Shaul Kopelowitz, who holds approximately 9.9% of the outstanding common shares of Pacific Enterprise Bancorp (OTC: PEBN), today issued the below open letter to shareholders. Mr. Kopelowitz has also submitted an application to the Federal Reserve for a non-objection to acquire additional PEBN shares.
I am one of the largest shareholders of Pacific Enterprise Bancorp (“PEBN” or the “Company”), with shareholdings of approximately 9.9%. I am writing to you today regarding my strong opposition to the Company’s proposed merger with BayCom Corp (“BCML”).
In my view, the Board of Directors (the “Board”) approved an ill-conceived and strategically flawed merger agreement last year. At the time of the announcement, the proposed merger short-changed shareholders by $3.30 per share in book value.1
It appears that no non-distressed California bank since the Great Recession has sold for less than book value.2 In fact, the average premium for a regional bank merger or acquisition over the last five years is 173.25% of tangible book value.3 This leads me to question whether the Board fulfilled its fiduciary duties and ran a proper market test before entering into this seemingly value-destructive deal. In conversations with other industry participants, I have heard that other potential acquirors were not even given a proper chance to participate in the bid process.
Management has naturally argued that the combination with BCML, while at a discount, is still better in the long run for shareholders. In my opinion, this is a baseless and exceedingly pessimistic view of PEBN and an overly optimistic estimation of BCML’s potential to create value for shareholders. BCML has underperformed the benchmark industry ETF by 18% and 50% over the last one- and two-year time horizons, respectively.4 Additionally, while banking sector indices and ETFs are hitting all-time highs, BCML’s share price peaked years ago in 2018.5 Yet, BCML’s chief executive officer’s compensation has increased more than 54% over that time period.6
The reality is the aforementioned metrics do not match the rosy picture painted by management when advocating for the merger. As the classic Wall Street adage goes: Tying two rocks together will not make them float. The solution for a bank trading at a discount to book value is not to merge it with another bank that is also trading at a discount to book value.
If this merger was truly market-tested and BCML’s offer was actually the best available, I question why the Board decided to ultimately move forward. In my opinion, this is a transaction that does nothing for shareholders – other than deprive them of value. I firmly believe there are superior alternatives available that do not subject shareholders to a punishing discount, including liquidating the Company’s assets and returning the equity to shareholders.
I am voting against the proposed merger and cannot see how any other shareholder could reach a different conclusion. I welcome the opportunity to engage with fellow shareholders and explain my opposition to the deal. I also welcome the chance to speak with the Board about value-enhancing alternatives once this deal is hopefully voted down.
1 Based on $21.08 in Book Value on the same date, available at https://www.pacificenterprisebank.com/home/fiFiles/static/documents/Disclosure%20statement%20093021.pdf.
2 S&P Global Market Intelligence.
3 S&P Global Market Intelligence.
4 Total shareholder return for BCML and SPDR S&P Regional Banking ETF calculated as of the close on December 7, 2021.
5 August 26, 2018 closing price of $26.68, as reported by Nasdaq.
6 Based on reported total compensation of $1,444,511, $1,999,940, and $2,226,361 in 2018, 2019 and 2020, respectively.