TierOne Bank's owners backed out of a plan to sell the bank to commercial lender CapitalSource because of "unprecedented" conditions in the credit market and regulatory delays, bank officials said.
Falling stock prices had diminished the value of the deal from $652 million when it was announced last May to roughly $322 million Thursday. The two sides couldn't agree on what the deal should be worth now.
TierOne Corp., the Nebraska-based parent of TierOne Bank, and CapitalSource Inc. both said the deal was off after the markets closed Thursday. TierOne issued a statement more than an hour before CapitalSource, after holding a special board meeting.
Last month, TierOne said it was still committed to the deal even though either company had the right to terminate without penalty after a February deadline had passed. Then, CapitalSource said it would either renegotiate the deal or end it.
The terms of the deal would have allowed TierOne to negotiate for additional compensation because CapitalSource stock had fallen so dramatically since May. TierOne officials thought the bank's shareholders deserved more than the deal would deliver, but CapitalSource wanted a lower price because more of TierOne's loans were considered nonperforming at the end of 2007.
TierOne said in its annual report that more than 4 percent of its loans and assets, worth more than $154 million, were nonperforming at the end of last year. In the previous four years, less than 1 percent of TierOne's loans fell into that category.
CapitalSource spokesman Michael Weiss said the company decided Thursday that renegotiating the deal wouldn't be feasible.
"There was an inability to reach a revised price to reflect the credit challenges that was mutually satisfactory," Weiss said.
TierOne spokesman Ed Swotek would not comment on any efforts to renegotiate the deal.
"Their stock price was declining, and the value to our shareholders was declining along with it," Swotek said Friday.
CapitalSource shares have been more than halved from the $25.86 they fetched day the deal was announced not even one year ago. The lender's shares closed at $10.23 Thursday.
TierOne's shares have fallen equally hard, closing at $12.73 Thursday, around 60 percent below the share price on the day the deal was announced.
Swotek said he didn't think anyone could have anticipated the turmoil now wracking credit markets when the deal was announced.
"This has just been unprecedented," Swotek said.
TierOne shareholders approved the deal over the objections of the company's largest shareholder, Private Capital Management LP, which balked in November because the value of the deal had diminished so greatly.
The buyout had yet to be cleared by regulators Thursday, which Swotek said was a problem.
In addition, some of the terms of the deal had become problematic for TierOne, such as not being allowed to buy back its own shares.
On Thursday, along with the announcement that the deal was off, TierOne said it was buying back 10 percent, or 1.8 million shares, of its common stock.
TierOne's $3.5 billion in assets makes it the largest publicly traded financial institution based in Nebraska. TierOne has 69 bank branches in Nebraska, Iowa and Kansas and nine loan production offices in Arizona, Colorado, Florida, Minnesota, Nevada and North Carolina.
CapitalSource is based in Chevy Chase, Md., and manages a loan portfolio worth about $20.9 billion.
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On the Net:
CapitalSource Inc.: http://www.capitalsource.com
TierOne Corp.: http://www.tieronebank.com
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