Bank Employees Left in Limbo by Merger Doubts : Slump: The fall in bank stock prices has cast a pall over the planned merger of La Jolla Bank & Trust and Security Pacific.
With the merger of La Jolla Bank & Trust with Security Pacific Bank suddenly in doubt, so are the fates of 170 of the bank’s employees who had been told that their jobs would be eliminated once the merger was complete.
Some employees at La Jolla Bancorp, the bank’s parent firm, were told their jobs would end Aug. 20, the day the stock-swap merger was to have been completed. Others were told they would be given walking papers over several months after the deal is final.
Now, some bank employees aren’t sure what will happen.
Last year, the two banks agreed to a $15-per-share buyout of La Jolla Bank & Trust by Security Pacific. Each share of La Jolla Bancorp was to have been exchanged for $15 worth of Security Pacific stock as long as Security Pacific shares maintained an average minimum price of $38.25 during the five trading days up to and including Aug. 20.
The deal, which received shareholder approval in June, seemed a foregone conclusion until the drop in Security Pacific stock in recent weeks suddenly made the deal less attractive to La Jolla Bancorp shareholders.
Security Pacific stock has been hammered--as have the shares of many other California banks--as the stock market has grown increasingly anxious over banks’ exposure to the state’s softening real estate market and to a possible nationwide economic recession.
Security Pacific stock closed Wednesday at $30.75 per share, up $.625. If the stock were to trade at this level for the five days ending Aug. 20, La Jolla Bancorp shareholders would receive $12.25 in Security Pacific stock, instead of $15 per share.
La Jolla Bancorp’s board of directors will meet Aug. 20 to consider its option of bailing out of the merger agreement.
La Jolla Bancorp President Ed Sondker declined to speculate on whether La Jolla Bancorp’s board would accept a lower-than-expected exchange.
“The merger does not stand any different than it did before,” Sondker said. “We will make a determination by the time the price has been set on Aug. 20. We will have a special board meeting, meet with our investment banking firm and law firm and evaluate whether it’s still a fair transaction to our shareholders.”
Sondker declined to comment on whether the bank is negotiating with Security Pacific to sweeten its offer to ensure a stock swap value of $15 per La Jolla Bancorp share. He pointed out that several analysts have been quoted as saying that the deal, even at the reduced price, is still a good one for La Jolla Bancorp shareholders.
Dick Warner, Security Pacific Bank executive vice president, also declined to comment on whether Security Pacific might alter or sweeten the terms of the swap if his stock continues to trade below the $38.25 floor price.
“We are not prepared to discuss this at this time,” Warner said. “Our stock is not under any more pressure than other California competitors who might have been interested in (the La Jolla Bancorp) deal.
La Jolla Bancorp has assets of $510.7 million as of March 31. At $15 per share, the value of the stock swap would work out to a $111-million transaction, or nearly three times the bank’s book value, one of the richest prices ever paid for a California bank.
Although most of the bank’s administrative and loan service employees are expected to lose their jobs, an equal number of branch employees would retain theirs as Security Pacific employees. Sondker said he expects to leave the merged bank and is looking for a business to invest in.
