Two-Step Merger in Banking Industry

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During mediation, counsel for the acquirer retained Cornerstone Research and Professor Christopher James of the University of Florida to analyze this complex two-step transaction.

When a large bank acquired a 51 percent share of a smaller bank, it agreed to wait two years before initiating discussions regarding the acquisition of the remaining 49 percent share. However, the proposed acquisition of the remaining stake was announced approximately one and a half years later. Minority shareholders of the target bank sued the acquirer claiming that the going-private discussion was initiated too early and that the target’s committee that negotiated the 49 percent transaction was controlled by the acquirer. For this reason, the plaintiffs alleged that the sale price in this transaction was too low.

He concluded that the purchase price of the 49 percent stake was within the range of market expectations.

During mediation, counsel for the acquirer retained Cornerstone Research and Professor Christopher James of the University of Florida to analyze this complex two-step transaction. In particular, Professor James opined that the going-private transaction price would have been much lower if the sale occurred after the agreed two-year waiting period because of the deteriorating banking industry conditions. In addition, Professor James assessed the valuations used as a basis for the agreed-upon, second-step transaction price, finding them to be consistent with generally accepted valuation methodologies and therefore fair to the target’s minority shareholders. He reviewed analyst opinions and price targets before the announcement of the going-private transaction, concluding that the purchase price of the 49 percent stake was within the range of market expectations. The case settled.

Case Expert

Christopher M. James

William H. Dial/SunBank Eminent Scholar in Finance and Economics,
Warrington College of Business Administration,
University of Florida;
Senior Advisor, Cornerstone Research