Bank of New York to Stick With Bid for Irving

Bank of New York Co. said Wednesday that it won’t back away from a $1.08-billion hostile takeover bid for Irving Bank Corp. despite Irving’s decision to issue preferred stock to several private investors.

In an effort to bolster its takeover defenses and place stock in friendly hands, Irving announced Tuesday that 15 investors were issued $100.1 million of the convertible preferred stock.

Those owning the new shares would be given more voting rights than common stockholders, with each of the preferred shares carrying 1.471 votes. The new shares also contain covenants that Irving admits “could adversely affect the ability to accomplish any acquisition” should they be breached.

For one thing, the covenants would require the merged bank to maintain relatively high levels of capital, according to Irving, and they would restrict the company’s ability to issue new stock.

Bank of New York called the private stock placement “illegal and just another attempt to obstruct the regulatory approval process, which is near completion.”

The merger proposal needs approval from the Federal Reserve Board, the New York State Banking Board and shareholders from both banks. The bid was on the Fed’s agenda at a closed meeting late Wednesday, but Fed officials said there would be no immediate announcement regardless of whether a decision was made.

The banking board was scheduled to take up the proposal today.

Regardless of the outcome, neither bank would come out a winner, analysts predicted.

“If they (regulators) were to say it’s not in the best interest of banking, then I think Bank of New York would probably walk away and Irving Bank’s stock would fall substantially,” said Stephen Berman, a banking analyst with County Securities USA.

“If they approved it, I think Bank of New York would persist but I still think it remains a very iffy question.”

Federal Reserve Chairman Alan S. Greenspan told the Senate Banking Committee on Wednesday that he sees no distinction between hostile and friendly bank takeovers. The central bank chief noted that any hostility in an unsolicited bid was between rival managements, not shareholders.

Hostile takeover efforts are rare in the banking industry. A merger between New York Bank and Irving would create one of the nation’s 15 largest bank holding companies, with combined assets of more than $40 billion.

Irving asked the New York State Supreme Court to enjoin the banking board from acting on the proposed merger, but the court ruled in favor of Bank of New York on Tuesday. Bank of New York also indicated that it is considering a proxy battle for control of Irving’s board. Should it succeed, it could undo Irving’s “poison pill” anti-takeover defense, intended to make any hostile buyout prohibitively expensive by giving shareholders the right to buy shares cheaply in an acquiring company.

Earlier this month, Irving’s board rejected as “significantly inadequate” Bank of New York’s revised offer to pay $15 in cash and 1.575 shares of its own stock for each of Irving’s 18.1 million common shares outstanding.

Based on Wednesday’s closing stock prices, the offer would be worth slightly less than $1.08 billion.

Bank of New York initially offered to pay $80 in cash and securities for Irving in September, but has lowered the offer twice since the stock market crash in October.