Just when it looked like the fate of Commonwealth National Bank had been decided in favor of a merger with Berkshire Bank, interloper United Bank came through with yet another offer.
Commonwealth responded Friday that it will enter into discussions with United over its offer of $10.25 a share. The higher offer puts Commonwealth in a delicate position with shareholders.
“If you’re a public company director, you have to worry about litigation coming out,” said Sean Mahoney, a partner with law firm K&L Gates. Public banks’ boards are required to act in the best interests of the shareholders, he said, and this one likely would have to work harder to make the case in favor of Berkshire Bank’s nominally lower offer.
As of press time, Berkshire’s offer stood at $9.23 a share. Several weeks ago, Pittsfield-based Berkshire and Worcester-based Commonwealth’s parent companies announced a merger agreement that had Berkshire paying $8.50 a share. West Springfield-based United Financial Bancorp, parent of United, jumped in with an offer of $10 a share, or $22.8 million.
Two weeks ago, Berkshire and Commonwealth reaffirmed their decision to merge, with Berkshire upping its offer to from the original $8.50 a share. A press release stated Berkshire won the day because Berkshire’s stock offered “greater long-term potential” and had a preferred fixed exchange ratio offer, as opposed to United’s less-desirable fixed offer.
United came back swinging with a higher offer and a strongly worded letter to Commonwealth CEO Charles R. Valade and Chairman Cary J. Corkin. In it, United CEO Richard Collins vigorously tears down Commonwealth’s reasons for refusing its offer, including the “gratuitous criticism” about United’s ability to complete the merger and the doubts as to United’s long-term potential.
Collins indicated that Commonwealth’s anti-United arguments were flimsy, he said, re-asserting that United had the superior offer.
Mahoney said it’s odd for a board to go with a lower offer such as the one Berkshire is offering, but it isn’t unheard of.
‘Messy, Expensive And Tedious’
Regardless, Commonwealth’s board will present a decision to shareholders, who essentially have veto power after that. However, shareholders who get overruled can bring a derivative lawsuit to the board, claiming it violated its duties.
“Once you’re in litigation, everybody loses,” he said. “It gets messy and expensive and tedious.”
Still, Commonwealth’s board might already feel comfortable with the mood of the shareholders, Mahoney said, and not sweat making the Berkshire case again.
And Collins’ letter doesn’t light any fires that will lead to trouble, Mahoney said: “It’s very carefully done to avoid causing problems.”
In it, Collins gets to the nitty-gritty of United’s past dealings with Commonwealth, included an apparently frustrating series of exchanges over the few months before Commonwealth announced its union with Berkshire.
According to the letter, Commonwealth’s advisors had shot down a previous United Bank overture in February by saying they would refuse any acquisition offer that came in under $12.75 per share. United then put the talks on hold in the “hope that CNB [Commonwealth’s parent company] and its advisors would develop more realistic price expectations.”
Commonwealth did, apparently – with another bank. As Collins goes on, “You can imagine our surprise, then, to learn less than three months later, that CNB had entered into a deal valued at $8.50 [with Berkshire].”
In an interview with Banker & Tradesman, Collins said he told Commonwealth’s board not to take his communications as hostile.
“We just want to be sure that Commonwealth understands that a merger with us would be a very good idea all around,” he said. “I suppose what I’m trying to do is make our case as best I can.”
The letter is an attempt to spell all that out, he said.
“I looked at their reasons, and frankly just didn’t agree with them.”
The ball is currently in their court, he added.
As of Friday, Commonwealth had released a statement saying it would begin discussing with United as well as an additional bank – unnamed – that also made a proposal.
