Magazine article American Banker

A Thrift's Hard Lesson in Merger Conversions

Magazine article American Banker

A Thrift's Hard Lesson in Merger Conversions

Article excerpt

A WOOSTER, OHIO, THRIFT received an abrupt lesson last week in the difficulties of merger conversions.

FirstFederal Financial Services Corp. was thwarted in its attempt to acquire another Ohio thrift, First Federal Savings Bank of Dover, in a merger conversion when the target backed away.

FirstFederal's failure to obtain a definitive merger agreement with the $58 million-asset Dover thrift underscores the pitfalls of the transaction itself.

"Merger conversions are among the most difficult deals to accomplish," said David P. Downs. senior vice president at Ryan, Beck & Co.

FirstFederal, with assets of $571 million. announced in May that it had signed a letter of intent to acquire the Dover thrift. Under the terms of the preliminary agreement, Dover's depositors would have converted their ownership into roughly $6 million of FirstFederal stock.

FirstFederal would have picked up the Dover thrift and its $6.2 million of capital merely by issuing roughly $6 million of new equity. Thus FirstFederal would have bought the mutual while gaining about $12 million of new capital. The only cost to FirstFederal: About 5% dilution to shareholders.

"These are the kinds of deals we would like to do," said, Gary G. Clark, the Wooster thrift's president. "But they are relatively tough transactions to get done."

Nevertheless, 155 merger conversions have taken place since 1988, all of them involving thrifts Gary G. Clark under $1 billion of assets, according to Securities Data Co. …

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