BB&T-BankAtlantic Deal Re-Opposed

Zacks

BB&T Corporation's (BBT) deal to acquire BankAtlantic, a wholly owned subsidiary of BankAtlantic Bancorp Inc. (BBX) has been floored again with fresh charges made by J. Phillip Max, the envoy of the shareholders.

As reported by Bizjournals, a complaint was filed in the Broward County Circuit Court in Florida against BankAtlantic Bancorp along with its directors, Chairman and CEO. Moreover, the case was also against BB&T as well as BFC Financial Corp. (BFCF), the principal owner of BankAtlantic Bancorp.

The Allegations

The lawsuit claims that the shares of BankAtlantic have been underpriced in the acquisition deal. Further, it alleges that the executives have been unfairly granted an amount of about $11 million in the form of non-compete and severance awards.

Moreover, Alan B. Levan, CEO of BankAtlantic Bancorp, along with fellow executives has been accused of indulging in personal benefits at the expense of the shareholders by agreeing to receive personal compensation from the purchase price, which rightfully belongs to the shareholders.

The lawsuit has been filed with the intention to rescind the agreement and to reinstate damages to shareholders. According to the allegation, the accused individuals violated their duties by allowing the sale for minimal consideration, which significantly hurt the shareholders’ interests.

Further, the lawsuit stated that the expected shareholder equity after the revised deal would be $146.5 million. This is considerably less than $301 million, the expected amount after the original agreement. The reduced compensation is insufficient for the shareholders.

The Original Deal

In November 2011, BB&T had announced its plan to acquire BankAtlantic. Under the terms of the deal, the company would acquire $2.1 billion in loans and $3.3 billion in deposits (90% core and low-cost funds) for $301 million premium. This represented 9.05% of the deposits at BankAtlantic on September 30, 2011, plus the net asset value of the bank.

However, deposit premiums could rise or fall, based on the amount of deposits at BankAtlantic prior to the closing of the deal, not exceeding $315.9 million.

The First Protest

Immediately after the deal was announced, a group of corporate debt investors of BankAtlantic, led by Hildene Capital Management and Alesco Preferred Funding, filed a lawsuit against the firm to prevent it from selling its loans, deposits and branches to BB&T as the sale breached the terms of their creditors’ agreement.

The plaintiffs accused both BB&T and BankAtlantic of structuring the transaction in such a way that the acquirer can evade the trust preferred securities (TruPS) obligations.

The Revised Terms   

The opposition led to the modification of certain terms of the agreement by BB&T in March 2012. As per the modified deal, along with the earlier terms, BB&T will also assume BankAtlantic Bancorp’s obligations related to the outstanding TruPS having a balance of about $285 million.

Additionally, BB&T will get 95% preferred interest in a newly established LLC, which would consist of a $423 million pool of loans and $17 million of other net assets as of January 31, 2012. BankAtlantic Bancorp will also provide BB&T with an incremental $35 million guarantee to further assure the recovery of $285 million of assumed liability.

Status of the Deal at Present

On April 10, the Office of the Comptroller of the Currency (OCC) approved the acquisition deal based upon the fact that there will be no further changes in the deal terms. The BB&T-BankAtlantic deal is expected to close by the end of this quarter.

Conclusion

For BankAtlantic, the agreement will resolve some of its balance sheet and higher operating expense related problems. For BB&T, the transaction will enable it to speed up its expansion strategy in the Florida region by the addition of 78 branches and will increase its market share and footprints.

Though the BB&T-BankAtlantic deal is expected to be substantially beneficial for both the companies, the repeated emergence of oppositions and lawsuits by the investors may mar the successful completion of the acquisition deal as the approval of the Federal Reserve and Federal Deposit Insurance Corporation (:FDIC) is still pending.

Currently, the shares of BB&T retain a Zacks #2 Rank, which translates into a short-term Buy rating.

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