La Jolla Bank Gives OK to Merger With Security Pacific

SAN DIEGO — La Jolla Bancorp’s board of directors voted Thursday to go ahead with its merger with Security Pacific Bank, despite the fact that the La Jolla bank holding company’s shareholders will receive 25% less for their shares than they had originally hoped for from the stock swap.

The vote, the last obstacle to the merger that is scheduled to become final today, means La Jolla Bancorp shareholders will receive roughly $11 worth of Security Pacific stock and cash for each share they own, La Jolla Bancorp President Ed Sondker said Thursday.

La Jolla Bancorp is the parent of La Jolla Bank & Trust, a seven-branch institution with $510 million in assets as of March 31.

When the two banks first announced plans to merge last year, La Jolla Bancorp said its shareholders would receive Security Pacific stock worth $15 for each share, as long as Security Pacific stock stayed above a floor price of $38.25 a share.

That price, nearly three times the company’s book value, would have made the deal one of the richest multiples of book value ever paid for a California bank. The stock swap was figured according to a complicated formula whereby La Jolla Bancorp shareholders would receive .392 shares of Security Pacific stock for each share they owned.

But Security Pacific stock has fallen sharply in price in recent weeks, as have the shares of other banks and savings and loans. The reduced stock price----Security Pacific stock closed Thursday at $26, down $1----makes the stock swap less attractive to La Jolla Bancorp shareholders.

To make the deal more palatable to shareholders, La Jolla Bancorp’s board voted last week to issue a 21 cent-a-share cash dividend and 2% stock dividend to its shareholders.

La Jolla Bancorp had the right to bail out of the merger once Security Pacific stock fell below the $38.25 floor price. But its board of directors on Thursday approved the $11-per-share deal, saying the stock swap is still an “excellent transition.” The total value of the merger is $85 million, contrasted with $115 million value at $15 a share, Sondker said.

“We are disappointed it’s not what it was originally,” Sondker said. But, contrasted with other banking mergers in 1990, “we are still one of the highest priced transactions in the U.S.,” he said.

The merger will result in layoffs of 120 La Jolla Bancorp employees, with Security Pacific retaining about 200 employees, mostly branch personnel. Most of the 120 employees to be laid off, including Sondker, will lose their jobs today.

Sondker said he signed a non-competing clause with Security Pacific that bars him from working at a San Diego County bank for the next 18 months.