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

“This is something I find troubling.”

In round numbers, the completed buyout of minority shares at the discounted price represents a $990,000 savings over book value for the McClendons. This 23.5 percent block of shareholders forfeited their shot at taking a dissenter’s seat in court.

In some cases, shareholders lost their potential standing early on by not submitting written notice of their intent to exercise dissenters’ rights and demand payment for the shareholders’ shares.

That had to be done before the Aug. 6 vote on the buyback, guaranteed to pass because of the McClendon’s controlling interest.

Some minority shareholders were shocked to learn they had to sell at $182.30 per share without any recourse because they hadn’t given written notice, even though they voted “no” in person at the special shareholders meeting.

The rights of dissenting shareholders and the process for perfecting the right to challenge the price were included in the voluminous proxy material distributed to First Union’s 73 shareholders. The vote included converting the company to a subchapter S corporation that would deliver tax benefits.

Surviving Hardship

The dispute over stock valuation is in the forefront now. But the story wouldn’t be complete without a look at the historical backdrop of the holding company and its bank during the past 10 years.

Union Bank & Trust experienced significant loan losses during 2003-06 that produced net charge-offs of $15 million. The losses resulted in regulators placing the bank under a supervisory agreement to improve asset quality and capital, an arrangement that ended in February 2008.

James Jett resigned as president of the bank in May 2005. His exodus preceded Union Bank & Trust posting a $9.3 million loss at year’s end. It took the bank eight years to produce enough profit to cover that loss.

To shore up the bank’s capital at the time, First Union Financial Corp. issued $4.6 million in trust-preferred securities through First Tennessee Bank of Memphis and borrowed $1.6 million from Metropolitan National Bank of Little Rock.

“Zach McClendon pledged everything he had to get those loans and save the bank,” said a veteran of the Arkansas bank scene. “No one else stepped up to do that, to my knowledge. It was a very, very trying time, and Zach was a hero.

 

 

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