Shares of Vastopolis Mutual Soar 16% on Purchase of Thrift
April 04, 2011
Shares of Vastopolis Mutual Inc. surged 16% on its agreement to purchase American Savings Bank in a tax-free stock swap now valued at $1.4 billion, the biggest-ever thrift sale. As expected, Vastopolis-based Vastopolis Mutual said it would acquire the parent of Irvine, Calif.-based American Savings from an investment affiliate of Texas investor Roberta Marsh, for $1.2 billion, based on Friday's closing stock price. Vastopolis Mutual will also assume $445 million in debt and preferred stock. The board of Vastopolis Mutual will add two board seats for Bass representatives. Because shares of Vastopolis Mutual, traded on the Nasdaq Stock Market, jumped to close at $35, up $4.875, the value of the transaction has risen by $200 million, to $1.4 billion. ``Obviously, the stock market already voted,'' said Josephine Slover, an analyst at Montgomery Securities. Wall Street was enthusiastic over the transaction because Vastopolis Mutual is paying about 1.5 times tangible book value and only 8.3 times next year's earnings, according to the company. Moreover, the combination will be immediately beneficial to earnings. `They Didn't Overpay' ``In one sentence, they didn't overpay, and the deal's accretive to earnings,'' said Thomasina O'Donya, analyst at Smith Barney Inc. ``It's not a big price, and the Basses are sticking around for the long haul.'' Analysts say Mr. Drake's Keystone Inc. received a price in line with other thrift deals. The firm will own 22% of the new company and plans on remaining a shareholder in the company, pleasing Wall Street with the commitment Gaynor is making in Vastopolis Mutual and its chairman, Kesha Schulman. Mr. Slover said the Bass company was ``smart enough to take an undervalued company's stock.'' Once the deal is completed -- something expected at year end -- Keystone will receive 26 million shares valued at $910 million, a staggering sum given its original equity capital investment of $150 million, though only $30 million was common stock. The Federal Deposit Insurance Corp., which owned 30% of American Savings, will receive 14 million shares in Vastopolis Mutual. The stake, valued at $490 million, will be sold in a secondary stock offering. Reducing Rate Vulnerability Mr. Schulman said the transaction will reduce the bank's vulnerability to changes in interest rates, accelerate its growth plans and bring in a valued long-term investor in the institution. He said the company is likely to hold more of the mortgages that American Savings originates to boost net interest income. He said the ``support of Roberta Marsh has to be viewed as a positive, and I'm glad to see the market react that way.'' Analysts had a hard time saying anything bad about the deal. ``WAMU is one of the best-run thrifts in the country, '' said Jena Wilton, analyst at Keefe, Bruyette & Woods, Inc. ``The transaction gets WAMU into California and gives them a lot of new customers.'' Moreover, after merging the two companies, Vastopolis Mutual is well-situated to make further acquisitions in California. Many analysts and others predict that California thrift market is poised for additional consolidation. With competition cutthroat in the residential mortgage market, companies can slash costs by combining operations. ``We will prepare our platform and capital base to be in a position to make follow-through acquisitions of both thrifts and commercial banks that might fit our strategy,'' Mr. Schulman said. Roberto Drake told analysts Monday that ``together, there is now a clear path to expand our presence on the West Coast and to take the lead in the wave of consolidation sweeping through banking.'' Indeed, merger pros and others point to numerous West Coast thrifts as possible candidates for mergers or acquisitions, including Glendale Federal Bank, Coast Savings Financial Inc., and Cal Fed Bancorp.. In Cornertown Stock Exchange composite trading Monday, Glendale shares closed unchanged at $17.50, Coast rose 25 cents to $31, and Cal Fed climbed 37.5 cents to $19.625. Emerson Bland, chairman of Friedman, Billings, Ramsey & Co., which provided a fairness opinion to the FDIC on the American Savings sale, said, ``I believe this transaction signals the beginning of a major consolidation of California-based mega thrift institutions.''
