Citing irreconcilable differences, Bethesda-based Eagle Bancorp and Alliance Bankshares of Chantilly have called off their merger, barely five months after announcing the union.
Neither side would discuss the particulars of the breakup, citing a confidentiality agreement. But they said the split was amicable, and there was no termination fee involved.
“It feels like a divorce,” said Ronald D. Paul, chairman and chief executive of EagleBank and its holding company Eagle Bancorp. “We went through the therapy, and it just didn’t work.”
EagleBank said in late July it would acquire Alliance for about $31.2 million, or $6.11 a share. The deal would have given the Bethesda bank an additional $536 million in assets, $412 million in deposits and six branches in Northern Virginia.
Both boards, as well as regulators, gave a thumbs up on the merger, but some Alliance shareholders objected.
Robert Crispin, who has held shares in Alliance since 1999, filed a lawsuit on Aug. 12 in Fairfax County Circuit Court to block a deal he alleged “undervalued the company.” Alliance, per the merger agreement, was trading hands for roughly 87 percent of book value.
“It seemed the board was doing this in their own interest and not discussing it with the shareholders,” said Crispin, who is in the process of dropping the lawsuit.
William Doyle Jr., Alliance chief executive and president, said the lawsuit had no bearing on the decision to terminate the merger. There were “some points around which we simply couldn’t get,” he said.
Local banking analyst Bert Ely wondered whether EagleBank wanted to shave a few dollars off the acquisition price following a further review of Alliance’s books. The bank’s real estate owned and repossessed assets as a percent of its loans, at 4.57 percent, was almost triple that of EagleBank, he said.
Alliance suffered a series of losses at the height of the downturn, but reversed its luck with five consecutive quarters through June. The bank, however, swung a $503,000 loss in the third quarter attributed to legal fees associated with the merger and a decline in the value of 10-year Treasuries, which upped the valuation of its $25 million Federal Home Loan Banks advance. That increase resulted in a $2.9 million hit to earnings, though the bank offset much of the hit with a securities gain of $2.1 million.
Paul refused to elaborate, but said, “We turned up every stone we could, and based on that, realized that it really wasn’t something we should continue with.”
Ely suggested the management and staffing of the merged banks may have created another point of contention. At the time the deal was announced, Paul said EagleBank had yet to determine what role Doyle would play in the new entity, or how many Alliance employees would remain.
“I have a feeling that it’s a multiplicity of interrelated factors,” Ely said.
Though the door has closed on the EagleBank deal, Doyle said Alliance will entertain other offers. Analysts say the bank’s footprint in the highly sought after Northern Virginia market should attract new suitors.
“We believe that affiliating ourselves with a strong strategic partner would make good sense for our shareholders, employees and customers,” Doyle said.
News of the breakup sent shares of Alliance tumbling more than 30 percent to close at $3.62 on Nov. 29, but EagleBank’s stock closed 4 percent higher at $14.36.
“It’s an indication that our shareholders are confident that we can continue to grow without an acquisition,” Paul said.
The CEO is not shutting the door on acquisitions, but said EagleBank will continue its organic growth. The bank, with $3.2 billion in assets and $2.7 billion in deposits, has in the past year grown to 15 branches, adding locations in Rosslyn and Ballston. Another branch is to open in Reston before the end of the year, while Merrifield is set to welcome a branch in 2012.