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No Sale
A recent SEC filing explains why F.N.B. Corp. decided it had to split in two.
By Francis X. Gilpin
Associate Editor
F.N.B. Corp. divided its Florida and Pennsylvania banking operations into separate companies this month because Wall Street was undervaluing the Florida holdings. As it turns out, the investment community wasn't the only place where F.N.B. wasn't getting much respect.
In a regulatory filing last month, First National Bankshares of Florida Inc., which was created to take over Florida assets, disclosed that the F.N.B. board of directors in Naples briefly shopped the entire company last spring to 16 banking companies. The level of interest displayed by potential buyers was disappointing, to say the least.
Just one of the 16 financial institutions queried confidentially responded with an offer. But the unidentified party was only willing to pay less than 5% above the approximately $30 a share at which F.N.B. stock was trading during the month-long solicitation period.
The disclosure of F.N.B.'s predicament was published in an amended stock registration statement filed with the federal Securities and Exchange Commission just before Christmas. Clay Cone, an F.N.B. vice president and director of corporate communications, told GCBR that his company would have no further comment beyond what was contained in the Dec. 22 filing.
F.N.B. executives had long marketed their company as a growth opportunity for investors. Between 1997 and last spring, F.N.B. had acquired 11 other Florida banks. The latest was the $150-million acquisition of Charter Banking Corp., parent of Tampa's Southern Exchange Bank.
As of March 2003, however, F.N.B. stock had gone up an annual average of 23% since 2000, according to Allen C. Ewing & Co. F.N.B. was the biggest publicly traded, Florida-based community bank in a hot Sunshine State market. Yet Fidelity Bancshares Inc. (56%), BankAtlantic Bancorp Inc. and FFLC Bancorp Inc. (both 49%) led a group of more than a dozen other banks whose shareholders had enjoyed greater average annual stock appreciation than F.N.B.'s.
The drag on F.N.B.'s stock price was its solid but stagnant franchise in Western Pennsylvania and Northeast Ohio. Growth there was flat compared to the fast pace of expansion on the Florida Gulf Coast.
"The Pennsylvania bank had sufficient size, and even though they weren't growing, they were generating good earnings every year, and they were piling their earnings back into equity," Garrett Richter, chief executive of First National Bank of Florida, told GCBR last April.
That same month, the executive committee of F.N.B.'s board met to consider three courses of action: sell the entire company, sell the Pennsylvania component or spin off the Keystone State operation. A few weeks later, the full board retained SunTrust Robinson Humphrey to sound out suitors on an acquisition of the whole company.
Besides the lone low-ball offer, Robinson Humphrey investment bankers reported back that two other financial institutions were interested. But they only wanted to buy pieces of F.N.B. The board rejected all three proposals and directed Robinson Humphrey to urge the trio to do better with follow-up offers. None would.
"I think that was confirmation for them that the overhang of the Pennsylvania piece was causing the markets to not properly consider the value of their business," says Gary Tenner, a Robinson Humphrey bank analyst.
According to the First National Bankshares filing, the board opted against selling the Pennsylvania operation because of the lukewarm results of the initial solicitation and anticipated tax consequences. Since a class of trust-preferred F.N.B. securities could not be assumed by another entity and the Pennsylvania operation was the better capitalized, the board chose to spin off the Florida chunk of F.N.B.
As of last spring, more than half of F.N.B.'s assets were still in Pennsylvania, where the company was founded in 1974. But, as Richter told GCBR at the time, future growth will come from Florida.
Every F.N.B. shareholder of record at the end of business on Dec. 26 received one share of the new First National Bankshares common issue for every F.N.B. share they held.
F.N.B. waited until it filed a second amended version of the registration statement for the First National Bankshares securities on Dec. 22 before it disclosed a detailed account of the aborted Robinson Humphrey-led auction.
The disclosure was included because company lawyers decided it was material information for investors, according to F.N.B.'s Cone. He didn't know why the overture to potential buyers wasn't mentioned in the original version of the registration statement, filed on Halloween with the SEC. Cone did note that the twice-amended Dec. 22 version was the one sent out to F.N.B. shareholders.
Cone pointed out that investors have reacted well to the division of F.N.B. Pre-split F.N.B. shares were trading under $35 a piece before Christmas while the combined price of the two issues in early January was up almost to $36.50.
The First National Bankshares distribution was tax-free for F.N.B. shareholders. And tax considerations are why the F.N.B. board isn't likely to revisit a possible takeover for another two years, says Keefe, Bruyette & Woods Inc. analyst Jefferson L. Harralson.
"Without the split franchise, it would have been very problematic as far as an exit strategy is concerned," says Harralson. "The investor appreciates the opportunity to buy the stocks separately, depending on their orientation."
Harralson says growth investors can now buy First National Bankshares, under the ticker symbol FLB, while value investors fall back on the Pennsylvania bank's stock.
F.N.B. stock in the last year
(Adjusted for dividends and splits)
01/21/0305/19/0306/02/0306/23/0312/22/0312/29/0301/05/04
First National Bankshares of Florida Inc.------$16.74
F.N.B. Corp.$24.84$29.20$30.30 $29.55$34.87$19.40$19.74
Combined price$36.48
Source: GCBR research
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