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Canandaigua National Corp. has had it with federal regulators and is taking steps to delist from the Securities and Exchange Commission and become privately held, Chairman George Hamlin IV said this week.
The parent of Canandaigua National Bank and Trust Co. and Genesee Valley Trust Co. wants to buy shares from holders of 99 shares or fewer as of June 26, reducing its number of stockholders to fewer than 1,200, a July 1 SEC filing states.
If the voluntary offer results in fewer than 1,200 shareholders, the company would no longer be subject to rules and regulations of the Securities Exchange Act of 1934; the board of directors would deregister Canandaigua National's common stock, the filing states.
As a private company, Canandaigua National would no longer file periodic reports with the SEC, including quarterly earnings and annual reports, the filing states. It would not be subject to SEC proxy rules or the reporting and audit requirements of public companies adopted under the Sarbanes-Oxley Act of 2002.
The offer is scheduled to expire Aug. 12 at 5 p.m. Sellers must surrender their entire portfolio of stock. Holders of 100 or more shares at the close of business June 26 are not eligible. All shares purchased as part of the offer will be retired.
Relieved of the regulatory burden, the bank could see significant cost savings, allowing management to focus on day-to-day business activities, the filing states.
Canandaigua National spends some $250,000 a year on filings as a public company, according to the filing. These costs include an estimate of the cost of the time and resources of company managers and other employees who prepare reports and ensure compliance with reporting obligations.
"The way it is now," Hamlin said, "you have to file two or three times when one is enough."
The company will continue to be regulated by the Federal Reserve Bank of New York, the Office of the Comptroller of the Currency and the state Department of Financial Services because it is a financial holding company for two national banks and a New York State-chartered trust company.
According to the SEC filing, the company will pay $161 for each share of common stock. That is a premium of $29, or 22 percent higher, than $132 from the stock's last trade reported on the Over-The-Counter Bulletin Board on June 26.
It also represents a premium of $18.74, or 13.2 percent, over the sealed-bid price of $142.26 at the last shareholder auction of common stock on June 20.
In addition to $161 a share, the company will pay $50 to eligible shareholders whose letter of transmittal and stock certificates are received prior to the expiration date of Aug. 12.
"There's a premium to try to get people to act," Hamlin said.
If all eligible shareholders participate, the bank would pay out more than $3.7 million, excluding the $50 bonuses. The expenditure would not adversely affect the company's financial condition, company officials said.
Eligible shareholders will not pay sales commissions or other fees if they tender their stock directly to the company. If the offer does not reduce the number of shareholders to less than 1,200, the board will consider alternatives to achieve that result if it is in Canandaigua National's best interests.
"This is a voluntary thing," Hamlin said. "We're trying to eliminate stockholders. If we delist, they can get right back in at the next auction."
The company had 640 shareholders of record with 99 or fewer shares as of June 26, and 55 shareholders who beneficially owned no more than 99 shares, the filing states.
The eligible record and beneficial shareholders held an approximate aggregate of 23,199 shares of common stock, or about 1.2 percent of the total shares.
The company had some 1,540 shareholders with total holdings of nearly 1.9 million shares as of June 26, with 11.1 percent of the shares held by brokerage accounts.
The decision to go private is due in part to the Jumpstart Our Business Startups Act in 2012, which increased the deregistration threshold for banks and bank holding companies to 1,200 shareholders of record from 300, Hamlin said.
"It doesn't sound out of the ordinary," said George Conboy, president of Brighton Securities Corp.
Conboy owns just more than 600 shares in Canandaigua National.
"It doesn't sound like anything's wrong when they give the analysis that 1.2 percent of our shareholders is an undue burden on the remaining shareholders to meet the SEC requirements, and we can reduce our costs for the vast majority of shareholders by making an offer to small holders to sell us back your shares," Conboy said.
"If that's as far as it went, I'd say it makes all the sense in the world. Who could blame them?"
But Conboy is puzzled by two things.
The first is the 4-to-1 split of authorized and issued common stock in September 2011-just 22 months ago-to increase the company's total shares. The second is the company's interest in selling shares at a premium.
Shareholders voted 22 months ago to amend the bank's certificate of incorporation to increase the total number of authorized shares to 20 million from 8 million.
The stock split was designed to boost the number of authorized shares of common stock to 16 million from 4 million, reducing the par value to $5 a share from $20 a share, the bank reported in a filing.
"They did this big stock split, and ostensibly the reason to do it was to boost the liquidity in the trading in the shares," Conboy said. "They didn't necessarily accomplish that, and I'm not sure why they thought it would at the time.
"With them expanding and becoming a presence in Rochester, and with a good reputation, my presumption at the time was here's a bank that wants to broaden their ownership base in Upstate New York. It made perfect sense at the time. Now, a brief time later, they're looking to undo some of that."
A more concentrated portfolio of investors will make the stock harder to trade, Conboy said.
"Now they trade practically up by a point," he said. "They sell shares at auction. You can buy them with any broker. You can go online and buy them. They don't trade that frequently, but you can buy them and you can usually buy them cheaper."
If the company is delisted, Canandaigua National expects its stock to be removed from the OTCBB and to be quoted in the Pink Sheets, a daily publication of the National Quotation Bureau. The Pink Sheets lists bid and ask prices for over-the-counter stocks that do not meet the minimum requirements of the SEC.
"As a result, it may become even more difficult for our remaining shareholders to sell their shares," the filing states.
The limited trading market is due in part to the low number of shareholders, it adds.
Although the company's stock is not actively traded, stockholders occasionally sell shares to interested parties in sealed-bid public auctions administered by the bank's trust department. Its symbol on the OTCBB is CNND or CNND.OB.
At the close of trading on June 20-the day of the sealed-bid auction price of $142.26-the stock was listed at $132 on the OTCBB.
Some 1,526 shares were traded in the first quarter of 2013, the bank reported in May. The average price was $128.56, with a high of $136 and a low of $122.25.
"What they should be doing is seeking to promote an open, free and liquid market," Conboy said. "It seems like they're doing just the opposite.
"I concur that their complaints about undue regulatory burdens are not unreasonable, especially for a smaller company. But I would take it at face value a lot easier if they didn't throw in some of these other things like trying to arrange for shareholders to be able to sell at a premium and squeezing out the cost of brokers to save shareholders money."
The filing explains that the impact resulting from the offer on the company's earnings per share, if any, is very small. It also states the percentage of shares of common stock held by Canandaigua National's executive officers and directors would increase to 13.8 percent from 13.7 percent.
Hamlin owns 74,000 shares, or 6.19 percent of the total, the largest portion of individual shares. Canandaigua National Bank owns 180,826 shares, or 9.14 percent of the total.
The bank's board considered buying a set number of shares from each stockholder, but determined that format is not permitted by the terms of the Securities Exchange Act, the filing states. The company also considered a tender for a fixed number of total shares to all company shareholders but was concerned that it would result in an over-subscription by participating shareholders.
The filing states a reverse stock split, cash-out merger or similar transaction would force shareholders with fewer than an established number of shares to sell at a predetermined price in most cases.
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