Cadence Bank will remain intact as a Texas-based investment firm’s first acquisition, keeping the bank headquartered in Starkville and retaining employees under a deal announced Wednesday.
Less than two weeks ago, Cadence embarked on a path to merge with Jackson-based Trustmark Bank — the surviving entity under a proposal deal announced Sept. 22. Cadence shareholders would then own shares in Trustmark.
All this changed Tuesday, when Cadence officials inked a deal with Community Bancorp of Houston, Texas — known as CBC — to allow the company to acquire Cadence and make it a private, wholly-owned subsidiary.
On Wednesday, Cadence officials made the CBC agreement public and broke off the Trustmark arrangement, submitting a $2 million termination fee and notifying Trustmark officials of the CBC transaction.
Cadence board members entered into the deal with CBC late Tuesday afternoon, Cadence CEO Lewis F. Mallory Jr. said at a press conference Wednesday.
“Cadence’s board feels that it was acting, of course, in accordance with the fiduciary responsibility that it has... ,” he said. “It had gone through an exhaustive ... and extensive evaluation of this transaction and obviously concluded that this transaction was in Cadence’s best interest.”
Switching to another deal
There were at least three fundamental reasons for Cadence to drop the Trustmark deal, Mallory said.
• Price — The cash offer from CBC was a premium to the previous price and would not be dependent on market fluctuations.
• Job — Employment will be preserved through this transaction.
“Prospects are quite high ... that those jobs would multiply, not be diminished,” Mallory said.
• Name — Cadence will keep its name and the bank will operate under its charter.
“Cadence is the beneficiary of a huge capital injection,” he said. “It will come in significant supply with this transaction.”
The deal offers Cadence shareholders $2.50 cash per common share of the bank. The agreement with Trustmark provided Cadence common shareholders $2 a share.
CBC has offered $38 million to buy the $44 million in preferred Cadence stock the U.S. Treasury owns. Trustmark previously made an offer of $30.05 million.
“We remain Cadence. Same people. Same bank. Same charter,” Mallory said.
The CEO of the bank investment firm acquiring Cadence is neither a stranger to Starkville nor the industry.
Paul B. Murphy Jr. heads CBC. It was incorporated in 2009 in Delaware. CBC was formed “to invest in community banks,” according to the statement issued Wednesday to announce the new transaction.
‘A common bond’
Murphy serves on the Mississippi State University Foundation Board of Directors with Mallory and holds a degree from MSU. He was previously CEO of Amegy Bank in Texas. Amegy officials announced Murphy’s resignation from the company in December 2009 as he worked to form the new company.
“It never hurts to share a common bond,” Mallory said. “...I’ve obviously gotten the opportunity to know Paul much better in the weeks leading up to this. We were able to share more time together ... Knowing that he’s a Bulldog and I’m a Bulldog, that doesn’t hurt anything it gives you a good basis to begin a relationship.”
In introducing Murphy at the press conference, Mallory said Murphy is a Mississippi native who grew up in Vicksburg.
Mallory said Murphy built Amegy into an $11 billion company and recently sold it to Zions Bancorporation in Salt Lake City, Utah.
Capital ‘the motivating piece’
Mallory said he spoke to Trustmark officials Wednesday.
“They obviously were disappointed but they wished us well and we” wish them well, he said. “I’ve been in the banking business in Mississippi for a long time and some of the closest friends I have in banking in Mississippi are Trustmark people. I’ve known their people for a long time. They are an excellent bank and they certainly will continue to be an excellent bank and do well in the future. I don’t have any doubt about that and we wish them all the best,” Mallory said.
Mallory said: “The motivating piece of this whole issue for us was capital. ... Trustmark would have been an outstanding partner but obviously CBC will too. ... They bring some additional advantages to the table that Trustmark did not so Trustmark’s great but CBC is great too and I think when you put it all down, our board certainly made the right decision.”
Murphy said: “... I too respect the Trustmark organization but I think CBC is an upgrade personally.”
In a statement issued after news of the deal emerged, Trustmark CEO Richard G. Hickson expressed disappointment.
“Trustmark is a highly profitable and extremely well-capitalized financial services organization with significant optionality relative to both strategic and financial acquisitions. While we are disappointed with the decision of Cadence, we are determined to remain disciplined in our approach to acquisitions. Trustmark will continue to evaluate opportunities that meet our strategic and financial acquisition objectives and are beneficial to our shareholders,” Hickson said.
The value of the Trustmark deal could have gone up or down depending on events, Mallory said.
The partnership announced Wednesday will strengthen Cadence’s ability to “go even further with customers, to be there to support them with new loan requests. Businesses and individuals can look to Cadence and be really quite confident in the balance sheet and the team that’s been assembled,” Murphy said.
“We recognize, like a lot of banks, it’s been bumpy for the last couple years but this is a group – as they say ‘tough times don’t last tough people do,’ well this is a group of tough people, and they last and they’re going to persevere,” he said.
CBC has raised $900 million and has yet to make an investment, but will do so in Cadence, Murphy said. Cadence will have an “abundant supply of capital,” with $150 million to $200 million in new capital available, he said.
Murphy thinks closure on the deal is possible within 90 days, depending on regulatory approval.
“We’ll be working it to have it happen in a very deliberate fashion,” he said.
Murphy said the most important thing about building a business is first to do a great job for customers, and the second be a great place to work.
Now recapitalized, reenergized and re-motivated, Cadence officials will be “out knocking on doors, looking for business, looking for top talent to come join us.”
The new deal leaves “no downside risk” to the stock price, Mallory said.
Cadence shareholders — who will be paid cash — will no hold stock in the business as it becomes a privately-held company owned by CBC, Mallory said.
Shareholder tax impact
When asked if Cadence shareholders would face tax liabilities, Mallory said: “That would depend on their basis they have in the stock, or what the value of the stock was when they purchased the stock. Obviously if they bought the stock outside of a couple of years ago, they’re going to have a loss unfortunately in the stock. Rather than any liability, they would have tax credits that would come from that loss.”
He continued to say that “if they bought the stock more recently, then obviously there may be a gain on it. It would depend on the timing of when they bought the stock.”
Jobs will be retained throughout Cadence, Mallory said. “...I think you’ll find that Cadence will maintain the same community commitments, the same feeling of community that it’s built up over these many, many years. That will be unchanged, and it will be backed by a significant amount of capital to add to our ability to do those kind of things,” he said.
Murphy added that with many bank mergers, the bank staff being acquired could be reduced by 20 to 30 percent. CBC has seven employees, so the “Cadence team is our go-forward team,” he said.
“It’s the backbone; it’s what we want to build with. We think not only will there not be any jobs lost, but over time there will be jobs created as we acquire banks” in other parts of the region and in other segments on the country, Murphy said. “We expect that Starkville will be the operating headquarters for the company into the future,” he said.
CBC officials got acquainted with Cadence through the investment banking community by doing their work and looking around the country searching for top franchises, he said. After meeting with the Cadence team, “it became our highest priority. ... Cadence is the one that we wanted to spend time with and find a way to make a deal with and we’re just very, very pleased that it’s all come together,” Murphy said.
In deferring comment on how the deal developed, Murphy said a proxy statement forthcoming in the next few weeks will address such questions as the transaction’s timeline.
Future of board, executives
Regarding the future of the executive leadership and the Cadence board, Murphy said: “It’s our hope and expectation that the management leadership will stay in place. We’ve got some work to do in terms of the board in having them decide exactly what relationship they want to have. It would be my preference, I would invite the board to continue and remain as part of the company.”
He also said: “When you go through a process like this; this has just been decided; I don’t think I can speak for the board and say whether they’re all prepared to do that or on what basis but they will have a warm invitation to continue as a terrific board of directors and community leaders and it’s my hope we will find a structure that is attractive for them going forward.
CBC holding company will retain its headquarters in Houston.
Those holding interest in CBC are the “bluest of blue-chip investors” prominent endowments, pension funds, insurance trusts; “what any company would like to have,” Mallory said.
A proxy will go to the Securities and Exchange Commission for review on Oct. 18, then it will go out to the shareholders, Mallory said. Following that distribution around 20 to 25 days, then shareholders would vote on the deal.
“I would hope that shareholders would find this to be favorable and I believe that they will,” Mallory said.
Ultimately, officials expect the deal to close by first quarter 2011. In a fact sheet on the deal, officials said Cadence has about 40,000 customers.
In closing the press conference, Murphy said in part: “ ... This will be a great time to move your business to Cadence Bank because this is the place to bank.”
In his concluding remarks, Mallory said he appreciates Cadence’s shareholders’ “loyalty and I appreciate the loyalty of our public and our customers. The last year and a half has been tough; we know that and you know that but you’ve hung with us and we are very, grateful for that and I think you’re going to be pleased with the results” of what was announced Wednesday.