425: Orrstown Financial and Codorus Valley Bancorp Address Shareholder Concerns with Additional Merger Disclosures

Orrstown Financial Services and Codorus Valley Bancorp provide supplemental disclosures to their joint proxy statement/prospectus in response to shareholder demand letters, aiming to avoid delays in the proposed merger.

Summary

• Orrstown Financial Services, Inc. (ORRF) and Codorus Valley Bancorp, Inc. (CVLY) are proceeding with their planned merger, as previously announced on December 12, 2023.
• In response to demand letters from purported shareholders alleging omissions of material information in the joint proxy statement/prospectus, ORRF and CVLY are providing supplemental disclosures.
• These supplemental disclosures aim to avoid potential delays to the special meetings of shareholders and the closing of the merger.
• The companies maintain that the allegations in the demand letters are meritless and deny any liability or wrongdoing.
• The supplemental disclosures include revisions to the financial advisor's opinions, specifically regarding the selected companies analysis, discounted cash flow analysis, and pro forma impact analysis.
• The special meetings of ORRF and CVLY shareholders are scheduled for May 30, 2024.
• The merger consideration and the timing of the special meetings remain unaffected by these additional disclosures.

Sentiment

Score: 7

Explanation: The sentiment is neutral to slightly positive. While the document addresses shareholder concerns and provides additional disclosures, it also highlights potential risks and dilution to tangible book value. The merger is expected to be accretive to earnings, which is a positive sign.

Positives

• The supplemental disclosures aim to address shareholder concerns and prevent potential delays in the merger process.
• The companies are proactively providing additional information to ensure transparency.
• The merger is projected to be accretive to ORRF's earnings per share in 2024 and 2025.
• The financial advisor's analyses provide detailed insights into the valuation and potential impact of the merger.

Negatives

• The need for supplemental disclosures suggests potential initial deficiencies in the proxy statement/prospectus.
• The merger is projected to be dilutive to ORRF's tangible book value per share at closing.
• The demand letters from shareholders indicate potential dissatisfaction or concerns regarding the merger terms or disclosures.

Risks

• The possibility of additional demand letters arising out of the merger.
• The risk that the anticipated benefits of the proposed transaction are not realized.
• Potential adverse reactions or changes to business or employee relationships.
• The ability to complete the proposed transaction and integration of ORRF and CVLY successfully.
• The potential impact of general economic, political or market factors on the companies or the proposed transaction.

Future Outlook

The document contains forward-looking statements regarding the financial condition, results of operations, business plans, and future performance of ORRF and CVLY, which are subject to various risks and uncertainties.

Management Comments

• ORRF and CVLY believe that the allegations in the Demand Letters are meritless and no additional disclosure is required in the joint proxy statement/prospectus.
• ORRF, the ORRF Board of Directors, CVLY, and the CVLY Board of Directors deny any liability or wrongdoing in connection with the joint proxy statement/prospectus.

Industry Context

The document references comparable companies and transactions in the banking sector, providing context for the financial advisor's valuation analyses. The multiples used in the analyses (e.g., price-to-tangible book value, price-to-earnings) are standard metrics for valuing financial institutions.

Comparison to Industry Standards

• The selected companies analysis includes a comparison of ORRF and CVLY to other publicly traded banks, such as Arrow Financial Corporation, The First of Long Island Corporation, and Citizens Financial Services, Inc.
• The multiples used in the selected companies analysis (e.g., Price/TBV, Price/LTM EPS, Price/2024 EPS, Price/2025 EPS) are common benchmarks for valuing banks.
• The discounted cash flow analysis uses discount rates ranging from 11.0% to 15.0% for ORRF and 11.3% to 15.3% for CVLY, which are within a reasonable range for banks of similar size and risk profile.
• The pro forma impact analysis projects accretion/dilution to ORRF's earnings per share and tangible book value per share, which is a standard analysis in merger transactions.
• The document references KBW's receipt of approximately $430,000 from CVLY in the past two years for financial advisory services related to an activist shareholder campaign, which is a common type of engagement for investment banks in the financial sector.

Stakeholder Impact

• Shareholders of ORRF and CVLY will be impacted by the merger, with potential benefits from the combined company's performance and potential dilution to tangible book value.
• Employees of ORRF and CVLY may experience changes in their roles and responsibilities as a result of the integration of the two companies.
• Customers of ORRF and CVLY may benefit from the expanded products and services offered by the combined company.

Next Steps

• ORRF and CVLY shareholders will vote on the merger on May 30, 2024.
• The companies will continue to work towards completing the merger, subject to regulatory approvals and other customary closing conditions.
• ORRF and CVLY will monitor for any additional demand letters or legal proceedings related to the merger.

Key Dates