Dispatch Printing Sues Bank Over Recapitalization Plan
-- Graphic Arts Online, 5/3/2008 3:15:00 PM
The Columbus Dispatch reports its parent, Dispatch Printing Company, is seeking to block a proposed $7 billion recapitalization of the Cleveland-based bank by an investment group led by Corsair Capital of New York, a National City Corp. shareholder.Dispatch Printing, which is also a shareholder in National City Corp., filed suit May 1 in the Franklin County Common Pleas Court. It claims the deal "harms existing shareholders while enriching Corsair and an unknown number of 'secret investors' who are being issued 1.4 billion shares of stock at $5 a share." Among recent SEC filings since April 30 are three showing director Morry Weiss, who is also chairman of American Greetings, acquired 105,700 shares of National City at $6.19 per share.
The unnamed investors, along with executives at Corsair and National City, would own 70% of the bank after the capital infusion, according to The Dispatch. National City announced the deal had closed May 2. It issued the following release April 21 announcing the original transaction:
National City to Strengthen Capital Base by Raising $7 Billion of Equity, Solidifying Its Financial Foundation; Company Also Reduces Common Dividend; Reports First Quarter Results
CLEVELAND, April 21 /PRNewswire-FirstCall/ -- National City Corporation (NYSE: NCC) today announced that its Board of Directors has unanimously approved the raising of $7 billion of additional equity capital that solidifies the company's financial foundation as it continues to focus on maximizing its core banking strengths for stockholders, customers and the communities it serves. Separately, National City also released its first quarter 2008 results, reporting a net loss of $171 million, or $.27 per diluted share, compared to a net loss of $333 million, or $.53 per diluted share in the fourth quarter of 2007.
The capital raise includes $985 million of private equity capital from Corsair Capital, a highly regarded private equity firm with a successful track record of global long-term investing in the financial services industry, particularly the banking sector, and one other private equity investor. The balance, or $6.015 billion, of equity capital is being purchased by other investors, including several of National City's largest current institutional stockholders.
The capital infusion is expected to increase National City's capital ratios well above the high end of the company's targeted ranges. That includes its Tier 1 risk-based capital ratio, which will increase to 11.40 percent pro forma for this transaction from 6.65 percent at March 31, 2008. The 11.40 percent pro forma ratio places National City well above its peer group with respect to this important measure. To further strengthen its capital position, National City's Board also approved a reduction in its common dividend to $0.01 per share from $0.21 per share, payable May 16, 2008, to holders of record May 1, 2008.
"This strategic raising of equity capital provides National City with the financial flexibility to continue investing in and growing our core businesses, which are delivering solid results, while addressing the asset quality challenges posed by the disruptions in the credit and housing markets," said National City Chairman, President and CEO Peter E. Raskind. "In addition, while we fully recognize that the dividend is an important element of return for our stockholders, the dividend reduction is consistent with our efforts to strengthen our capital position and is prudent given this environment."
"We are pleased with the confidence that our investors have expressed in the value underlying National City's franchise and the fundamental strengths of our business model that will help drive a return to profitability. Corsair Capital's participation is particularly gratifying," Raskind said. "It is a seasoned investor with a record of working productively with the boards and management teams of the companies in which it invests. National City has a long and rich history, and we look forward to carrying on that great tradition with our team of 32,000 employees, whose passion and dedication for serving our customers is unmatched in our industry."
Corsair Capital will be represented on the Board of Directors of National City, which intends to appoint Corsair Capital Vice Chairman Richard E. Thornburgh as a director. Thornburgh said, "In Corsair's view, National City is an integral contributor to the economic fabric of the markets it serves. Our decision to make a long-term investment in National City reflects our recognition of the company's important role as a leading provider of core banking services to its many customers, and our confidence in the potential of National City to achieve enhanced value for its customers, stockholders and employees in the future."
Terms of the Capital Raise
In the financing, National City will issue 126.2 million shares of common stock at a purchase price of $5 per share and an aggregate of 63,690 shares of Contingent Convertible Perpetual Non-cumulative Preferred Stock, Series G, at a purchase price and liquidation preference of $100,000 per share. After receipt of certain approvals, including approval of the company's stockholders, each share of convertible preferred stock will automatically convert into 20,000 shares of the company's common stock, subject to adjustment.
In addition, Corsair Capital and certain other participating investors will receive warrants with an exercise price of 115 percent of the company's average closing price for the five-trading-day period beginning Monday, April 21, 2008, with a cap of $8.50 per share. These warrants have a term of five years. The warrants will be exercisable after certain stockholder and regulatory approvals are received.
The company intends to call a special stockholders' meeting to:
Increase the number of shares of authorized common stock and
Approve conversion of the preferred Series G stock into common stock and the exercisability of the warrants.
Further details about the private offering and the terms of the securities will be available in the company's Form 8-K to be filed with the SEC.
Goldman, Sachs & Co. served as financial advisor and Sullivan & Cromwell LLP and Jones Day served as legal advisors to National City. RBS Greenwich Capital served as financial advisor and Simpson Thacher & Bartlett LLP served as legal advisor to Corsair Capital.
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