Bank Mergers: How do you gain bank shareholder approval?

Legal counsel should guide you through the process of calling a special meeting of the shareholders for the purpose of voting on the merger.

Your corporate documents should spell this all out.

Let your legal counsel review them and guide you to ensure things are done in accordance with those documents.

Side note: If you are contemplating the sale of the bank at a point in the future, it would be a good process to familiarize yourself with the corporate documentation well in advance to understand the variables you will need to navigate should you decide to sell.

The articles, bylaws, and shareholders agreement for both the bank and the holding company (if applicable) should be thoroughly reviewed.

If there is anything that requires an update, you may wish to consider taking care of that as soon as possible, perhaps in alignment with an annual meeting.

This also could be incorporated into your capital plan document as something that was reviewed in the event you need to raise capital, merge, or sell.

If your bylaws currently don’t address the ability to deliver your proxy materials electronically, you may wish to revisit this with your legal counsel. During the COVID-19 global pandemic, many states updated their laws to include the electronic delivery of corporate documents and notices of meetings.

Having the ability to provide notice for the meeting along with the proxy materials electronically allows for a less costly, trackable form of delivery that most shareholders prefer in today’s post-pandemic environment.

It is even possible to send voting cards electronically as well.

The voting card responses allow for a higher response rate and are very trackable and are date and time stamped. Being able to send electronic reminders of when proxy votes are due also helps increase the response rate.

All of this does require your shareholders to provide consent to receive the information electronically (follow the advice of your legal counsel), so the sooner you gain the ability to provide information in that manner, the better.

That again may be in alignment with an annual meeting.

Generally, for the special meeting, the shareholders will be asked to vote in favor of the transaction.

And if there are not enough votes on the first attempt to approve the merger, a second request the shareholders will be asked to approve is to allow for added time to gather the votes needed to meet the requirements for approval as supported in your corporate documents.

The proxy materials that are delivered to your shareholders (as guided by experienced legal counsel) generally include:

• Information related specifically to the special meeting, the voting rights and vote needed. How to vote and how to revoke proxies. The solicitation process for the proxies and the recommendation of the board of directors.
• Specific to the merger proposal, there would be a general description of what is being proposed to take place, what the merger consideration is, some background and reasons for the merger, the fairness opinion of the financial advisor (if the board sought one), the regulatory approval of the merger and any tax consequences of the merger. Additionally, appraisal rights, interests of the board of directors or management related to the transactions (including Change-In-Control and Stay-Put agreements, if applicable), and again the recommendation of the board of directors.
• Details of the definitive agreement such as the structure and effective date of the merger, the treatment of stock, the procedure for exchange of the stock, representations and warranties, conduct of the business while the merger is pending, and the fact that no solicitation of acquisition proposals can take place. Also included are employee benefits information, and other covenants that may have been negotiated, conditions precedent to the merger, payment if there were to be a termination of the merger, expenses related to the merger, the effect of the merger on the rights of the shareholders and any voting agreements or restrictive covenants the board of directors and management must sign.
• The number of shares owned by the board of directors and executive officers.
• Copies of the various underlying documents in their entirety such as the definitive agreement, the fairness opinion, and the financial statements.
• And any other matters that may apply such as compliance with any state or federal legislation.

It may also be possible to hold the meeting electronically as well, if your corporate documents allow for that as well as any state and/or federal legislation requirements that may exist.

I would advocate for the use of electronic communications if you possibly can throughout the process. Legal counsel can direct you in that regard.

If the state and/or federal regulation allows for it, but your corporate documents do not, this is another item you may wish to update in conjunction with an annual meeting of the shareholders.

Following your special meeting, you will want to communicate to all shareholders the results of the meeting.

If you can communicate electronically, an email immediately following the meeting sharing the results and next steps goes a long way towards shareholder satisfaction and answering questions.

This approach saves shareholders time from having to ask for it themselves and saves your time and your team’s time fielding and responding to those requests.

The email is also trackable and can supply information related to opens and open rates that is helpful.

Regulatory approval will be running parallel to your preparation and the holding of your special meeting of the shareholders.

You may or may not have regulatory approval prior to the meeting, however, that should not hold up having the meeting.

Shareholder approval can be subject to regulatory approval.

Action Plan:

• Are you familiar with your corporate documents? If not, it’s a good idea to get familiar with them, the sooner the better. Even if you’re not planning on selling, you need to be very familiar with them to acquire a bank, and to raise additional capital or subordinated debt.
• Add the review of your corporate documents in with your annual board review of your capital plan.

Your path will:

• Inform your strategic plan.
• Guide your annual business plan and budget.
• Clarify priorities.
• Define your message so it can be communicated with confidence.

This is how savvy bankers navigate.

They build smart and valuable banks and choose the best time to sell – serving the needs of the shareholders and the board.

I hope you found this short lesson helpful.

What are your thoughts?

I’ll see you next week.