Magazine article American Banker

Hostile Takeovers May Rise after Pooling Deals Bow Out

Magazine article American Banker

Hostile Takeovers May Rise after Pooling Deals Bow Out

Article excerpt

Hostile takeovers between banks -- a rarity in the past -- could become more frequent when the purchase method becomes the only way to account for a merger.

Pooling-of-interests accounting, which fueled most of the merger boom in the banking sector, has prevented many aggressive acquirers from launching hostile transactions, said Henry C. Dickson of Salomon Smith Barney.

A bank can prevent itself from being "pooled" by buying back more than 10% of its shares, because pooling rules say that 90% of a deal's price tag must involve untainted shares. Reissuing shares that have been bought back taints them.

Another obstacle that pooling of interests created is the cross-option lockup agreement. A lockup agreement -- standard in many large bank deals -- grants each company the right to own as much as 20% of the other's stock if one company walks away from the deal.

A pooling of interests is not allowed if a single investor holds more than 10% of one company's stock.

The Financial Accounting Standards Board is planning to repeal pooling-of-interests accounting at the end of the year. In a pooling, the stocks and assets of both companies are combined. The standards board says purchase accounting, in which the acquirer must write off the purchase price over time, gives investors a more accurate picture of the financial situation of the resulting company.

Hostile takeovers in the banking industry have been infrequent and often unsuccessful, Mr. …

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