and Morton Bender, a white investor who owns Rockville, Maryland-based Colombo Bancshares, a bank holding company. By March 2004, Wright had trumped all other bidders by offering the highest price, paying a premium of 1.51 times Independence Federal’s book value and agreeing to pay the bank’s shareholders $21 per share in cash for each share of common stock they held. Total cost: $32.6 million.
But it appears that Carver and Independence Federal will not get hitched after all. At press time, the Office of Thrift Supervision (OTS) had denied Carver’s application to acquire the institution because of federal regulators’ concerns about the financial strength of the combined institution. In an Oct. 18 news release, Carver officials reportedly stated that “The OTS noted that Independence Federal’s total assets and profitability have declined and that [the thrift] has recently experienced significant losses.” According to the OTS, Independence Federal lost $1.2 million in the first six months of 2004.
A month prior to the decision, the nuptials seemed shaky. In a September statement, Carver said “the financial condition of Independence Federal has seriously declined since the announcement of our merger agreement in March, and Independence Federal has failed to keep us informed of significant developments.” Independence Federal countered by stating that Carver “was in material breach of its merger agreement” because it was “no longer willing to pay” Independence Federal stockholders $21 a share. And Independence Federal was not going to renegotiate the deal.
The Carver—Independence Federal transaction was fraught with problems. Independence Fede
ral’s legal battles were largely responsible for it racking up huge losses. It accumulated at least $3 million in expenses fighting Bender, one of its largest shareholders and the leading opponent of the merger when it was announced in March. During the bidding process, Bender reportedly said he wanted to merge Independence Federal with Colombo Bank to create a regional powerhouse. (In that arrangement, Independence would have no longer been black-controlled.)
Independence Federal’s failure to gain shareholder approval can be viewed as one of the reasons the deal began to break down. As part of the overall buy-and-sell process, publicly traded institutions have to get approval from shareholders before a purchase can be considered by regulators. Under the bylaws of Independence Federal, a shareholder meeting must be held and the holders of two-thirds of its outstanding shares must vote yes on such a proposal. That meeting never got a chance to be called.
And to make matters worse, Bender, who held some 20% of Independence Federal’s shares, was in a buying frenzy trying to obtain more in order to halt the merger. Independence Federal filed a lawsuit against Bender, stating that he was in violation of securities regulations. According to court documents, the bank’s board of directors instituted a shareholders rights plan, which was basically a “poison pill that would effectively dilute [Bender’s] position if [he purchased] a single additional share.” Independence Federal’s shareholders rights plan enables investors to buy up to, but not more than, 20% of its common stock without board consent.