Bank press release states that First American issued an unsolicited offer to purchase common stock of the company for $134.32 per share with the objective of gaining 51 percent ownership of the bank.
First American Bank’s chairman and CEO, Thomas Wells, says the bank is internally valuated at $86 per share, constituting a 2.8 percent annual return over a 20-year period. That increases to 5 percent under First American’s bid price, he said.
Healy in the press release issued Monday said Community Bank’s board of directors is reviewing the offer to determine the best course of action for stockholders and advised stockholders “to take no action at this time pending conclusion of the review of the offer.”
The Community Bank board intends to release an advisory statement to shareholders on Oct. 14.
Wells said in an interview with Wednesday Journal that Community Bank’s management has put its own interests above those of other shareholders.
Wells’ offer letter states that Community Bank sold 49,691 new shares in the company in 2014 at $70 a share – 55.7 percent of the then book value of $125.62 per share – but didn’t give First American or some other shareholders the opportunity to purchase those shares.
“We don’t take issue with the need for the capital raise or the price, but we do object that existing stockholders were not informed of the transaction, never allowed to see the disclosures that accompanied the offering nor allowed to participate in the offering to preserve our ratable ownership interests,” Wells stated in the offer letter. “Management, by contrast, participated extensively in the offering.”
Based on the First American’s offering price of $134.32 per share, those allowed to purchase the discounted stock would earn $3.3 million, or a 96.2 percent return on the 21-month, $3.5 million investment.
First American’s letter to stockholders also notes that options for 30,850 shares with a price of $209 per share were cancelled and replaced with “new options awarded to directors and management for 5,205 shares, issued with an exercise price of $65/share and expiring in two-and-a-half years. Also, stock options for 19,093 shares with an exercise price of $70 per share were issued to directors and management, according to First American.
“Those two contemporaneous events had the effect of relieving management of the decline in value all of the other OPRF stockholders had suffered since 2008,” the First American offer letter states.
Wells wrote to shareholders in September that Community Bank’s management also granted themselves more stock options in 2015 at $70 a share, which would be valued at $2.5 million more under First American’s asking price.
“This astonishing nearly $6 million in stock value created by shares sold and options granted during the last 24-month period was directed exclusively to insiders and their friends and reduced the value of our stock!” the First American letter states.
“For 20 years, we OPRF stockholders have been locked in our investment without any means to exit at a fair price,” First American’s offer letter states. “We did not expect, however, a board of directors that after 20 years would resolutely oppose any alternative plan brought by stockholders to bring liquidity to their investment.”
Wells said in an interview that First American made a proposal to the Community Bank board to purchase the stock at $151 a share in August, but said that bank’s board has declined to discuss the offer.
First American noted that their proposed transaction is valued at $29 million.
Crain’s Chicago Business, which first broke the story, stated that the takeover bid could prompt other larger banks, such as Rosemont-based Wintrust Financial, also to make bids for Community Bank.
First American said in its offer letter that it will “support any cash offer at a value equal to or greater than the valuation proposed in our offer if it is made to all stockholders by Oct. 22, 2016 and will close by May 20, 2017, contingent only on the OPRF board’s willingness to support our offer in the event theirs fails to materialize or close.”
Healy’s letter to stockholders states that Community Bank, which has $301 million in assets, aims to address inaccurate statements in First American’s offer letter to stockholders about the bank’s “valuation, earnings, preemptive rights, equity grant and the alleged premium to book value that the offer price represents.”
Healy said in the Community Bank press release that the company “looks forward to responding to its stockholders regarding this unsolicited tender offer.”
“We take our fiduciary responsibilities to our stockholders very seriously,” Healy wrote. “It is our most important priority and it has provided Community Bank with a foundation that has guided us for 20 years. Our duty is to protect our stockholders’ interests, and we intend to meet our obligation in this regard.”
CONTACT: tim@oakpark.com