Indiana bank buys out investor — and other shareholders are fuming

An Indiana thrift that transformed from mutual to full inventory possession in 2018 is in scorching water with shareholders after agreeing to purchase one investor’s stake at a hefty premium.

Salem-based Mid-Southern Bancorp agreed to buy almost 139,000 shares from an unnamed investor for $18 per share earlier this month. That quantities to a 13.7% premium — or $2.17 — above the inventory’s closing worth on Aug. 2, the day earlier than Mid-Southern disclosed the buyback, and a ten.4% premium over the year-to-date excessive of $16.30.

Negotiated transactions the place a financial institution agrees to purchase again an investor’s shares are common occurrences, however they usually contain considerably smaller premiums, Jordan Farkas, a longtime financial institution investor and Mid-Southern shareholder with about 33,000 shares, stated in an interview.

“If we have been speaking about 30 cents, I wouldn’t be upset,” Farkas stated, referring to the premium Mid-Southern agreed to pay. “I don’t assume that is honest.”

Terry Maltese, whose agency, Maltese Capital Administration, owns 125,000 Mid-Southern shares, wrote in an e-mail to American Banker that he was “very dissatisfied to see one massive shareholder handled in a different way than all the opposite massive shareholders.”

“Whereas a self-tender or Dutch public sale provided to all shareholders might be costly and time-consuming, a couple of cellphone calls to different massive shareholders would have been acceptable,” Maltese added.

One other upset investor, William Dossenbach, stated the $249 million-asset Mid-Southern “created a hornets’ nest” with the Aug. 3 buyback transaction.

Dossenbach, who owns 24,000 shares and has advocated for Mid-Southern to rent an funding financial institution and weigh strategic choices together with a sale, stated Monday that he plans to file a grievance with the Securities and Trade Fee in addition to a proxy for Mid-Southern’s 2022 annual assembly.

“Will probably be suggesting that sooner or later they comply with the SEC safe-harbor guidelines for purchasing again inventory,” Dossenbach stated. “They certain blew these guidelines up greater than I’ve ever seen completed earlier than.”

“There’s nothing per se unlawful about shopping for shares again from a person shareholder on a non-pro rata foundation,” Spencer Klein, a associate and co-head of M&A at Morrison & Foerster in New York, stated Friday in an interview. “I don’t know that the buyback is problematic from a securities regulation viewpoint. Nevertheless it might be problematic from a fiduciary obligation and shareholder relations viewpoint.”

Different shareholders “have a proper to ask what company function was served by utilizing their cash to purchase again shares at a big premium,” Klein added.

Thus far, Mid-Southern’s administration has remained tight-lipped in regards to the buyback.

In a terse, three-sentence 8-Okay report filed Aug. 3 with the SEC, Mid-Southern reported buying a complete of 138,518 shares for $18 per share, however the firm didn’t establish the vendor or element the method that led to the sale.

CEO Alex Babey additionally declined to call the vendor in an e-mail to American Banker.

“I’m usually not snug discussing financial institution enterprise publicly when there’s a chance that it could be info that’s not obtainable to all of our shareholders,” Babey wrote.

Mid-Southern’s roster of shareholders contains a variety of outstanding traders. The fund supervisor Michael Worth reported holding a considerable stake, as did Larry Seidman, who has a historical past of shareholder activism, a lot of it involving transformed thrifts.

Seidman didn’t reply to a request for remark. In a Dec. 15, 2020, 13-D submitting with the SEC, Seidman reported proudly owning 138,518 shares, the identical quantity Mid-Southern bought on Aug. 3.

Whereas Mid-Southern, which was based as a depositor-owned thrift in 1891, lags equally sized banks in some efficiency measures, it’s been persistently worthwhile since finishing its second-step conversion and changing into a completely stock-owned establishment in July 2018. The corporate reported web revenue of $1.2 million in 2020 and $775,000 via June 30.

Mid-Southern’s asset high quality remained stable, even through the pandemic-fueled recession in 2020.

Farkas stated he has been happy with Mid-Southern’s outcomes and its management — till the corporate disclosed the share buyback on Aug. 3.

“I’ve been very comfortable,” Farkas stated. “To exit and do one thing like this makes completely, positively no sense.”

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