(BBX) BankAtlantic Bancorp Files Lawsuit Blocking Sale to BB&T Corporation

A group of corporate debt investors of BankAtlantic, a wholly-owned subsidiary of BankAtlantic Bancorp Inc. (BBX), filed a lawsuit against the firm to stop it from selling its loans, deposits and branches to BB&T Corporation (BBT). These investors believe that this sale infringes the terms of their creditors’ agreement.

Earlier on November 1, BB&T had announced about its plan to acquire BankAtlantic. Under the terms of the deal, the company would acquire $2.1 billion in loans and $3.3 billion in deposits (90% core and low-cost funds) for $301 million premium, representing 9.05% of the deposits at BankAtlantic on September 30, plus the net asset value of the bank. However, deposit premium could rise or fall, based on the amount of deposits at BankAtlantic prior to the closing of deal, not exceeding $315.9 million. The agreement excludes BankAtlantic’s nonperforming and other criticized assets.

Charges Against the Deal

In the first opposition to the deal, the plaintiffs accused both BB&T and BankAtlantic of structuring the transaction in such a way that the acquirer can evade the trust preferred securities (TruPS) obligations. They charged the parent company, BankAtlantic Bancorp, of breaching an agreement, stating that transfer or sale of majority of its assets will not happen without ensuring that the acquirer will also assume TruPS.

However, BB&T deal would transfer nearly 83% of BankAtlantic assets, without assuming TruPS. Hence, the plaintiffs want either TruPS to be included in the agreement or the deal to be blocked.

The plaintiffs also stated that following the closure of the transaction, BankAtlantic Bancorp would become a holding company with no branches and will own a large amount of nonperforming loans and foreclosed real estate assets. Therefore, the company will no longer resemble its present operations.

The lawsuit against BB&T-BankAtlantic transaction was filed in Delaware Chancery Court by Hildene Capital Management and Alesco Preferred Funding. Both Hildene and Alesco are indirect beneficiaries to BankAtlantic’s TruPS.

Similar Opposition Before

Earlier in 2010, BankAtlantic faced similar opposition related to its TruPS. At that time, the company had tried to repurchase nearly $230 million of these securities at a discount to boost its capital levels. However, the offer was withdrawn following strong oppositions from certain section of investors.

Our Viewpoint

The BB&T-BankAtlantic deal will be highly advantageous to both companies. For BankAtlantic, the agreement will likely resolve some of its balance sheet and higher operating expense related problems.

For BB&T, the transaction will allow it to speed up its expansion strategy in Florida region. Also, the deal would add 78 branches to BB&T’s 64 branch network in Florida region. Besides substantially increasing BB&T’s market share and footprints, the acquisition would also improve the company’s top line over the medium term.

However, investors’ interest should also be taken into consideration and a solution that maximizes all the parties profit should be taken.

BB&T currently retains a Zacks #3 Rank, which translates into a short-term ‘Hold’ rating. Considering the fundamentals, we are also maintaining our long-term “Neutral” recommendation on the shares.

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