Institutional investors force change in GlenFed deal.Shareholders consider options at meeting this week GlenFed Inc.'s special meeting of shareholders is set for this week to vote on a $425 million recapitalization Recapitalization Restructuring a company's debt and equity mixture often with the aim of making a company's capital structure more stable. Notes: Companies often want to diversify their debt-to-equity ratio to improve liquidity. plan in which new investors will get 80 percent of a newly restructured company and existing shareholders will have as little as 2.1 percent of the equity. GlenFed was forced to change the terms of its recapitalization plan two weeks before the meeting to quell institutional investors' fears after another Southland thrift giant, California Federal Bank California Federal Bank, often abbreviated to "Cal Fed", was a savings and loan bank in California. It existed from 1926 until 2002, when its parent company Golden State Bancorp was acquired by Citigroup, resulting in the bank being merged into Citibank. , reported an unexpected $45.5 million loss for the second quarter, a GlenFed official said last week. When Los Angeles-based CalFed reported the loss on July 26, "our deal fell out" with institutional investors Institutional Investor A non-bank person or organization that trades securities in large enough share quantities or dollar amounts that they qualify for preferential treatment and lower commissions. who were to provide the lion's share of the $425 million, said Judy Cunningham, GlenFed spokeswoman. GlenFed officials were forced change the price of the common stock to be issued in the new company from $10 to $9 a share because institutional investors "weren't willing to accept the other deal," she said. Institutional investors were ready to back out because the CalFed news made them "very nervous about the California economy." Under the plan, institutional investors will provide the bulk of a $425 million recapitalization for an 80 percent ownership stake in the restructured company. The plan anticipates folding GlenFed Inc. into its subsidiary Glendale Federal Bank and issuing new stock. The Office of Thrift Supervision The Office of Thrift Supervision (OTS) was established as a bureau of the Treasury Department in August 1989 as part of a major Reorganization Plan of the thrift regulatory structure mandated by the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) (12 U.S.C.A. has ordered GlenFed to inject hundreds of millions of dollars in capital into Glendale Federal Bank. GlenFed officials insist regulators will seize the thrift if shareholders don't approve the plan. Existing shareholders would get 2.1 percent of the new company's equity. A group of bondholders who swapped bonds earlier this year for preferred stock Stock shares that have preferential rights to dividends or to amounts distributable on liquidation, or to both, ahead of common shareholders. Preferred stock is given preference over common stock. Holders of preferred stock receive dividends at a fixed annual rate. would get 13.5 percent. Another group of bondholders who were not paid a scheduled interest payment of $4.6 million early this year will get a 4.2 percent ownership stake in the new company, plus $4.6 million in cash. GlenFed announced last week it had applied for and received OTS See Office of Thrift Supervision. approval to cut to 80 percent the minimum approval vote needed from bondholders. Previously, the measure required yes votes from at least 90 percent of the bondholders. Cunningham declined to say whether the company had the 80 percent approval last week. In a letter to shareholders dated Aug. 4, GlenFed stated it had agreement from holders of 25 percent of the bonds. Existing shareholders and bondholders could increase their ownership stake in the new Glendale Federal Bank if they subscribe to Verb 1. subscribe to - receive or obtain regularly; "We take the Times every day" subscribe, take buy, purchase - obtain by purchase; acquire by means of a financial transaction; "The family purchased a new car"; "The conglomerate acquired a new company"; a rights offering at $9 a share. GlenFed common stock was trading at 87 cents a share on Aug. 11. Without putting more money into GlenFed stock, existing shareholders will get only four shares of stock for every 100 they currently hold in GlenFed. Under the deal, a stockholder with 100 common shares of GlenFed with an aggregate tangible book value of $694 at June 30 would get stock with a pro forma As a matter of form or for the sake of form. Used to describe accounting, financial, and other statements or conclusions based upon assumed or anticipated facts. The phrase pro forma tangible book value of $51.32, according to according to prep. 1. As stated or indicated by; on the authority of: according to historians. 2. In keeping with: according to instructions. 3. an Aug. 4 letter to shareholders from GlenFed Chairman and Chief Executive Stephen J. Trafton. When the plan was announced in June, Trafton said in a statement, "While the collateral effect of the re-organization plan will be a substantial dilution of the equity interests of existing shareholders, without new equity capital, the viability of the institution would be at severe risk." Under a plan announced in June, shareholders were to get a 2.8 percent stake in the new company, Cunningham said. But that was reduced to 2.1 percent in revisions announced Aug. 5. Cunningham said poor earnings performances by California thrifts in general and California Federal Bank in particular caused GlenFed officials to change the deal's terms. James F. Hurley, senior vice president of investor relations Investor relations The process by which the corporation communicates with its investors. for CalFed, acknowledged his thrift's $45.5 million loss could have forced GlenFed to change the terms. But he added, "It must be nice to have a scapegoat scapegoat In the Old Testament, a goat that was symbolically burdened with the sins of the people and then killed on Yom Kippur to rid Jerusalem of its iniquities. Similar rituals were held elsewhere in the ancient world to transfer guilt or blame. ." CalFed, which like GlenFed was under-capitalized last year, completed a similar restructuring last December in which the CalFed Inc. holding company was folded into the bank and $150 million in new capital was raised. A few months later, CalFed officials announced their thrift had met the terms of its agreement with the OTS. "We invented the wheel on this restructuring deal," Hurley said. "Now they (GlenFed) have a flat tire and they are blaming us." GlenFed officials have said they have the majority of shareholder votes -- 50 percent plus one share -- needed to approve the recapitalization plan. But the stock price change means shareholders may re-vote their proxies and vote no. Cunningham said some shareholders have called and complained that their interests are being diluted further under the new terms See suggestions for new terms. . She said shareholders are being told, "We don't have an alternative in this. We have to have the institutional investors." She added, "We're still very optimistic op·ti·mist n. 1. One who usually expects a favorable outcome. 2. A believer in philosophical optimism. op that we will have the majority vote and will be able to move forward with the transaction." |
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