Wednesday, February 16, 2011
Hancock Bank swooped in and outbid Iberia for Whitney Holding. By Rebecca Mowbray
[Editor's Note: This story was first published Feb. 6 in The Times-Picayune. A day later, a non-Louisiana company, Realistic Partners, filed a potential class action against Whitney, its board members and Hancock in federal court in New Orleans seeking to block the merger. The suit claims Whitney's top exec advanced his own interests at the expense of Whitney's public shareholders and charges that directors used a flawed process to vet potential suitors. Realistic Partners' attorney told the T-P that shareholders may have done better with the IberiaBank offer. "It raises the question of to what extent it was based on preference for Hancock, or animus toward Iberia, and to what extent it was based on individual benefits to executives and directors, as opposed to what's best for the shareholders. I don't think we know the full story at this point," attorney Randy Smith said. The Independent Weekly and its sister pub, ABiz, will continue to follow this controversy.]
Photo by Rachel Conques
The iconic clock of the Whitney Bank on St. Charles Avenue
stands out in the Central Business District. Hancock Holding Co.
has no intention of getting rid of Whitney's clocks in the merger
deal that is expected to create the 32nd largest bank in the
United States.
Wednesday, February 16, 2011
Hancock Bank swooped in and outbid Iberia for Whitney Holding. By Rebecca Mowbray
[Editor's Note: This story was first published Feb. 6 in The Times-Picayune. A day later, a non-Louisiana company, Realistic Partners, filed a potential class action against Whitney, its board members and Hancock in federal court in New Orleans seeking to block the merger. The suit claims Whitney's top exec advanced his own interests at the expense of Whitney's public shareholders and charges that directors used a flawed process to vet potential suitors. Realistic Partners' attorney told the T-P that shareholders may have done better with the IberiaBank offer. "It raises the question of to what extent it was based on preference for Hancock, or animus toward Iberia, and to what extent it was based on individual benefits to executives and directors, as opposed to what's best for the shareholders. I don't think we know the full story at this point," attorney Randy Smith said. The Independent Weekly and its sister pub, ABiz, will continue to follow this controversy.]
The day after Labor Day, Whitney chairman and chief executive John Hope III received a call from the chief executive of a rival bank.
The call was ostensibly about problems with two former Whitney employees, but when Hope called him back the next day, the chief executive of the other bank suggested they get together and talk about a possible merger.
The conversation came at a time when Whitney had just experienced its lowest stock price of the year and as Louisiana's largest and oldest bank was struggling to dig its way out of the trouble it got into when it expanded into Florida during the real estate bubble and found itself awash in bad loans.
The bank that once prided itself on its conservative values was forced to take $300 million in Troubled Asset Relief Program money in 2008. It angered shareholders in March 2009 when it slashed its once generous and reliable dividend to a penny, and sent small businesses into a tailspin when it tightened credit terms.
In early 2010, Whitney entered into a consent order with a federal regulator, the Comptroller of the Currency, which required the bank to come up with better systems for analyzing risk and guarding against fraud. The bank also had to pay a fine of $125,000 for making loans in flood zones without forcing borrowers to get flood insurance.
And in late July, six weeks before the unsolicited invitation to merger talks, Hope told participants in a second-quarter earnings conference call that Whitney's hopes that an improving economy would bolster the bank had dimmed.
"We are continuing to feel the effects of the recent recession and the recovery that we were expecting appears to be less immediate than originally anticipated," Hope told analysts July 27. "The lack of improvement in the overall economy coupled with the psychological impact and uncertainty as to the longer term effects of the oil spill on our Gulf Coast communities has tempered our optimism and our customers' optimism for the remainder of this year."
But while the call from the rival chief executive prompted Whitney to open its eyes to the possibility of a merger, it was not the company that ultimately struck a deal to buy Whitney. Although negotiations with "Company A," as it is described in a draft proxy statement to shareholders, went on throughout the fall, Hancock Holding Co. swooped in five days before the deal was struck in December. Mississippi-based Hancock won Whitney in a bidding war, creating a $20 billion institution, according to materials filed with the U.S. Securities and Exchange Commission, even though it offered a lower price.
Company A is widely believed to be Lafayette-based IberiaBank Corp., the parent company of 123-year-old IberiaBank. Like Hancock, IberiaBank has been rewarded for playing it safe during the real estate boom years, and has been actively shopping for troubled banks throughout the Southeast. Iberia has been increasing its presence in the New Orleans area, where several executives maintain homes, has hired a number of Whitney executives in recent years and has been competing hard against Whitney for coveted commercial business that was once firmly Whitney's.
IberiaBank declined to comment. Hancock and Whitney executives and directors said they are prohibited from speaking about their pending deal beyond what has been filed with regulators, and declined interview requests.
Jonathan Briggs, managing director of the investment firm Chaffe & Associates Inc., which works with a number of local banks, said mergers are often the worst-kept secrets in town and it's not uncommon for a
**Photo by Robin May
**
About a week before Christmas, just as IberiaBank
CEO Daryl Byrd (above) was preparing to announce that
his bank would acquire Whitney, the New Orleans-based
bank struck an 11th hour deal with Hancock Bank of Mississippi.
Whitney's top executive called the deal with Hancock a
"no-brainer," but a group of shareholders filed a federal
lawsuit last week to block the merger, claiming IberiaBank's
offer was better.
competitor to jump in at the last minute and beat out the original suitor for a deal. "The fact that Company A was in there talking, that information leaks out. Directors know, employees know, customers know. Hancock probably had a pretty good idea that someone was in there negotiating an agreement," Briggs said.
In what could be additional evidence that word was leaking and Hancock could have learned that a deal was in the works, Whitney stock began rising sharply around Thanksgiving, as negotiations with Company A were intensifying.
On Sept. 8, Hope agreed to meet with the chief executive of Company A, according to a diary account of the merger filed with the SEC. A director of Company A, meanwhile, called an acquaintance who serves on Whitney's board, Cooper/T. Smith chairman and chief executive Angus Cooper, several times as Company A put on the full court press to try to get Whitney.
That Friday, Sept. 10, Hope sat down with the chief executive of Company A to hear his vision for a combined company. On Monday, Whitney consulted with a financial adviser, J.P. Morgan Chase & Co. about the inquiry.
At a regular board meeting Sept. 22, Hope told Whitney directors about the query, and the directors told him to tell Company A they weren't interested.
Photos by Rachel Conques
Hancock says 23 percent of Whitney branches are within one
mile of a Hancock branch, including Whitney's headquarters
in New Orleans at 228 St. Charles Ave., and Hancock's
New Orleans headquarters a block away at 203 Carondelet St.
On Sept. 30, when Whitney stock traded at $8.42 per share, Company A proposed a deal of $10 to $13 per share. Whitney considered the offer in a special meeting Oct. 7, but told Company A it wasn't interested in talking until the "employee matter" was resolved. It is not known what the "employee matter" is.
The employee matter was resolved on Oct. 25, and the following day, Whitney reported earnings that showed continuing losses, and announced that it was selling $180 million in problem loans after working with turnaround specialist Alvarez & Marsal.
On Oct. 27, Whitney's board authorized Hope to negotiate with Company A, and appointed Whitney directors Cooper, Richard Crowell and Eric Nickelsen to advise him.
Two days before Thanksgiving, Company A proposed buying Whitney for $13.25 per share. At that time, Whitney stock was trading at $9.24 per share. Whitney asked for more information the following day, and on Dec. 1, the Whitney advisers met and recommended to the board that Company A and Whitney each be given two weeks to perform reciprocal due diligence. In a special meeting, the board granted the request and upon J.P. Morgan's recommendation, told Company A to increase its offering proposal.
On Dec. 3, Company A increased its bid by 50 cents, offering $13.75 per share while Whitney stock traded at $9.78. On Dec. 13, Cooper and Nickelsen met with the chairman, chief executive and a director of Company A in Pensacola, Fla., to discuss management and integration issues of the two companies.
The following day, Dec. 14, Company A increased its offer for Whitney to $14.10 per share. But on Dec. 15, negotiations hit a snag as Company A refused to provide all of the information that Whitney was seeking as part of its reciprocal due diligence.
As Whitney urged Company A to be more forthcoming, Hope got an unsolicited e-mail and voice mail message from Carl Chaney, the chief executive of Hancock, on the night of Dec. 16 proposing a merger of their companies.
When Hope called him back the next day, Friday, Dec. 17, Chaney sent a letter proposing a price of as much as $14 per share. On Saturday, Hope told the board there was a second suitor, and Chaney increased his offer to an even $14 per share - a price still lower than what Company A was offering.
On Sunday, as Whitney and Company A were exchanging draft merger agreements, J.P. Morgan contacted Hancock to see if it would sweeten its offer. Chaney came back with $14.35, surpassing Company A's offer, and Whitney called Company A to say that it had received a rival bid. That night, Company A sent a merger agreement to Whitney, and said it would withdraw the offer if it wasn't executed by 2 p.m. Monday. If talks went beyond the deadline, Company A warned, all terms would be open for renegotiation.
Skating close to deadline, Whitney's board continued its special meeting around midday Monday, and told Company A it wouldn't respond until that night. Late afternoon, Company A increased its proposal to $15.49, but withdrew the commitment for the surviving bank to use the Whitney name and commitments for the number of Whitney seats reserved on the combined company's board. Company A said its offer expired at 9 p.m.
That night, Chaney and his co-chief executive and chief operating officer, John Hairston, met with Whitney's board. J.P. Morgan informed both Company A and Hancock to submit their "best and final" offers by Tuesday afternoon.
On Tuesday afternoon, Company A upped its price to $15.61 per share and restored agreements to use the Whitney name and reserve seats on the board for Whitney directors. Hancock came back with a slightly lower offer of $15.48 per share.
That night, the Whitney board reconvened. Because both offers actually included a ratio for how Whitney shares would be exchanged, the value of both offers ultimately depended on the value of Company A or Hancock's stock on the day the deal actually closed. When Whitney and its advisers took a closer look at how the stock of the two companies had performed, it decided that Hancock's stock had been more consistent, and therefore had lower risk to shareholders that the deal would close on a bad day. Whitney also looked at the dividend records of both companies, tried to evaluate which one had better earnings prospects in the future, and considered "relative social issues," such as whether the culture of the two companies was conducive to a merger.
After five days of discussion, Whitney decided that Hancock was the best suitor, even if it didn't have the best price. It executed the merger agreement that night, ending three and a half months of discussions with Company A. It all happened so fast, J.P. Morgan was only able to offer a verbal assessment of the deal, and followed up with a formal written evaluation later.
The merger was announced before the markets opened on Wednesday, Dec. 22. In the conference call that morning, Hope described it as a "natural combination" of two very similar Gulf Coast banks that is a "no-brainer" for shareholders and customers.
Rebecca Mowbray can be reached at [email protected].