Although admittedly disappointed over Sun Savings & Loan Assn.'s failure to gain a $7.2-million capital infusion, officials at the troubled University City-based thrift insist they're far from defeated.
In fact, Sun's management strategy likely will become more aggressive and hard-hitting, as officials try to boost Sun's sagging net worth with an infusion of capital that could include a merger or acquisition.
"The board concluded some time ago that a change of control would be considered it if were to the benefit of shareholders," said Sun President and Chief Executive John McEwan.
And, with the large amount of capital needed to bring Sun's net worth up to regulatory standards, "the board is more than willing to discuss that kind of transaction," he added.
There have been some friendly queries from outsiders but no firm offers, according to Sun sources. "There are a lot of people who would like to have a chunk of Sun," said one company source.
For its part, Sun has retained a "nationally recognized" but unidentified investment banking firm to aid its search for capital.
As of June 30, Sun's net worth was $6.4 million, or about 1.36% of its $458 million in assets. Without the planned $7.2-million capital infusion--through a combination public stock offering and private stock placement--McEwan acknowledged that his hopes for reaching the 3% goal by year-end have faded.
The capital infusion--designed to double its net worth--looked so good on paper that even Sun's critics gave it a reluctant endorsement.
Developer Still Interested
At least one component of that deal remains alive. Sun is negotiating a smaller-scale infusion from developer Victor Fargo, whose original $2.5 million investment in Sun may be trimmed to $2 million. (Even with a $2-million capital infusion from Fargo, Sun's net worth would remain below the regulatory minimum of 3% of assets.)
As with the failed plan, Sun's move into Fargo's new La Jolla office building will be dependent on Fargo's investment. The move, originally scheduled for next month, has been delayed until a new deal can be worked out, McEwan said.
Reaching an agreement is also important to Fargo, because the developer needs Sun as a tenant to complete his permanent construction financing for the building. Sun, which put up 10% of Fargo's $17-million construction loan for the building, is supposed to retain 25% of the facility's profits. Merrill Lynch is the building's major tenant.
There are those close to Sun who believe that the Fargo deal will never materialize, however.
Fargo's lenders, sources claim, have asked federal regulators to issue a letter of credit affirming that Sun will guarantee two years rent. Regulators will not give that letter of credit, according to sources familiar with the Fargo deal, because of the conditional nature of Fargo's investment.
As a result, some Sun sources maintain that Fargo will be unable to complete his permanent financing.
Fargo could not be reached for comment.
Fargo Deal Disadvantages
Some Sun sources also maintain that not completing the Fargo deal will help current management further distance itself from the ousted regime of former Chairman Daniel W. Dierdorff, who is now under a federal grand jury investigation for alleged financial improprieties.
Fargo is a friend of Dierdorff and is the brother-in-law of Sun director Ted Van Leeuwen. That insider connection was lampooned by Sun critics, who insisted that the deal smacked of conflict of interest. And, no matter what bold moves new management makes in the coming months, they likely will be paralleled by expected revelations concerning Dierdorff. (Monday's lawsuit against Dierdorff and last week's firing of Sun's outside auditors because of an alleged conflict between them and Dierdorff are prime examples.)
Still unsolved is why Sun's stock has dropped in price so rapidly in the last seven weeks. It was the steady downward drift of the stock that undid the $7.2-million infusion deal, and marked the latest in a 15-month series of controversial corporate twists and turns at Sun.
Trading at $5 per share--the price for each share in the offering--at the end of August, the stock price dropped consistently over the past six weeks, reaching its all-time low of 3 1/8 a week ago.
"Word probably got out that the financing wouldn't make it," one analyst surmised. "And once word gets out, it feeds on itself. When the stock dropped below $4, it was obvious it wouldn't happen."
"We didn't know what the heck was going on," acknowledged one Sun source. "But we're disappointed in whoever is playing around with that stock."
Meanwhile, Sun's new aggressive posturing will likely include more lawsuits over bad loans.
In an attempt to revive its nearly $38 million in non-performing loans, Sun two weeks ago filed a $13-million lawsuit against an Orange County developer and a dozen other individuals and firms alleging negligence, conspiracy and breach of contract on $12 million worth of loans.
The lawsuit against Robert A. Buceta of Newport Beach alleges that he, his wife and their firm set up a "sham escrow" and sold properties twice.