Citadel Holding, a Glendale savings and loan company, suggested Wednesday that a "white knight" may come along to top the unsolicited purchase proposal that it received in late January from Great Western Financial.
A spokesman for Great Western Financial, meanwhile, said its tender offer will commence today following approval of its registration statement Wednesday by the Securities and Exchange Commission.
Citadel Chairman James A. Taylor told shareholders at the company's annual meeting in Glendale that Citadel--through its new investment banker, Kidder, Peabody & Co.--has already received "considerable interest" from "large corporations" who may want to buy the financial institution. Citadel is the parent company of Fidelity Federal Savings & Loan.
Officials of one of Citadel's largest shareholders, Hecco Ventures, are already looking for a new buyer for Citadel because they do not think the Great Western offer is large enough, Taylor noted. Hecco, an investment partnership led by Los Angeles theater owner Michael Forman, owns more than 9% of Citadel's stock.
Citadel also disclosed that Fidelity Federal has suspended severance payments to its former chairman, Spencer Scott, who played a key role in putting together an amiable Citadel-Great Western merger agreement in May that fell through in September.
According to Citadel's proxy statement, savings and loan regulators considered the "employment agreement (with Scott) to be unsafe and unsound."
Scott, who says he was forced to resign as chairman and chief executive last September after 40 years with the company, was to be paid more than $1.8 million over the next five years, the proxy statement said. The proxy also shows that Scott remained a consultant to Citadel until last month, when he was terminated "for cause."
Scott, in a telephone interview, said that Citadel "is just looking for someone to blame" and that he may sue Citadel if it does not honor the terms of his contract.
The proxy says that the Citadel directors, including Scott, who voted in favor of the merger with Great Western may have breached their responsibilities. Four directors voted in favor of the merger, one voted against and one abstained.
"The company has recommended to those directors who voted or cast votes in favor of the merger agreements that they obtain the representation of separate counsel" at company expense, the proxy said.
Also among the four was Gerald Barrone, who remains with Citadel as president and chief executive. "In hindsight, I would not have voted that way," Barron said in an interview after the shareholders meeting.
These disclosures are the latest wrinkles in the continuing feud between Great Western and Citadel, two venerable Southern California savings and loan companies. The collapse of their merger accord sparked litigation and eventually resulted in Great Western's unsolicited tender offer Jan. 23.
Despite the turmoil, Citadel did remarkably well financially in 1985, earning $26 million, or nearly four times what it earned in 1984. Citadel has assets of $3.14 billion, making it one of the 20 largest S&Ls in the state.
Chairman Taylor was careful not to publicly criticize Great Western's offer, the terms of which call for Citadel's shareholders to receive 1.2 shares of Great Western stock for each Citadel share. The offer has a value of about $175 million based on Great Western's closing price Wednesday of $42 a share, down $1. Citadel's stock closed unchanged at $50.50 a share.
Taylor also stopped short of saying that Citadel is seeking another company to top the Great Western offer. But he told shareholders that the company is now in a good position to receive new offers, thanks to a recent court decision in Delaware and a regulatory edict from Washington.
The court decision--handed down by the Supreme Court in Delaware, where Citadel is incorporated--invalidated so-called no-shop clauses in merger agreements similar to one in the Great Western-Citadel agreement, Taylor said. No-shop clauses prevent companies from seeking other bids once a merger agreement is reached.
In addition, Taylor said, the Federal Home Loan Bank Board recently invalidated a so-called lock-up option in the merger agreement that gave Great Western Financial the right to buy about $400 million worth of Citadel's adjustable-rate mortgages for a nominal fee if the merger fell through.
The merger agreement fell apart when Citadel's investment banker, Salomon Bros., failed to endorse the deal. Great Western tried but failed to exercise the lock-up option on the mortgages. Taylor now says Salomon Bros. refused to go along because the lock-up option allowed Great Western to acquire the mortgages at $14 million below market value.