Capital Bank considered a higher per-share offer from another investor before accepting North American Financial Holdings' bid to pay $181 million for a majority stake in the struggling Raleigh bank.
Capital also reported in a regulatory filing Tuesday that the consummation of the North American deal will trigger lucrative payments to Capital's top management, including $3.4 million to CEO Grant Yarber. The payments stem from a "change of control" clause in the executives' retirement plans.
By comparison, Capital paid Yarber $526,207 in compensation last year.
Capital's board of directors favored the North American deal over the competing bid from an unnamed private equity firm because it calls for "a much larger capital infusion," is more likely to be completed and offers "greater future growth opportunities," among other reasons, the bank wrote in the Securities and Exchange Commission filing.
Key details about the other offer, such as the per-share price, weren't provided. Yarber declined to comment, citing a confidentiality agreement.
North American's offer "provides a higher value to shareholders than the alternative transaction," Capital wrote in the filing.
North American, led by two former Bank of America executives who work out of Charlotte, announced last week its proposal to buy an 85 percent stake in Capital by purchasing $181 million in newly issued stock.
North American's bid
North American offered $2.55 a share, a premium compared to the $1.64 price the shares fetched the day before, but well below what Capital's stock was worth before the recession battered the bank's portfolio of real estate loans and regulators pressured it to raise additional financing. The bank's shares had traded above $15 in late 2007.
The investment firm plans to more than double Capital's size - to 84 branches that would extend into South Carolina and Florida - by combining Capital with four out-of-state banks it acquired earlier this year.
Approval required
The so-called proxy filing, which will be sent to shareholders, urges them to approve the North American deal at a meeting Dec. 16 at the bank's headquarters in downtown Raleigh. The bank would have to pay a $5 million fee to North American if it accepted another offer.
The deal also is contingent on the U.S. Treasury Department agreeing to let the bank pay back the $41.3 million in federal stimulus money it received at a discount acceptable to North American. North American's target is for the bank to pay back half.
Although North American isn't buying the shares from the bank's current shareholders, the proxy points out that those investors could benefit directly from the deal. They are entitled to receive a future payment of up to 75 cents per share at the end of five years, based on the performance of the bank's loan portfolio.
Formed in 1997, Capital is one of the Triangle's largest community banks. It has 32 branches across the state, and it was among the most successful until the recession buffeted its operations.
The other offer
The amount of capital offered by the unidentified private equity firm "was substantially lower than that offered by [North American], and the resulting structure would not meaningfully expand the company's existing branch footprint," Capital states in its filing.
In addition, the private equity firm's financing "was not as secure as [North American's] readily available cash, and regulatory approval for the alternative transaction was less certain as to both timing and likelihood of approval." North American, incorporated last year, raised about $900million from investors and will have about $400 million remaining after buying Capital.
The Orr Group, an investment banking firm based in Winston-Salem, has reviewed North American's offer and considers it to be a fair one, according to the filing.
North American plans to retain Capital's management team. Yarber would become market president for North Carolina, which would put him in charge of the bank's 32 branches in this state.
