|
|
|
Feeding Frenzy
Manchester bank directors cashed out in taking company public
|
Business New Haven
08/18/2003
By: Mitchell Young
|
"If these individuals were to act together, they could have significant influence over the outcome of any stockholder vote."
While officers and directors of New Haven Savings Bank have been mum on the personal financial consequences of converting the 165-year-old bank from mutual to public stock ownership, directors of acquisition target the Savings Bank of Manchester (SBM) appear to have set a precedent in self-enrichment.
Sales of significant blocks of bank stock by executives of SBM's corporate parent, Connecticut Bancshares, suggest why company directors decided to take the company public in 2000.
On July 30, two weeks after New Haven Savings' announcement that it would buy Connecticut Bancshares for $52 per share, CEO Richard Meduski exercised an option to buy 89,856 shares at $17.63 per share and
immediately sold the stock, netting just over $3 million, BNH has learned.
Connecticut Bancshares' stock, which trades on the NASDAQ exchange, closed that day at $51.09 per share.
Meduski's share sales are representative of the stock options and awards that were provided to the bank's top management and members of its board of directors.
Connecticut Bancshares' directors, who decided to sell the bank, are mainly the same individuals who decided to take the Savings Bank of Manchester public three years ago.
13 SBM directors converted their interest in the century-old mutual into multi-million-dollar paydays for themselves.
Meduski, as well as the board achieved their windfall without significant investment on their part. The directors, personally, the bank's employee stock ownership plan (ESOP) and a charitable foundation set up by the company together, control 30 percent of the stock of Connecticut Bancshares.
Potential stockholders were warned of this control by the Underwriters on page 18 of the 115 page prospectus, it read in part: "If these individuals were to act together, they could have significant influence over the outcome of any stockholder vote." This reference did not even anticipate the possibility that the foundation created by the board also might support the board member's own pay plans.
It is unlikely that the bank's corporators, (the individuals that actually had to approve the conversion) would have been apprised of the potential compensation bonanza of the directors prior to their vote.
If the merger is eventually consummated, NHSB is expected to pay approximately $600 million for Connecticut Bancshares.
An appraisal just three years ago was the basis for establishing the stock price and options provided to the directors. That appraisal valued the stock at public offerring at only $115 million. The appraisal was at a price to book value less than half the multiple that NHSB actually agreed to pay and less than what banks generally have sold for.
Again the underwriters explained, "the independent appraisal does not necessarily indicate market value".
Had the directors decided to sell the bank three years ago instead of taking it public and selling it, depositors could have seen checks totaling a few hundred million dollars, landing in their mailboxes.
Meduski, 56, still owns more than 130,000 shares, 105,000 of which were given to him as "awards" or compensation. Meduski and several other directors also purchased 25,000 shares at the conversion price of $10 per share.
Additionally, SBM directors recently granted Meduski an option to purchase an additional 150,000 shares at $37.50. Those shares will vest over a five-year period beginning on October 21. Like the currently unvested shares owned by Meduski, the shares of other executives and board members will immediately vest on the change of control of the bank.
Under the provisions of the deal, "The Best Little Bank in Connecticut" will join forces with what has been known as "A Very Nice Bank," New Haven Savings. The deal is planned to close in the first quarter of next year.
Meduski was joined in the stock sales by SBM President Douglas K. Anderson, senior vice president of the company and a director. He is the former president of Open Solutions Software. The 51-year-old Anderson netted approximately $1,250,000 from his stock sale, which took place on July 28.
Anderson still owns in excess of 72,000 SBM shares, 55,000 of which were awarded to him by the company. On October 21 he will receive another option to purchase 75,000 shares at $37.50, worth another $1,080,000.
Although technically no longer employed by the company, Anderson remains a major shareholder in Open Solutions, which provides software services to the bank, bringing in approximately $1.5 million per year in fees.
SBM Executive Vice President Charles Pike, also a director, sold nearly 45,000 shares on July 28, netting nearly $1.5 million. Pike still holds more than 70,000 shares. He will also receive another million dollars worth of stock on October 21. Other executives have received and will see additional stock grants as well two months hence.
In October 2000, SBM stockholders approved the board's proposal for a stock incentive plan providing what proved to be a lucrative stock option program for the board members.
The board's first incentive plan provided that each non-employee director would be granted a no-cost option to purchase 28,080 shares of stock at $17.25 per, then the market price of the stock. On January 2, 2001 the board awarded each non-employee member an additional 11,232 shares of stock as well, with no option costs.
The "incentive" option shares were to vest in five years or if the bank was sold or if the company's Incentive Committee accelerated them.
The value of the stock grants and options at the $52-per-share NHSB offering price provides a potential windfall of $1,549,314 to each non-employee director.
The non-employee SBM directors had served as directors of the then-Mutual Savings Bank of Manchester for several years. Non-employee directors at the mutual bank were paid $750 per board meeting and $500 per committee meeting. Post-conversion, non-employee directors received $750 per board meeting, and $200 per committee meeting, as well as an annual retainer of $15,000 for the SBM board, as well as $15,000 for the parent company board.
The increase in compensation was not accomapanied by an increase in profits at the bank. Profits in 1998 before the conversion were approximatley $9.5 million, and $7.5 million in the most recent year.
|
Go FirstGo PreviousGo
NextGo LastGo
to Index
|
|
