Clearfield Bank & Trust v. Omega Financial Corp.
| Decision Date | 10 September 1999 |
| Docket Number | No. Civ.A. 99-180J.,Civ.A. 99-180J. |
| Citation | 65 F.Supp.2d 325 |
| Parties | CLEARFIELD BANK & TRUST COMPANY, Plaintiff, Penn Laurel Financial Corporation and CSB Bank, Intervening Plaintiffs, v. OMEGA FINANCIAL CORPORATION, Defendant. |
| Court | U.S. District Court — Western District of Pennsylvania |
Gary P. Hunt, John E. Graf, Tucker Arensberg, Pittsburgh, PA, for Clearfield Bank & Trust Company, plaintiff.
Leonard Dubin, Blank, Rome, Comisky & McCauley, Philadelphia, PA, for Omega Financial Corporation, defendant.
Laurence W. Dague, David R. Breschi, Angela L. Dumm, Shumaker Williams, Harrisburg, PA, for Penn Laurel Financial Corp., intervenor-plaintiff.
Laurence W. Dague, David R. Breschi, Angela L. Dumm, Harrisburg, PA, for CSB Bank, intervenor-plaintiff.
Laurence W. Dague, David R. Breschi, Angela L. Dumm, Shumaker Williams, Harrisburg, PA, for Guy A. Graham movant.
Laurence W. Dague, David R. Breschi, Angela L. Dumm, Harrisburg, PA, for Carl A. Belin, movant.
In the instant case, this court gets a closeup view of the Darwinian struggle that today animates most merger and acquisition activity in the commercial banking field. Any merger brings to the fore the sometimes converging and sometimes conflicting interests of target and suitor, shareholder and incumbent management. This case is no exception. It presents a pending merger with intervenor bank which plaintiff wishes to consummate and which defendant hopes to defeat. Plaintiff charges that defendant has violated both federal securities law and state banking law in its aggressive efforts to buy shares of plaintiff's common stock directly from some of plaintiff's shareholders. Plaintiff further contends that defendant's conduct warrants the grant of injunctive relief. Meanwhile, a September 20 meeting of plaintiff's shareholders looms,1 at which the planned merger will be presented for approval. As appears from the following, this court's ruling will have profound implications for the market in plaintiff's shares, and for plaintiff and intervenor as on-going entities.
Having conducted an evidentiary hearing on August 24 and 25, the following constitute my findings of fact and conclusions of law.
Clearfield Bank & Trust Company ("Clearfield") is a Pennsylvania-chartered bank and trust company that has served Clearfield County, Pennsylvania since 1902. Exh. P-1, at 1; exh. P-4, at 1. Clearfield conducts business through six offices in Clearfield County, including its corporate office in the borough of Clearfield. Exh. P-4, at 1. "As of March 31, 1999, the bank had total assets of approximately $183.4 million...." Id.
CSB Bank ("CSB"), a Pennsylvania-chartered banking institution, also serves Clearfield County. It conducts business through five offices, including its corporate headquarters in Curwensville, Pennsylvania, a community located five miles from the borough of Clearfield. Exh. P-4, at 2; test. of Butler. Approximately four years ago, Clearfield entertained the possibility of merging with CSB Bank and its parent, Penn Laurel Financial Corporation ("Penn Laurel"), because neither institution could sustain adequate growth in the community without a larger lending base. Test. of Butler. CSB is the only bank owned by Penn Laurel, a registered bank holding company which, as of March 31, 1999, had total assets of approximately $134.9 million. Exh. P-4, at 2.
CSB, in Clearfield's view, was a potential merger partner because it shared Clearfield's conservative philosophy and commitment to the community, and enjoyed a greater growth rate. The initial investigation into a merger agreement between the companies did not lead to an agreement. Test. of Butler. The possibility of a merger resurfaced two years later, in 1997, and a definitive Agreement and Plan of Reorganization (hereafter referred to as the "Merger Agreement") was executed on December 31, 1998 by Clearfield, CSB and Penn Laurel. Exh. P-1, test. of Butler.
The Merger Agreement states that "Penn Laurel, CSB and Clearfield wish to affiliate through a business combination to form a stronger, more effective community financial institution." Exh. P-1, at 1. It explains that Clearfield would merge with CSB and that the resulting bank would bear the name Penn Laurel Bank & Trust. Id. Under the terms of the Merger Agreement, "each share of Clearfield Common Stock issued and outstanding" immediately before the effective date of the merger would be "converted into and become, without any action on the part of the holder thereof, the right to receive .97 shares of Penn Laurel Common Stock." Id. § 2.1(a) at 2. If the merger transaction is not consummated by October 31, 1999, the Merger Agreement automatically terminates, "unless extended, in writing, prior thereto." Id. § 9.1(d) at 49.
The merger was conditioned upon the approval of the Federal Reserve Board, the Pennsylvania Department of Banking, and the Federal Deposit Insurance Corporation, as well as the shareholders of Clearfield, CSB and Penn Laurel. Exh. P-1, § 8.1(a) at 40. The approval of this merger requires "66 2/3% of the outstanding shares at Clearfield and 75% at Penn Laurel." Exh. P-4, at 3.
In addition to the necessary approval from the regulatory agencies and the shareholders, the merger is also conditioned upon the transaction's qualifying for a type of accounting treatment known as the "pooling of interest" method. Exh. P-1, § 8.2(d) at 44; exh. P-4, at 3. The proxy explains that, by applying this accounting method, "we will treat the companies as if they had always been combined for accounting and financial reporting purposes."2 Exh. P-4, at 4. Under this method if the shareholders of Exh. P-4, at 3. The Merger Agreement, however, specifically provides that the dissenting shareholders shall not exceed nine percent of the issued and outstanding shares and acknowledges that dissenting shareholders will be entitled to exercise their rights as provided under the law. Exh. P-1, § 8.1(i) at 42; § 10.1 at 50.
If the merger is successful, "the former Clearfield shareholders will hold approximately 61.03% of all outstanding Penn Laurel common stock and the current Penn Laurel shareholders will hold approximately 38.97% of the combined entity." Exh. P-4, at 2. From the perspective of the Clearfield board of directors, the merger is beneficial because Clearfield will remain locally controlled and the value of its stock should increase. Test. of Butler. In addition, the merged entity would possess the largest market share of any bank in Clearfield County. As a result, the merger should enable the resulting bank to contribute to growth in the community while enhancing shareholder value. Exh. P-4, at 25; test. of Butler, Wood, Downs.
The merger transaction agreed to among Clearfield, CSB and Penn Laurel was the subject of a press release. Timothy Anonick, an investment banker who had performed services for Clearfield in the past, read the press release in January of this year and was "confused" by the proposed merger because he understood that Clearfield was not interested in merging with any other institution. Test. of Anonick. He contacted Clearfield's then-President and CEO, Sherwood Moody, to offer his consulting services. Moody declined, explaining that Ryan, Beck & Company, another investment banking firm, had already been retained.
Anonick contacted Moody again in February to obtain further details about the merger. He also accessed the Merger Agreement on the Internet in early April. After reviewing the terms of the merger, Anonick concluded that the terms of the transaction were not "that good" because the proposed deal was, in his words, not a takeover but a "take-under" by a smaller bank. He contacted Moody again — this time in April — to express his concerns. Upon learning from Moody that some shareholders were unhappy with the terms of the merger, Anonick decided to find out if any other banks would be interested in acquiring Clearfield. In a conversation with Steve Martz, the chief operating officer of Omega Financial Corporation ("Omega"), Anonick was advised to speak with David Lee, Omega's CEO and Chairman.
Anonick met with Lee and Martz on April 27, 1999, and was later retained to help Omega acquire Clearfield. Working with bankers from Omega, Anonick analyzed Clearfield and arrived at an exchange price. With the assistance of counsel, he then drafted a letter expressing Omega's interest in acquiring Clearfield. The letter, signed by Lee and dated and delivered on Monday, May 10, 1999, informed the Clearfield board of directors that Omega was aware of the merger transaction with Penn Laurel and pointed out that "some of your shareholders have expressed opposition to the Agreement." Exh. P-2. Lee's letter further advised that Omega was interested in a merger with Clearfield if the Penn Laurel transaction was not completed. Although the letter carefully stated that it did not "constitute an offer or a definitive agreement," it set forth the terms of Omega's expression of interest. Those terms included, inter alia, that (1) Omega would acquire all of the outstanding common stock of Clearfield for $65 per share, (2) Clearfield would be merged into a newly formed, wholly owned subsidiary of Omega whose name would be Clearfield Bank & Trust Company, (3) Clearfield's current board of directors would be retained, with the addition of one or two Omega directors, (4) one of Clearfield's existing directors would join Omega's board of directors, and (5) all full-time "customer contact" employees would be offered full-time employment. The letter concluded as follows:
Our purpose in writing this letter is to make our...
To continue reading
Request your trial
-
In re Digital Island Securities Litigation
...R.App. P. 4(a)(4), upon the entry of an order granting or denying the motion. 9. Plaintiffs cite Clearfield Bank & Trust Co. v. Omega Fin. Corp., 65 F.Supp.2d 325, 340, 342-43 (W.D.Pa.1999), in support of the proposition that Section 14(e) requires proof of scienter. 10. We agree with the D......
-
In re Digital Island Securities Litigation
...plead scienter with the requisite specificity. Scienter is an element of a Section 14(e) claim. See Clearfield Bank & Trust Co. v. Omega Fin. Corp., 65 F.Supp.2d 325, 342-343 (E.D.Pa.1999); Connecticut Nat'l Bank v. Fluor Corp., 808 F.2d 957, 961 (2d Cir. 1987). The Third Circuit has define......
-
Beasley v. Conopco, Inc.
...relies on a decision from another jurisdiction which set out some characteristics of a tender offer. See Clearfield Bank & Trust v. Omega Financial Corp., 65 F.Supp.2d 325 (W.D.Pa.1999). Those factors include active and widespread solicitation of public shareholders for the shares of the is......