Doug Bowers, the CEO of Square 1 Bank, has signed up to continue running the business for six months after the Durham-based bank is acquired by Pacific West Bank.
Bowers’ new agreement with PacWest calls for him to receive a $4.1 million “cash retention award” that is roughly equivalent to what he would be entitled to, under the terms of his contract with Square 1, if his employment was terminated following consummation of the merger, according to documents recently filed with the Securities and Exchange Commission.
Bowers will be president of the Square 1 business for six months after it becomes a division of PacWest. He will be paid a salary of $300,000 for that half-year. He also will be eligible for an additional $500,000 if he remains for the entire six months plus $390,000 extra if the business achieves certain growth targets.
When the two banks announced in March that California-based PacWest had agreed to acquire Square 1 for stock valued at $849 million, specifics regarding the future of Bowers and other top executives weren’t disclosed. The deal, which is technically a merger, is expected to be completed in the fourth quarter of this year.
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Square 1, which has a low profile locally, provides loans and other banking services to venture capital firms and the businesses they invest in nationwide. It has 13 offices across the country and $3.1 billion in assets. PacWest, a more traditional bank catering to small and mid-sized business, has 80 branches, mostly in southern and central California, and more than $16 billion in assets.
Of Square 1’s top seven executives after Bowers, four are being retained and three are being terminated.
Those being retained in their current roles are: Sam Bhaumik, executive vice president of banking; Diane Earle, executive vice president and chief credit officer; Judith Erwin, executive vice president of strategic business; and Frank Tower, executive vice president of banking.
Square 1 executives who are being terminated are: Jason Kranack, executive vice president of human resources; Patrick Oakes, executive vice president and chief financial officer; and Gregory Thompson, executive vice president of shared services. Their severance payments are estimated to be $792,000, $936,000 and $900,000, respectively.
The merger is expected to generate cost savings amounting to 20 percent of Square 1’s operating expenses, or $13.9 million pretax, next year.
The latest filing by the two banks also outlines how the deal came together and makes clear that Square 1, which went public in March 2014, wasn’t actively pursuing a sale. Nor did it pursue other possible deals after PacWest made its overtures because its board of directors concluded there would be “very significant risks from a confidentiality, competitive, and employee retention perspective” if it approached other potential partners.
PacWest got the ball rolling in November when its CEO, Matthew Wagner, contacted a member of Square 1’s board of directors and talked of the bank’s “interest in discussing strategic matters.” That led to a telephone call on Nov. 14 between Wagner and Bower, after which Square 1’s board of directors formed a mergers and acquisitions committee to review the bank’s “strategic alternatives.”
When PacWest first discussed offering $27 per share to Square 1 shareholders in mid-December, Square 1 shares were trading below $24.
However, as discussions continued into February, Square 1’s shares surged despite the absence of any compelling news from the bank or a commensurate rise in the overall market or other banking stocks. The two banks concluded that the rise might be “attributable to market speculation about a possible transaction.”
The final terms of the deal called for Square 1 shareholders to receive 0.5997 shares of stock in Pacific West’s corporate parent for each share they own. Based on the closing price of PacWest shares on the last trading day before the deal was announced, that amounted to $27.49 per share for Square 1 shareholders. Shares of Square 1 Financial, the bank’s corporate parent, actually closed slightly higher that day at $27.68.
However, Square 1 directors concluded that the bank’s shares would be trading “significantly lower” if investors weren’t speculating about a possible deal.
Square 1 shares closed Tuesday at $26.50, down 9 cents.