First Citizens Bank has launched a $46 million hostile takeover of KS Bank, a bank with nine branches in the greater Triangle and Eastern North Carolina.
First Citizens, which is headquartered in Raleigh, announced Thursday that it is offering $35 in cash per share, or about $45.8 million, to acquire all of the shares of KS Bank’s corporate parent, Smithfield-based KS Bancorp.
First Citizens said it was making its offer public after an earlier offer of $33 per share – $2 less than the latest offer – was summarily rejected by KS’s board of directors.
“In light of your rejection of our proposal, and as a clear sign of our seriousness to effect a transaction, we are increasing our proposal to acquire KS Bancorp to a price of $35 per share in cash,” Craig Nix, First Citizen’s chief financial officer, wrote in a letter to KS’s board.
Nix noted that First Citizens was releasing the text of the letter “to ensure that your shareholders are fully apprised of the substantial premium that we would be willing to pay for their shares. We believe that your shareholders will emphatically support the board’s entering into a constructive and professional dialogue with us.”
KS Bank CEO Harold Keen said that he was surprised a regional bank the size of First Citizens “would attempt to make a hostile takeover of a $360 million county savings bank.”
KS Bank had $368 million in assets as of March 31. First Citizens boasts $34 billion in assets, as well as more than 500 branches in 22 states.
“Certainly the board will consider this new indication of interest” from First Citizens, Keen said.
First Citizens noted that its per-share offer represented a 49.6 percent premium over KS’s closing price of $23.40 as of July 12 and an 84 percent premium over the bank’s book value. Book value is the value of a company’s assets minus its liabilities.
“We are disappointed by KS Bancorp’s rejection of our offer without any discussion,” First Citizen CEO Frank B. Holding Jr. said in a prepared statement.
Keen said that when KS’s board of directors reviewed First Citizens’ earlier $33-a-share proposal, it determined that the offer “wasn’t more beneficial to the shareholders” than the bank’s previously announced plan to reorganize as a chapter S corporation.
An S corporation limits the number of shareholders to no more than 100. In addition, S corporations don’t pay any federal income taxes. Instead, income or losses are passed through to shareholders, who are accountable for the tax.
Holding noted in his statement that it was his understanding that switching to an S corporation “would involve a buyout of a significant number of KS Bancorp shareholders.”
Keen said that KS Bank has more than 400 shareholders, but that doesn’t mean that the bank would have to buy out more than 300 of them to pare down to the 100 limit.
“Family groups can count as one shareholder,” he said. “For instance, you, your wife, your children, your brothers, etc., if they were all shareholders, all of them would count as one shareholder.”
Keen said he didn’t know how many shareholders would have to be bought out, but given that many local families own shares it wouldn’t be “a major portion” of shareholders overall.
KS Bank hasn’t yet determined what price it would offer shareholders it would need to buy out.
“We will be using a national firm to do an evaluation of the price of the stock,” he said.
KS Bank has branches in Garner, Selma, Clayton, Wendell, Four Oaks, Smithfield, Kenly, Goldsboro and Wilson.
Last year, KS Bank posted $2.1 million in net income, up from $1.4 million in 2015.