In a highly unusual move, two Massachusetts community banks are now duking it out over the purchase of a smaller target in a highly sought-after location. Now the for-sale bank is in the hot seat, faced with either breaking a definitive agreement, or refusing what looks like a better offer.
Pittsfield-based Berkshire Hills Bancorp. and West Springfield-based United Financial Bancorp. both want to expand into the Worcester area, and both apparently found a ripe target in CNB Financial Corp., parent of Commonwealth National Bank.
Berkshire Bank got there first, signing an agreement with CNB in April to offer $19.5 million in stock to CNB’s shareholders. Then last week, interloper United Financial jumped in with an offer of $22.8 million that allows shareholders to choose between stock and cash, provided that the total cash paid doesn’t go over 50 percent of the total amount paid.
CNB’s agreement with Berkshire Bank almost certainly will allow CNB’s shareholders to break the contract if a genuinely better offer surfaces, according to William P. Mayer, partner with law firm Goodwin Procter. Unsolicited offers like this are rare, he said; the last bank war he could recall was in 2001, when SunTrust Banks tried to usurp First Union Corp. for the purchase of Wachovia Corp.
The Merger Meringue
Still, all bank merger contracts allow for the possibility of a second offer.
“There’s a whole dance that occurs over this better-offer business, and the dance is very well choreographed in the offer agreement,” Mayer said. United Financial’s offer price is higher, but Mayer said CNB doesn’t necessarily face a black-and-white decision.
Because both offers involve stock, CNB’s board has to decide how much both potential buyers’ stock is worth. If CNB – through careful analysis – decides United Financial’s stock isn’t worth as much as Berkshire’s, it can elect to stick to the original plan.
Other factors come into consideration. Berkshire Bank is a large, acquisition-oriented bank with a number of buyouts under its belt already, whereas United Financial only went fully public in 2007, and investor relations spokeswoman Dena Hall confirmed that CNB is its first attempted purchase.
Stephen J. Coukos, partner with Boston-based Chu, Ring & Hazel, said CNB might opt to go with the more experienced player, one that has a track record as far as merging personnel and operations – United Financial is, after all, on new turf.
Hall counters that United Financial had made acquisitions during its days as a cooperative bank, and that CNB’s size – six branches and $300 million in assets – makes it a right-sized fit for United. United Financial has 16 full service branches and $1.24 billion in assets.
Swimming In Banks
Such bank wars are rare, Coukos said, but this squabble makes a kind of sense –and more of these battles might be in the offing for the near future.
Massachusetts is a tough area for institutions that want to grow by acquisition, Coukos said. The state is swimming in banks, but many of those are mutuals and effectively off-limits for purchase. Stock banks are relatively few, and their numbers have shrunk over the past decade.
“For somebody like United, looking to expand by acquisition, there’s only a handful of possible merger partners out there. Somebody like Commonwealth National may look very attractive,” he said.
Also, traditional banking institutions are very much in vogue right now, he said; they’re not hunkered down to ride out the current economic storm, they’re generally well-off and looking to grow.
Back To The Ring
United had its eye on CNB for a while, Hall said. Worcester is a growth market and the region is contiguous with United’s Springfield-centered footprint – and United’s leadership thought Berkshire’s offer was too low for the value of CNB.
“When we learned of the Berkshire Hills deal, we thought perhaps we should take a shot,” she said.
Charles Valade, president of Commonwealth, told Banker & Tradesman he was unable to comment on the bank’s next move, and Berkshire Bank spokeswoman Fedelina Madrid said CEO Michael P. Daly was keeping mum for the time being.
