Citadel Takes Defensive Step Against Merger
Citadel Holding, resorting to what is known as the “lollipop defense,” authorized a new issue of preferred stock Tuesday that it says will sharply boost the value of its common stock in the event that Great Western Financial is able to buy control of Citadel.
The move is the latest wrinkle in the increasingly involved takeover fight between the two California-based savings and loan companies. Great Western is seeking to take over Citadel by acquiring at least 51% of its stock through a tender offer that expires April 25.
Citadel now says it is prepared to give its shareholders the right to swap their common stock for a new series of publicly traded preferred stock that is intended to have a market value of $70 a share. The right would be triggered if Great Western acquires at least 40% of Citadel’s common stock.
‘Grossly Inadequate’ Offer
Citadel officials say the move is intended to protect those shareholders who are opposing Great Western’s tender offer. As much as two-thirds of Citadel’s 3.47 million shares of common stock is believed to be held by professional stock traders, but 22.5% is controlled by top executives and the board of directors.
Great Western wants to exchange 1.2 shares of its common stock for each share of Citadel, an offer worth about $52 a share based on present market values. Citadel’s stock closed Tuesday at $53.87 1/2 a share, while Great Western’s closed at $43.62 1/2.
Citadel, parent company of Fidelity Federal Savings & Loan, has called the offer “grossly inadequate.”
The lollipop defense has been growing in popularity, having been adopted by such companies as Revlon and Great Lakes International. The tactic generally allows shareholders to get premium prices for their shares if an unwanted suitor acquires control.
“This isn’t trying to prevent a takeover,” Citadel Chairman James A. Taylor said in an interview. “It’s just trying to sweeten the deal for the shareholders.”
Unhappy With Tactic
Citadel’s decision to go ahead with the lollipop defense was a controversial one reached at a six-hour board meeting Monday. Taylor confirmed that he voted against the move because he felt that the $70 price was too high.
Just last week, Citadel’s board considered, and then rejected, an offer of $65 a share from an unnamed bidder that was willing to pay cash. The offer was made by an Australian financial services company, The Times later learned.
The offer was rejected primarily because two directors and major shareholders, Alfred Roven and James J. Cotter, refused to go along with the deal. Though Roven wouldn’t comment publicly, it was learned that he also was unhappy about the lollipop defense because he considers it legally questionable.
A spokesman for Great Western had little comment, saying only that the action was “somewhat confusing.”
But Citadel, in a press release, predicted that Great Western would challenge the move in court.
