DEFA14A: Territorial Bancorp Responds to Blue Hill Advisors' Proposal, Reaffirms Support for Hope Bancorp Merger

Territorial Bancorp criticizes Blue Hill Advisors' indication of interest as lacking credibility and urges shareholders to vote in favor of the merger with Hope Bancorp.

Summary

• Territorial Bancorp has issued a statement addressing concerns regarding Blue Hill Advisors' preliminary indication of interest to acquire the company.
• Territorial questions Blue Hill's ability to finance the acquisition, obtain regulatory approvals, and ultimately close the deal.
• The statement highlights the lack of transparency regarding Blue Hill's investors, management team, and financial backing.
• Territorial emphasizes the risks of remaining a standalone entity, citing losses, flat loan growth, and declining revenues.
• The company reiterates its recommendation that shareholders vote in favor of the merger with Hope Bancorp, which offers a 25% premium based on closing prices as of April 26, 2024.
• The Hope Bancorp merger is structured as a 100% tax-free, stock-for-stock transaction, with Territorial shareholders receiving 0.8048 shares of Hope Bancorp common stock for each Territorial share.
• Territorial shareholders will also realize a 1000% increase in their dividend.
• The merger is expected to close by the end of 2024.

Sentiment

Score: 5

Explanation: The document conveys a mixed sentiment. While it promotes the Hope Bancorp merger positively, it also acknowledges the challenges Territorial faces as a standalone entity and casts doubt on Blue Hill's proposal. The overall tone is defensive and cautiously optimistic.

Positives

• The proposed merger with Hope Bancorp offers a 25% premium to Territorial shareholders.
• The merger is structured as a 100% tax-free, stock-for-stock transaction.
• Territorial shareholders will also realize a 1000% increase in their dividend.
• The combined entity is expected to be a larger, more diversified, and more resilient business.
• Local branches and operations will be led by local teams, ensuring continuity for customers and employees.

Negatives

• Territorial Bancorp is currently facing challenges as a standalone entity, including operating at a loss, flat loan growth, and declining revenues.
• Blue Hill Advisors has not provided sufficient information to validate its ability to finance and complete the proposed acquisition.
• Territorial shareholders will not immediately receive any payment for their shares while any transaction with Blue Hill is sitting in regulatory limbo.
• Income taxes and the impact of the regulatory delays on time-value-of-money mean that the net value of Blue Hills preliminary indication of interest, if completed, would be substantially less than what it has proposed.

Risks

• The proposed merger with Hope Bancorp is subject to regulatory approvals and the approval of Territorial Bancorp stockholders.
• There is no assurance that the merger will be consummated within the expected timeframe or at all.
• Difficulties in integrating Hope Bancorp and Territorial Bancorp could hinder the achievement of anticipated synergies and cost savings.
• Deposit attrition, operating costs, customer loss, and business disruption following the merger may be greater than expected.
• Required governmental approvals of the merger may not be obtained on its proposed terms and schedule, or without regulatory constraints that may limit growth.
• Territorial faces substantial business and regulatory risks as a standalone entity.

Future Outlook

Territorial and Hope Bancorp are working towards closing the merger by the end of 2024, subject to regulatory and shareholder approvals. The combined company expects to achieve synergies and create enhanced value for shareholders.

Management Comments

• The Territorial Board continues to unanimously recommend that Territorial shareholders vote FOR the merger with Hope Bancorp and all related proposals.
• With Hope Bancorp, Territorial will become a larger, more diversified, more resilient business with increased resources to invest and grow, resulting in increased value for Territorials shareholders.

Industry Context

The announcement reflects the ongoing consolidation trend in the banking industry, with smaller institutions seeking mergers to gain scale, improve efficiency, and enhance competitiveness. The unsolicited interest from Blue Hill Advisors highlights the potential for alternative deal structures and the importance of shareholder value maximization.

Comparison to Industry Standards

• The 25% premium offered to Territorial shareholders is within the typical range for bank mergers of this size.
• The stock-for-stock transaction structure is a common approach in bank mergers, allowing shareholders to participate in the potential upside of the combined entity.
• Hope Bancorp is a larger institution with a more diversified business model, which aligns with the industry trend of larger banks acquiring smaller, geographically focused institutions.
• Comparable companies that have recently undergone similar mergers include First Interstate BancSystem's acquisition of Great Western Bancorp and United Bankshares' acquisition of Community Bankshares.

Stakeholder Impact

• Shareholders are expected to benefit from the premium offered in the Hope Bancorp merger and the potential for increased value in the combined entity.
• Employees are expected to continue receiving competitive compensation and benefits and will have additional career opportunities.
• Customers can benefit from additional choices and rely on the same people they know and respect.
• Territorial's legacy of community support and investment will continue.

Next Steps

• Territorial shareholders are urged to vote FOR the Hope Bancorp merger proposal.
• The companies will continue to pursue regulatory approvals for the merger.
• The Special Meeting will be held on November 6, 2024, to vote on the merger.

Key Dates

Keywords

merger, Hope Bancorp, Territorial Bancorp, Blue Hill Advisors, acquisition, regulatory approval, shareholders, financing, banking