Eldorado Bancorp of Laguna Hills has agreed to buy American Merchant Bank of Newport Beach in a deal valued at $4 million, removing uncertainties caused by the bankruptcy of American Merchant's principal owner, developer Martin List.
Eldorado, which owns Tustin-based Eldorado Bank, plans to operate American Merchant as a subsidiary bank with its current management and employees, said J.B. Crowell, Eldorado's president and chief executive officer.
The deal will rank Eldorado among Orange County's three largest banking operations.
"We're looking at this as one of (several) investment opportunities for our shareholders," Crowell said. "We hope to make money with it. We must first be concerned with trying to run our business profitably. If someone wants to buy us, it'll have to be a very attractive offer."
Crowell said he was sitting on a beach chair at the shore five or six weeks ago when a friend spotted him and suggested that American Merchant might be for sale at an attractive price.
The bank, originally known as Orange City Bank, fell on hard times in the early 1980s along with many other banks that suffered earnings declines or losses during a real estate slump caused primarily by rising interest rates.
In late 1985, List bought 83% of the bank and later increased his ownership to about 95%.
A former physician specializing in cancer treatment, List had become a real estate developer in hopes of building a financial empire that would fund an educational foundation and other enterprises.
But most of his land was in Colorado Springs, and its value fell dramatically as a result of a severe recession that struck Colorado and other energy states. Early this year, List and his companies were forced to file for protection from creditors under federal bankruptcy laws.
To ward off bad publicity that might endanger the Orange County bank, List agreed to sell his stock to two friends, Dr. Emmanuel Nicherie and his son, Daniel, for $10.61 a share.
But the Nicheries did not obtain regulatory approval to acquire the bank before List's petition to reorganize his debts in U.S. Bankruptcy Court was converted into a liquidation proceeding. A court-appointed trustee, Los Angeles lawyer James J. Joseph, decided to look for a better deal.
"It was clear that an institutional buyer would be preferable and would have an easier time getting regulatory approval," Joseph said Monday.
The definitive agreement provides for Eldorado to pay $8.75 a share in cash for List's original 83% stake. A complicated transaction proposed by the Nicheries provided for purchase primarily through the issuance of promissory notes, Joseph said.
Eldorado will issue one share of Eldorado stock for each remaining share of American Merchant stock.
Eldorado stock is scheduled to begin trading Thursday on the American Stock Exchange, a first for an Orange County banking company.
If the deal is approved by regulators and the bankruptcy court, Eldorado, with branches in Tustin, San Bernardino, Palm Desert, Indio and two in Laguna Hills, will acquire American Merchant's branches in Orange, Newport Beach and Huntington Beach.