Eastern Bank has announced a $170 million acquisition of Reading-based Massbank, whose Medford branch is shown above.
An activist investor will reap $2 million in profit from the sale of Massbank Corp. following months of agitating for such a deal.
Eastern Bank Corp. will acquire Massbank Corp., parent company of Reading-based Massbank, for $170 million, or $40 per share.
The cash transaction, announced by the two banks on March 10, was first discussed “several weeks ago, and negotiations heated up over the past several weeks,” according to an Eastern Bank spokesman.
Massbank Corp. stock was trading at $38 per share when the stock market closed on March 10 before the announcement. Its lowest price in the past year was $32.30.
In February, Massbank Corp. shareholder Lawrence B. Seidman, an investment manager from Parsippany, N.J., nominated himself and two others to Massbank’s board of directors in an apparently hostile bid to take over the bank, which he said was not managed well.
Observers have pointed out that when a publicly traded bank such as Massbank is sold, shareholders often profit immensely.
If the transaction goes through as announced, Seidman and companies with which he is associated would earn approximately $2 million in profit, based on 318,514 shares purchased between July 2007 and January 2008 at prices between $33 and $36 per share. They would be required to cash shares out as Massbank will no longer be publicly owned if it is absorbed by Eastern, one of the country’s largest mutual banks, said Sean Mahoney, an associate with Boston law firm Kirkpatrick & Lockhart Preston Gates Ellis.
Seidman told Banker & Tradesman earlier this month that the banks that have challenged his efforts to force a board takeover or sale – which some have done, based on a 1995 cease-and-desist order from the Office of Thrift Supervision against him in connection with his board membership at Crestmont Federal Savings & Loan in New Jersey – “don’t exist anymore.”
Eastern Bank Chairman and Chief Executive Officer Richard Holbrook said Eastern’s interest in the transaction has no connection to Seidman efforts to force a sale of Massbank.
Information about who initiated the and why will be forthcoming in a proxy statement to be mailed to Massbank’s shareholders – who must approve the transaction before it becomes final – in the next couple of months, Holbrook and Massbank’s attorney, Ray Zemlin of Goodwin Proctor in Boston, said.
“We have long admired that particular franchise as being the perfect extension of the markets we serve,” said Holbrook, who added that he and Massbank Chairman, President and Chief Executive Officer Gerard Brandi know each other well and have served on boards together.
“We think that building on our reputation and the reputation Massbank has developed will provide us with a springboard for growth,” especially in the areas of small business and commercial banking, Holbrook said.
Since Eastern Bank formed with the merger of two mutual banks in 1981, Holbrook said, it has bought five public banks. In the past three years, it also merged with Plymouth Savings Bank and Sharon Co-Operative Bank.
Eastern, with $6.8 billion in assets, is Massachusetts’ fifth-largest bank by asset size. It has 74 branches and, with the acquisition – which is pending approval from regulators and Massbank shareholders – stands to acquire 15 more in communities north of Boston. Some Massbank branch locations overlap with existing Eastern Bank branches and “there will be a natural need to evaluate that situation” after the merger is completed, Holbrook said. The parties hope that will happen by the end of 2008.
The Eastern Bank spokesman said he didn’t think acquiring $801 million-asset Massbank will change Eastern’s asset-size ranking in the Bay State. As a mutual, Eastern is allowed to acquire a publicly traded company for cash, Holbrook said, noting that the value of cash is “a lot less volatile” than stock options these days.
Massbank CEO Brandi did not return a phone call seeking comment, but said in a prepared statement that his bank “has been effective at both providing great service to our customers and creating a prudent business strategy that has allowed us to be one of the most successful community-based banks in Massachusetts. Eastern Bank shares our philosophy, and we believed the time was right for a partnership that would benefit customers and shareholders alike.”
In February, however, Seidman told Banker & Tradesman that Brandi and his team were “doing a poor job” managing the bank. Massbank, he said, invested too much in securities and did very little lending compared to other banks. At the time, Seidman had just nominated himself and two Massachusetts businessmen for slots on Massbank’s board.
Brandi will become Eastern Bank Corp.’s vice chairman when the transaction is completed.
Seidman, reached early on March 11, said he had learned of Eastern’s planned acquisition of Massbank just 20 minutes before.
“I never comment on the sales of companies when I am not on the board, because I don’t have any detailed information,” Seidman said.
“It is what it is,” added Seidman, 60, who owns 8 percent of Delaware-based Massbank Corp.’s stock.
‘Tidy Profit’
Massbank shareholders, including Seidman, will vote on the transaction on or around the same date as Massbank Corp.’s annual shareholders meeting on July 14.
“We hope that the stockholders will support the decision of the board,” Zemlin said. Massbank Corp.’s board approved the acquisition agreement on March 10.
The shareholders’ meeting was put off from early May on orders from the Delaware Court of Chancery, which wanted a chance to hear litigation Seidman filed against Massbank.
Last month, Seidman sued Massbank Corp. in that court for changing its bylaws in what Seidman viewed as an attempt to keep him and his nominees off the board.
Boston attorney Stan Ragalevsky, a partner at K&L Gates, said he thinks Massbank might well have prevailed even if Seidman and his fellow nominees had attempted to persuade other shareholders to vote them onto the board, in a so-called proxy contest.
Seidman has a 40 percent success record, at best, with similar efforts to control boards at other companies, he said.
Mahoney said public company shares are available to any member of the public who wants to buy, although if a shareholder and others associated with him wish to buy more than 10 percent of a bank holding company’s shares, they must first get approval from the Federal Reserve Bank, which regulates holding companies.
Ragalevsky said he’ll be interested to see whether Massbank’s shareholders, of whom Seidman is one of the largest, will support the acquisition. Mahoney said the $2 million Seidman stands to earn could outweigh the potential costs of a proxy contest or arranging another sale.
Richard Schaberg, a merger and acquisition specialist and partner with Washington, D.C., law firm Thacher, Profitt & Wood, said that in today’s world of declining bank stock values, $2 million “is actually a tidy profit.”
Stockholders also generally prefer cash sales, Mahoney added.
Another buyer could always turn up and offer more than $40 per share, Mahoney said, in which case the bank’s board would have to consider that offer too, although there could be penalties for breaking a prior agreement.
Seidman did not respond to Banker & Tradesman’s later request for comment on whether he plans to support the announced acquisition, or if he will drop his lawsuit. A spokesman at Naples, Fla.-based Private Capital Management, which owns 9.5 percent of Massbank’s shares, also did not respond to a request for comment.
