Wed, Jul 30, 2014, 1:13 AM EDT - U.S. Markets open in 8 hrs 17 mins


% | $
Click the to save as a favorite.

Hudson City Bancorp, Inc. Message Board

  • JJR1998 JJR1998 Aug 23, 2000 1:22 PM Flag

    A Deal Gone Bad

    First Federal Bankshares (FFSX) demonstrates in
    spades what can happen to a second-stage conversion in a
    weak market. FFSX originally IPO'd on 7/13/92 and
    filed to second-stage on 10/18/98. During those six
    years the price increased by 398%, closing at $24 on
    the filing date. (During the speculative frenzy of
    early 1998 it was bid up to a high of $39 a

    The exchange terms of the filing stated that at
    minimum, 1.647 new $10 shares would be exchanged for every
    old share. At supermax, the exchange called for 2.569
    new $10 shares for every old share. The closing date
    was 3/22/99 and the price had fallen to $22.63 a
    share. In a shaky market, the $22.63 that minority
    shareholders would be exchanged out of, was scary. At worst
    the minority shareholder's $22.63 could be worth
    $16.47 and at best it could be worth $25.69 at the open.
    To compound the problem of valuation and add one
    more unwanted variable to the mix, FFSX decided to
    concurrently buy Mid Iowa for 194% of book value. (In
    hindsight this wasn't wise and I don't think these
    transactions should ever be done at the same time

    What happened? The offering went at minimum and the
    $22.63 was worth $16.47 at the open. This price
    represented 71.5% P/B. At this low price under normal
    conditions a pop would have occurred. Unfortunately, the
    confluence of a poor market and poor management decisions
    were enough to drop the stock price by another 3.1%.
    The minority shareholders lost about 30% on the day.
    The depositors who took part in the offering lost
    3.1%. Little capital was raised in the offering, so
    valuation are more compelling for long term holders. (One
    would hope, though, that management acts a little
    smarter in any future transaction).

    Looking at a
    good deal and a bad deal demonstrates the riskiness of
    these second-stage transactions. In a shaky market,
    nobody knows with any certainty exactly how any of these
    deals will turn out. (Because of current market
    conditions I don't know with any certainty how the American
    Savings' IPO will turn out either). By studying past
    second-stage offerings, at least we understand the mechanics
    of the transactions. I think in the future, the
    thrift market will not be as unsettled as it is today
    and we will be able to make reasonable assumptions
    about these transactions.

9.78+0.01(+0.10%)Jul 29 3:59 PMEDT

Trending Tickers

Trending Tickers features significant U.S. stocks showing the most dramatic increase in user interest in Yahoo Finance in the previous hour over historic norms. The list is limited to those equities which trade at least 100,000 shares on an average day and have a market cap of more than $300 million.