Opinion ID: 2301005
Heading Depth: 2
Heading Rank: 6

Heading: Bancorp Tries To Sell Itself.

Text: Several of the potential bidders in the Tampa process expressed interest in a whole-company acquisition. Encouraged by the overtures, Bancorp embarked on a sale process in fall 2010. Bancorp entered into nondisclosure agreements with at least fifteen parties and had serious discussions with at least four. Throughout the sale process, one item of concern for all potential bidders was a securities class action pending in the United States District Court for the Southern District of Florida (the Florida Securities Action). The plaintiffs in that action alleged that Bancorp and certain of its officers made false and misleading statements about BankAtlantic's loan portfolio and related loss allowances. After the Florida Securities Action was filed, the SEC opened an investigation into the same issues. The SEC later filed a complaint seeking to impose fines on Levan and Bancorp and bar Levan from serving as an officer or director of a public company. Bancorp management was and remains convinced that the claims advanced by the securities plaintiffs and the SEC are bogus. Tr. 758. Management expressed this view to bidders and assured them that the litigation posed no risk. Despite management's confidence, in August 2010, the District Court issued a lengthy opinion which, among other rulings, held that Levan made objectively false statements to investors regarding BankAtlantic's loan portfolio and granted partial summary judgment in favor of the plaintiffs. See In re BankAtlantic Bancorp, Inc. Sec. Litig., 2010 WL 6397500, at -31 (S.D.Fla. Aug. 18, 2010), recons. denied, 2010 WL 6352664 (S.D.Fla. Sept. 9, 2010). During trial in this case, Bancorp's witnesses and its counsel vigorously disputed that ruling. I simply note its occurrence. With trial in the Florida Securities Action set to begin in October 2010, three of the four remaining bidders declined to submit indications of interest. The fourth bidder (Bidder 1) expressed interest in purchasing Bancorp for $158.3 million. On November 18, 2010, the jury in the Florida Securities Action returned a verdict against Bancorp. At that point, having difficulty getting a handle on the litigation, Bidder 1 indicated that it would reduce its bid to the $50 million range. JX 94 at 11. On November 30, Bidder 1 sent Bancorp a non-binding indication of interest in a transaction at approximately $50 million, representing $.80 per common share (the Bid Letter). At trial in this action, Levan derided the Bid Letter as a bedbug letter that was not a serious overture. Tr. 761, 841. According to him. Bidder 1 threw out a number, and then about a week later or two weeks later reduced that number in half. Then they reduced it again. Then they increased it a little bit. And we finally just got frustrated and said, This is not going anywhere, and we terminated that process. Tr. 756. In presentations to the Bancorp board, Levan described the letter in similar terms and concluded that Bidder 1 no longer had any intention to buy. Tr. 761. He did not provide the directors with an actual copy of the letter. According to the minutes of a board meeting on December 1, 2010, Levan summarized the provisions in the letter including the reduction of the price to 80¢ per share and noted that it remained subject to substantial additional due diligence, the elimination of pre-closing capital from the [Bid Letter] and the absence of severance provisions. . . . It was noted that due to the content of the [Bid Letter] it did not seem realistic to continue discussions relating to a transaction. Chairman Levan believed that it was time to bring this ongoing process to closure. JX 94 at 13. Nothing on the face of the Bid Letter or otherwise in the record indicates that Bidder 1 was not serious. To the contrary, Bidder 1 is a well-known national financial institution with over $100 billion in assets. The Bid Letter was in customary form. It represented that Bidder 1 had never failed to execute on an announced transaction, and no one has suggested that its claim was incorrect. The due diligence requests that Levan found so troubling asked for additional information about the Florida Securities Action, the SEC investigation, and other ongoing litigation, including easily obtainable materials such as the trial transcripts. Given the risks facing BankAtlantic, the recent adverse jury verdict, and the sharp contrast between the verdict and management's long-standing bullishness on the litigation, these were reasonable requests. Moreover, contrary to Levan's representation to the board, the Bid Letter contemplated that Bidder 1 would contribute interim capital to Bancorp, and Bidder 1 made clear that it anticipate[d] that any such capital infusion by [Bidder 1] would be infused between signing and closing of the merger transaction. . . . JX 369 at 2-3. Also contrary to what Levan told the board, the Bid Letter addressed severance and contemplated a severance package consistent with the terms and conditions of [Bidder I's] own severance plans (which recognize credit for years of service). . . . JX 369 at 2. Quite reasonably, Bidder 1 only contemplated paying severance to those executives who did not continue their employment, i.e., those actually severed. Id. Levan, by contrast, demanded that the full executive team receive severance and bonuses regardless of employment. JX 94 at 3 (minutes of November 13, 2010 board meeting). During a November 15, 2010 meeting, Levan took the position that management should be compensated [with severance] whether they are retained or not, even after Bidder 1 made clear that it would reduce the [transaction] price by that difference if [the additional severance] is paid. Id. at 5-6. At a November 23, 2010 meeting, Levan advised the board in his capacity as a principal of BFC, the controlling stockholder of Bancorp, that he might consider moving forward at a $115-125 million price, but otherwise he would recommend that BFC veto any transaction. Id. at 11. Levan regarded a $50-60 million purchase price as inadequate for Bancorp's equity. During the December 1 meeting, based on Levan's description of the Bid Letter and his interpretation of Bidder 1's seriousness, the board agreed to terminate negotiations with Bidder 1.