The answer Central Pacific head Clint Arnoldus has been waiting over a month to hear has finally come, and the answer is no. Calling Arnoldus’ merger proposal “inadequate,” and citing concerns over layoffs and antitrust issues, CityBank chairman Lionel Tokioka sent a letter today to Arnoldus saying his company’s Board of Directors “unanimously rejected your proposal.” A response issued by Central Pacific hours later called the decision disappointing.
Arnoldus chairman, president and CEO of Central Pacific Bank parent Central Pacific Financial Corporation (NYSE:CPF) stunned the local business community when he went public last month with a plan to acquire rival CB Bankshares (NASDAQ:CBBI), parent company of CityBank. Saying CityBank failed to respond to a March 17 letter, Arnoldus led an aggressive campaign to push the company and its shareholders to accept the merger.
While Arnoldus waged a war of words in the press raising the ire of other competitors in the process Tokioka held fast to his assertion that his company would carefully analyze the merger proposal and, only then, give their answer.
In today’s letter to Arnoldus, Tokioka didn’t mince words.
“Your unsolicited proposal undervalues our franchise, our market position and the loyalty of our customers, and raises serious concerns about the adverse effect such a combination would have on the people, communities and economy of Hawaii,” Tokioka wrote. “We cannot in good faith offer anything other than a rejection of your proposal.”
Central Pacific responded by saying it is “disappointed, but not surprised that after seven weeks of silence and delay, CBB continues to ignore the unequivocal message from many of its shareholders and the financial markets.”
Among the reasons the CityBank board cited in their rejection:
- The proposal is inadequate from a financial point of view, failing to reflect the true earnings power of the CB Bancshares franchise. CB Bancshares has compound annual earnings-per-share growth greater than 15 percent over the last five years.
- A merger would likely lead to “significant employee layoffs.” CB Bankshares estimates that approximately 10 bank branches and 200 employees would be eliminated.
- A merger would mean a substantial reduction in banking services. CityBank’s “small business and retail customers would not be valued CPF customers and would be underserved by CPF’s big bank strategy.”
- The proposal raises “significant antitrust and anticompetitive concerns.” Central Pacific and CityBank are the fourth- and fifth-largest banks in Hawai`i.
“Our merger proposal is good for shareholders, employees, customers, and Hawaii,” Central Pacific retorted. “Perhaps most disappointing is CBB’s decision to invent estimates of employee layoffs knowing full well that the best way to minimize job loss is to meet and plan together.”
Tokioka announced a special meeting of CB Bancshares shareholders&npbsp; something Arnoldus demanded last week under Hawai`i law for May 28. And the CB Bancshares board unanimously recommended that shareholders vote against the control share acquisition proposal, thereby preventing CPF from proceeding to acquire CB Bancshares.
And now it was Central Pacific protesting an unreasonable deadline.
“It is also disappointing that CBB has set a meeting date specifically calculated to deny their own shareholders time to receive materials that would explain our offer to them,” the company release stated. “We have no intention of allowing such an important meeting to be hijacked in this manner.”
Tokioka expressed hopes that Arnoldus would abandon plans for a hostile takeover.
“In the spirit of our founders and for the benefit of both of our constituencies, we ask that you honor and accept our decision,” he wrote. “We would then welcome you back as a worthy competitor and member of the community.”
And he also called Arnoldus to task for his aggressive business posture, saying they hurt both companies.
“A transaction pursued in such an overtly hostile manner only serves to reduce the value of both of our franchises,” Tokioka wrote. “As responsible members of the local business community, it is incumbent upon us to express our regret over the tactics employed throughout this ill- advised endeavor.”
May 4, 2003
Dear Chairman Arnoldus and Directors of Central Pacific Financial Corp.:
After a full and thorough analysis of your proposal including consultation with our independent financial and legal advisors, the Board of Directors of CB Bancshares, Inc. has unanimously rejected your proposal. Our decision is based on what we believe is in the best interest of our shareholders, employees, customers, suppliers, the communities we serve, and the economy of the State of Hawaii. After careful consideration, we have concluded that the financial terms of your offer fail to recognize the value that we are capable of delivering to our shareholders through the continued execution of our current strategy. Your unsolicited proposal undervalues our franchise, our market position and the loyalty of our customers, and raises serious concerns about the adverse effect such a combination would have on the people, communities and economy of Hawaii.
As responsible members of the local business community, it is incumbent upon us to express our regret over the tactics employed throughout this ill- advised endeavor. A merger between two major financial institutions in a place of our size and culture is a serious undertaking that impacts many thousands of individuals and businesses. A transaction pursued in such an overtly hostile manner only serves to reduce the value of both of our franchises.
For all of these reasons and others, we cannot in good faith offer anything other than a rejection of your proposal. In the spirit of our founders and for the benefit of both of our constituencies, we ask that you honor and accept our decision. We would then welcome you back as a worthy competitor and member of the community.
Lionel Y. Tokioka