Minority Owners Challenge Share Price of First Union Financial

by George Waldon  on Monday, Jan. 20, 2014 12:00 am  

Photo courtesy of SEArkToday.com

The 2013 buyout of minority shareholders at First Union Financial Corp. provides a case study on investor dynamics in a privately held concern.

The family of Zach McClendon Jr., which held a 68.4 percent stake in the bank holding company, launched a buyback of the remaining First Union shares in July.

The family’s controlling interest allowed them to legally force the sale, but the way the McClendons accomplished the transaction caused ripples. (Click here to read Protest Letter).

Only a handful of minority shareholders, representing a combined 7.7 percent stake in the outstanding shares, managed to negotiate the tedious process of perfecting their right to challenge the price under Arkansas law.

Those 11 dissenting stockholders will get to argue that their minority shares are worth more than the price they were forced to take. The $182.30 per share reflects 72.2 percent of book value for First Union, the one-bank holding company for the $187.5 million-asset Union Bank & Trust of Monticello.

That price was dictated by the fair market value contained in the McClendon-initiated stock buyback, which gave the family sole ownership of First Union.

Zach McClendon Jr. has declined to talk about the dispute while it’s in litigation in Drew County Circuit Court in a case filed last month.

“The long and short of what’s going on here is that the smallest bank in the state, Bank of Rison, sold for 94 cents on the dollar,” said Bennie Ryburn III, vice chairman of Monticello competitor Commercial Bank & Trust. “It seems odd to me that the McClendons are trying to pay 72 cents on the dollar.”

Commercial B&T’s holding company, Drew County Bancshares Inc., included a stock buyback offer as part of its conversion last year to a subchapter S corporation.

“For those that wanted to sell, we purchased the stock at current book value,” Ryburn said. “That’s what we’ve done, and we think that’s fair.”

Virgil Trotter, one of the 11 dissenting shareholders of First Union, believes McClendon could have orchestrated a similar friendly buyout instead of taking the steamroller approach.

“I think it was designed to wash out some of the minority shareholders at a bargain price,” said Trotter, who abstained from voting on the buyback and resigned from the Union Bank & Trust board of directors. “The process places the onus on someone to spend a significant amount of money to develop and retain their dissenting status.

 

 

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