Bank Mergers: The deal closed. How does the conversion of shares work?

The deal has closed, the signs have changed, and as you can imagine, the shareholders are interested in when they receive the merger consideration.

When selling a home, the documents get signed and the keys are exchanged for the sales proceeds.

This transaction isn’t that simple, so communication is the key to having things go as smoothly as possible.

The details are a bit different depending on whether you are selling for cash, selling for stock, or selling for a cash and stock combination. What is the same for all three scenarios, however, is that they will need to send their stock certificate in.

So, the first thing the shareholders need to do is to make sure they can find their physical certificate(s).

That can be communicated as early as the day of the announcement and repeated with all correspondence following that.

In the event a stock certificate(s) cannot be found, you will want to collaborate with legal counsel to get that remedied.

Paying agents and stock transfer agents will charge a fair amount to remedy it, and it will more than likely take time.

So, these issues need to be corrected as early as possible.

You will also need to provide the paying agent and/or the stock transfer agent with shareholder data in the form in which their systems process the data.

The buyer’s legal counsel will work through your legal counsel to get you the instructions for properly submitting the data.

You will need social security numbers (EINs in the case of IRA custodians or corporate shareholders), addresses, proper titling, number of shares, phone numbers, and email addresses all to be current and ready to go.

So, if you have work to do there, get started on that as soon as possible, going back as far as the announcement day so it isn’t something you’re working on while people are awaiting their merger proceeds.

There will be an instruction letter sent to the shareholders called a “Letter of Transmittal.”

The letter of transmittal provides instructions to the shareholders for surrendering their stock certificates.

It is important for you to get a copy of the letter of transmittal as soon as you can.

That may not be until the last 30 days or so prior to closing.

You will want a copy so that you can understand the message that is going out to your shareholders.

That way, you’re informed and can answer any questions shareholders present to you.

The letters of transmittal going out to shareholders will likely be sent via the U.S. Postal Service (USPS). For that reason, you will want to be provided with electronic copies of letters that have gone out.

You will want those copies for three reasons:

1. To make sure the certificates went to the right people with the correct information.
2. So that you can ensure the address is correct when a shareholder calls and says they haven’t received their letter yet.
3. So that you can use that letter as a substitute in the event they don’t receive their letter.

Because the letters went out via the United States Postal Service (USPS), the delivery times of those letters will be all over the board. Be prepared for this.

Depending on the number of shareholders you have, the process could take a fair amount of time for everybody to get their merger proceeds.

Communication is the key to a smooth outcome.

When in doubt, keep everyone informed.

Even if there is little new information to report, say “There is little new information to report since our last communication.”

It takes the worry away from your shareholders that a communication has been missed.

In the case of cash proceeds, there likely will be a point in time, typically a year from closing, where cash not collected will revert to the buyer.

Not being able to locate a shareholder and shareholder apathy with one or two will likely be the reason for failure to collect, as crazy as it sounds.

Stay on top of collections so that this doesn’t come into play.

Exhaust all efforts to find and communicate with the shareholders.

It’s easy to think you have more than enough time to get this done, but time will go by faster than you realize.

Similarly, continue to push shareholders to collect their proceeds for the same reason.

Action Plan:

• Do an audit of your shareholder contact records.
  • When was the last time they were thoroughly updated?
  • Create an annual process, perhaps in conjunction with your next annual meeting, to keep all information current.
  • Are all EINs for IRA and/or corporate shareholders current?
  • Do you have current custodian contact information for IRA custodians? This all adds time to the process and is good to have ready to go.
  • The same for corporate shareholders.

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.