The Holding family’s $34 billion banking empire started in Johnston County, the agricultural-oriented county that has become a huge bedroom community for adjoining Wake County. While their First Citizens Bancshares is based in Raleigh, it’s clear the Holdings want to make sure everyone knows who is boss in Johnston.
KS Bancorp, owner of Smithfield-based Kenly Savings Bank, is trying to convert from a C corporation to an S corporation, eliminating federal and state corporate taxes. Under an S corporation, company shareholders would be taxed on a more favorable basis, KS CEO Harold Keen said in a June 7 letter. To qualify as an S Corp, KS would need to have fewer than 100 shareholders. At the time, the bank was trading for about $22 a share.
The Holding family, who have held an undisclosed stake in Kenly Savings for decades, obviously don’t want to be minority holders of a thinly traded, small bank. The conversion “was something that prompted us to make an offer if they were going to go that route,” First Citizens spokeswoman Barbara Thompson says.
So First Citizens offered $33 a share on June 30, then $35 on July 13. The latter bid totals about $46 million, or about 20 times KS’s expected earnings of $1.80 per share, estimated by Raleigh bank analyst Buddy Howard.
The small bank’s board promptly rejected the offer the following week, even though it was 50% higher than its previous trading price.
“We are extremely surprised a $34 billion regional bank would pursue the hostile takeover of a $360 million community savings bank,” Keen said in a press release. “First Citizens’ corporate actions are evidence that First Citizens’ corporate culture is not in line with KS Bank’s community banking values.”
Calls to Keen, 68, were not immediately returned. He is KS’ biggest shareholder with a 9.7% share, or about $4.4 million.
By comparsion, the combined stakes of First Citizen CEO Frank Holding Jr. and his sister, Vice Chairman Hope Bryant, tops $690 million, based on current share prices and the most recent proxy statement.
Greenville insurance agency owner Phil Lewis, who pressed First South Bancorp of Washington, N.C. to sell before its pending acquisition by Charleston, S.C.-based Carolina Financial Corp., also owns shares in KS. He praised the Holdings’ bid.
“I’m quite certain Mr. Keen wasn’t planning on paying us shareholders $35 a share in his attempt to reorganize the bank to an S corporation, where the board and management would have greater control.”