Thacher
Proffitt
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Thacher Proffitt & Wood LLP
1700 Pennsylvania Avenue, N.W.
Suite 800
Washington, DC 20006
(202) 347-8400
Fax: (202) 626-1930
www.tpw.com
May 16, 2007
VIA EDGAR AND HAND DELIVERY
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Mr. David Lyon
Division of Corporation Finance
U.S. Securities and Exchange Commission
100 F Street, NE
Washington, D.C. 20549
Re: Westborough Financial Services, Inc.
Schedule 14A, Amendment No. 1
Filed on March 21, 2007 (SEC File No. 0-27997)
Dear Mr. Lyon:
This letter is submitted on behalf of Westborough Financial Services,
Inc. (the "Company") in response to the letter dated April 20, 2007 from the
staff (the "Staff") of the Securities and Exchange Commission transmitting
their comments to the above-referenced filing.
We note that many of the comments contained in the Staff Letter revolve
around the issue of book value and whether the Company should disclose a "price
to book" ratio that compares the merger consideration being paid to the book
value of the minority shares (on a fully diluted basis) or to the aggregate
book value (including all outstanding shares, both minority and MHC shares).
Prior to responding directly to the comments contained in the Staff Letter, we
believe it would be useful to provide the Staff with certain information
related to this topic, the nature of mutual holding companies, remutualization
transactions and second step conversions. Please note that beginning on page 25
we have added a new section to the proxy statement entitled "Background on
Remutualization Transactions" in an effort to provide disclosure regarding
these topics to the Company's shareholders.
When mutual institutions consider converting to stock form and issuing
shares to the public, one of the driving factors behind deciding to undertake a
mutual holding company reorganization with a minority stock issuance (a
"partial" conversion), versus a full conversion that results in the entire
institution being publicly held, is the inability to effectively deploy the
entire proceeds of a full conversion in a timely and efficient manner. A
"partial" conversion provides the institution with access to the public market,
but with a smaller amount of net proceeds. For The Westborough Bank, this was a
primary reason to reorganize into the mutual
Mr. David Lyon
Division of Corporation Finance
U.S. Securities and Exchange Commission
May 16, 2007 Page 2
holding company form and undertake a minority stock offering. The mutual
holding company form of organization also had appeal because of the ability it
provides the entity to protect the interests of the mutual institution.
Westborough Bank's mutual holding company conversion was completed in February
2000, pursuant to which the Company was newly organized as The Westborough
Bank's mid-tier holding company, and raised net proceeds of approximately $5.0
million in exchange for the sale of 35% of its shares to the public.
At the time of the offering, the aggregate book value of the Company was
$24.3 million, including the $5.0 million in consideration paid for the public
minority shares, plus the $19.3 million pre-existing net worth of The
Westborough Bank that had been built up over the 130 years that The Westborough
Bank had existed as a mutual savings bank prior to the mutual holding company
reorganization. Westborough Bancorp, MHC received 65% of the stock of the
Company in consideration of this pre-existing net worth, whereas the minority
stockholders received 35% of the stock of the Company in consideration of their
payment of $5.0 million for the shares issued to them. The Company's book value
has increased since the offering through retention of earnings, and this
increase has been properly allocated to all of the outstanding shares, so that
each of the minority stockholders and Westborough Bancorp, MHC has received a
proportionate increase in the book value represented by their shares. As a
result, the book value per share of each of the Company's outstanding shares as
of March 31, 2007 was $17.23 and as of June 30, 2006 (the most recent financial
information at the time of the merger announcement) was $17.54.
There are three possible strategic directions for an institution in
mutual holding company form with minority shares outstanding. It can remain in
mutual holding company form indefinitely, with minority shares outstanding. The
mutual holding company majority stockholder can decide to undertake a full
conversion (a so-called "second step"), whereby it would become fully publicly
held and the mutual interests it represents would be extinguished (aside from
depositors' liquidation rights that would decline over time, as specified in
applicable banking laws). Or the institution can undertake a merger that
results in a "remutualization," whereby the mutual holding company, and the
mutual interests it represents, would merge with another mutual holding company
(under applicable banking law mutual institutions can only merge with other
mutuals) and the minority stockholders of its mid-tier subsidiary would be paid
the merger consideration for their minority interests.
Westborough Bancorp, MHC, the Company's mutual holding company majority
stockholder, like any institution that has undergone a "partial conversion," is
not under any obligation to complete a "second-step" conversion to fully public
status within any time period of its mutual holding company reorganization, or
for that matter, at all. Consummating a second step conversion is a decision
made by an institution for business and strategic reasons. In Westborough's
case, the Board of Directors (as described in the proxy statement) has made an
affirmative decision not to undertake a "second-step" conversion, primarily
because the Company is over-capitalized by industry standards and in its
five-year financial forecast as provided by the Company and used in RBC's
fairness opinion, the Company does not anticipate having any type of capital
need for the entire five year horizon of the projections. Therefore,
Mr. David Lyon
Division of Corporation Finance
U.S. Securities and Exchange Commission
May 16, 2007 Page 3
with the Board of Directors having made that decision, and with no concrete use
of proceeds either currently or anticipated, and in light of the Company's
declining financial performance and related execution risks of deploying the
proceeds from a "second-step" offering, we believe that including comparative
disclosure in the proxy statement with a second step conversion as an
alternative "status quo" scenario in connection with the merger would be
misleading to the public shareholders.
It may also be helpful to explain the remutualization process. In a
remutualization transaction, two mergers occur virtually simultaneously. In the
mutual merger (in this case, the merger of Assabet Valley Bancorp and
Westborough Bancorp, MHC), as in every other pure mutual-to-mutual merger
transaction, no payment is made for the disappearing mutual institution because
there are no shareholders of a mutual institution; the only "ownership"
interests in a mutual banking institution lie with the depositors, who hold
statutory liquidation rights. (Pure mutual-to-mutual mergers occur regularly
but, by definition, are never subject to Securities and Exchange Commission
review since mutual institutions have no stock.) The mutual institution that
survives that merger represents the continuation of the two merging mutual
institutions, and (as with any merger) all assets and liabilities of the
disappearing institution become assets and liabilities of the surviving
institution. Where the disappearing mutual institution has previously
undertaken a minority stock offering, these assets include the majority
interest in the mid-tier holding company subsidiary (in this case,
approximately 64% of the Company's common stock). This is the reason that there
is no consideration paid for the shares held by the mutual holding company
parent.
In the other merger, which occurs simultaneously with the
mutual-to-mutual merger, the mid-tier holding company is merged with an interim
subsidiary of the surviving mutual institution. In that merger, the publicly
held shares of the mid-tier holding company (in this case, approximately 36% of
the Company's common stock) are exchanged for the merger consideration,
resulting in the continuing mutual institution owning 100% of the mid-tier
holding company's outstanding common stock.
In the Company's case, the minority shareholders currently own
approximately 36% of the Company's outstanding common stock. The acquisition of
the Company's minority shares should be viewed in the same manner as would be
the acquisition of 36% of the outstanding shares of any public company. For
this reason, diluted book value per share is probably the most important ratio
in a remutualization transaction. Valuing the minority stockholders' interests
based on the aggregate book value would imply that the aggregate purchase price
to the minority stockholders in this transaction (based on a typical purchase
price of two times book value) would be approximately $49.00 per share, which
represents a premium of approximately 58% over the stock's pre-announcement
trading price. In effect, disclosing such a value would imply that the holders
of the minority shares own the entire book value of the Company, when in fact
they only paid for, and only have rights with respect to, their pro rata share
(36%) of the Company's book value.
Mr. David Lyon
Division of Corporation Finance
U.S. Securities and Exchange Commission
May 16, 2007 Page 4
We also note that this is only the second remutualization transaction
since the Office of Thrift Supervision issued its June 24, 2003 policy
statement on remutualizations (which we referred to in our previous response
letter and a copy of which is enclosed). We would like to point out that in the
other transaction (Skibo Financial Corp., SEC File No. 0-25009), the aggregate
consideration paid to the minority stockholders also represented less than 100%
of the aggregate book value of all of the outstanding shares. The minority
share consideration in that case equaled 90.3% of the aggregate book value (and
227.9% of the minority stockholders' pro rata proportion of the aggregate book
value). In that transaction, 40% of the institution's outstanding shares were
held by the public. Based on 36% minority ownership, which is the percentage of
the Company's outstanding shares owned by the public, the ratio of minority
share consideration to aggregate book value in that transaction equaled 86.7%.
Finally, we note that while remutualizations are rare and somewhat novel,
this is certainly not the first to have been through the Securities and
Exchange Commission's review process. The proxy statements for those prior
transactions contain disclosure substantially similar to that contained in the
Company's. For your reference, the six previous remutualization transactions,
of which we are aware, that had structures exactly like the Company's
transaction and filed proxy statements with the Securities and Exchange
Commission, along with their respective file numbers, are listed below:
Remutualization Transaction(1) SEC File No. Filing Date
------------------------------ ------------ -----------
Skibo Financial Corp. 0-25009 January 16, 2004
West Essex Bancorp, Inc. 0-29770 January 9, 2003
Leeds Federal Bankshares, Inc. 0-23645 December 3, 2002
Liberty Bancorp, Inc. 0-24519 October 28, 2002
Pulaski Bancorp, Inc. 0-26681 April 18, 2002
Ridgewood Financial, Inc. 0-25149 May 7, 2001
(1) We are aware of one other remutualization transaction that filed a
proxy statement with the Securities and Exchange Commission (RFS
Bancorp, Inc., SEC File No. 0-25047, August 17, 2001). However,
that transaction is not listed above because it was structured
differently from the Company's as RFS Bancorp conducted a reverse
stock split as an initial step of the transaction.
We believe that we have responded completely and adequately to each of
the comments in the Staff Letter. We would appreciate an expeditious review of
this filing and would ask to be contacted immediately if the Staff anticipates
raising issues that are likely to further delay the transaction.
Mr. David Lyon
Division of Corporation Finance
U.S. Securities and Exchange Commission
May 16, 2007 Page 5
Your specific requests for information are set forth verbatim below,
followed by the Company's response.
Proxy Statement
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General
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1. Please provide the staff with a legal analysis as to why this transaction
is not subject to the rules and disclosure requirements of Rule 13e-3 and
Schedule 13E-3 of the Exchange Act. In this regard, specifically address
the current interests and carryover interests of the corporators,
trustees, and directors of Westborough.
We believe that this transaction is not subject to the rules and
disclosure requirements of Rule 13e-3 and Schedule 13E-3 of the Exchange Act
for the simple reason that it is not a "Rule 13e-3 Transaction" or
"going-private transaction," as defined by the rule.
In order for a transaction to be considered a going private transaction,
both of the following conditions must be present:
(1) it must be a transaction or series of transactions involving
one or more of the transactions described in paragraph
(a)(3)(i) of Rule 13e-3; and
(2) it must have either a reasonable likelihood or a purpose of
producing, either directly or indirectly, any of the effects
described in paragraph (a)(3)(ii) of Rule 13e-3.
While this transaction will result in at least one of the effects
described in paragraph (a)(3)(ii) of Rule 13e-3, this transaction is not the
type of transaction described in paragraph (a)(3)(i). In other words, the
second part of the test is met, but the first is not.
The reason the first part of the test is not met is because the
remutualization is not a transaction with an affiliate. Assabet Valley Bancorp
and Hudson Savings Bank have no affiliation with the Westborough entities
whatsoever. Assabet and its affiliates do not own any of the outstanding shares
of the Company's common stock.
We understand that, in Release No. 34-16075 (August 2, 1979), the
Securities and Exchange Commission stated that Rule 13e-3 might be implicated,
and a Schedule 13E-3 required, in certain transactions where the management of
the business following the transaction continues to be conducted by the
management of the seller. However, that is not the case in this transaction.
Assabet Valley Bancorp's senior management after completion of the transaction
will consist of Assabet Valley Bancorp's existing senior management team, with
the addition of only one representative of Westborough's management, Mr.
MacDonough. Moreover, the top offices of Assabet's sole operating subsidiary,
Hudson Savings Bank, will continue to be held by Hudson Savings Bank's existing
officers. Clearly, Westborough's management team will not control the conduct
of the continuing institution's business. Moreover, no members of
Mr. David Lyon
Division of Corporation Finance
U.S. Securities and Exchange Commission
May 16, 2007 Page 6
Westborough's management or Board of Directors will have equity participation
in Assabet following completion of the transaction.(1)
We do not believe that the fact that Westborough's corporators, trustees
and directors have carryover interests in the form of continued roles as
corporators, trustees and directors of Assabet causes this transaction to fall
within the scope of Rule 13e-3. First, the Westborough corporators, trustees
and directors will not control Assabet's business, as they will not hold a
majority of the seats on each board. And a far more important factor to
consider is that none of Westborough's corporators, trustees, directors or
members of management will have equity interests in Assabet following the
transaction.
We also note that only one of the four factors enumerated in a Securities
and Exchange Commission telephone interpretation regarding the application of
Rule 13e-3 to arms-length transactions is present in this transaction. Those
four factors are: (1) increases in consideration to be received by management
(not present); (2) alterations in management's executive agreements favorable
to such management (not present); (3) equity participation of management in the
acquiror (not present); and (4) representation of management on the board of
the acquiror (present, only in a limited amount). See Manual of Publicly
Available Telephone Interpretations, Section P. Going Private Rules and
Schedule 13E-3, Question No. 3.
2. With regard to the disclosure schedules referenced in Section 1.4 of the
Agreement and Plan of Merger, revise to include these schedules,
supplementally advise the staff where they are already provided or advise
us why inclusion is not required.
Please be advised that the disclosure schedules to the merger agreement
contain confidential and private information regarding the parties, including,
for example, information about their suppliers, customers and employees and
proprietary information about their businesses. We note that disclosure
schedules to merger and other types of acquisition agreements are not prepared
with public disclosure in mind. Rather, they are prepared as a means of
providing exceptions to the representations and warranties and covenants of the
parties contained in the agreement as well as a method of allocating risk
between the parties. We also note that, in virtually all other merger
transactions of which we are aware, disclosure schedules have not been provided
to shareholders or filed publicly with the Securities and Exchange Commission.
We, of course, understand and acknowledge that the Company is obligated to
disclose to its shareholders all information that would constitute material
information relevant to the shareholders' decision regarding approval of the
merger agreement, and the Company believes that it has included in the proxy
statement all such information. As such, please be advised that we do not
believe that inclusion of the disclosure schedules is required.
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(1) We note that Westborough's corporators, trustees, directors and members of
management will have liquidation rights and subscription rights in Assabet
based on, and only to the extent of, the deposit relationships they maintain
with Hudson Savings Bank.
Mr. David Lyon
Division of Corporation Finance
U.S. Securities and Exchange Commission
May 16, 2007 Page 7
The Merger, page 2
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3. Please revise the second full paragraph on page 3 to end the paragraph
after the phrase, "approximately $20.6 million". Immediately after this,
add a short table as follows:
Stand alone Minority MHC Shares Total Shares
Shares 598,171 1,027,893 1,626,064
-------------------- ---------- ------------
Per Share Book Value $47.48 n/a $17.37
Price per Book Value 73% n/a n/a
The referenced paragraph has been revised to end after the phrase,
"approximately $20.6 million." We note, based on discussions with the Staff,
that the table above was a suggested manner of highlighting some of the
transactions financial metrics in tabular format and that the Staff would
consider revisions to the table. We believe that the table below, which, along
with a lead-in paragraph, has been inserted after the paragraph ending
"approximately $20.6 million," provides shareholders with a more clear picture
of the transaction, consistent with our overview of the transaction as set
forth at the beginning of this letter.
As of June 30, 2006
(most recent published Stand Alone
quarter-end at signing) Minority Shares MHC shares Total Shares
----------------------- --------------- ---------- ------------
(Dollars in thousands, except per share data)
Shares Owned 567,881 1,027,893 1,595,774
Percentage Ownership 35.6% 64.4% 100.0%
Shareholders' Equity(1) $9,963 $18,033 $27,996
Book Value Per Share $17.54 $17.54 $17.54
Total Merger
Consideration $20,554 n/a(2) $20,554
Consideration for in-the-
money value of options $678 n/a(2) $678
Merger Consideration for
Outstanding Shares $19,876 n/a(2) $19,876
Purchase Price Per Share $35.00 n/a(2) $12.46
Purchase Price (inclusive
of in-the-money option
value) to Book Value 206% n/a(2) 73%
(1) Shareholders have claim to the equity of Westborough Financial in
proportion to their share ownership.
(2) Depositors of Westborough Bank, who have statutory liquidation
rights and subscription rights in Westborough MHC, will receive
equivalent rights in Assabet Valley Bancorp upon completion of the
mutual merger of Westborough MHC with Assabet Valley Bancorp.
Mr. David Lyon
Division of Corporation Finance
U.S. Securities and Exchange Commission
May 16, 2007 Page 8
4. Supplementally advise the staff if anyone other than the public
shareholders would be entitled to the equity in the event of a
liquidation of the entity.
Please be advised that in the event of a liquidation of the Company,
public shareholders would be entitled to the equity of the Company in
proportion to their share ownership, which is approximately 36%. Westborough
Bancorp, MHC would be entitled to the remainder of the Company's equity.
It is important to note, however, that the likelihood of a distribution
of the Company's assets in a liquidation of the Company is extremely limited.
The primary assets of the Company are the stock and assets of The Westborough
Bank. Under applicable federal and state banking law, the stock of The
Westborough Bank could not be distributed to the shareholders of the Company
without prior regulatory approval and the assets of The Westborough Bank could
not be distributed until its depositors' liquidation rights were first
satisfied.
Financial Interests of Westborough.....page 9
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5. With regard to the SERP bullets, if any of the benefits described as
resulting from existing plans have had changes in the plans during the
last 12 months, so describe.
The bullet on page 12 regarding the supplemental executive retirement
plans (SERPs) for Messrs. MacDonough and Casagrande and Ms. Bouvier has been
revised to reflect that the SERPs were amended on December 18, 2006 to provide
for payments to be made in a lump sum and commence upon a change of control
without the need for a termination of service as a pre-condition to be paid
such benefit. These plans were also amended to be in "good faith" compliance
with the proposed regulations under Section 409A of the Internal Revenue Code
at this time but these amendments did not otherwise enhance or liberalize the
terms of the SERPs. These amendments were reflected in a Form 8-K filed on
December 22, 2006. It is expected that these SERPs may need to be further
amended in order to comply with the final regulations under Section 409A of the
Internal Revenue Code (issued by the Internal Revenue Service on April 10,
2007) with such amendments required to be made prior to the end of calendar
2007.
Please note that these SERPs were also revised in 2005 (as reported on
Form 8-K filed on January 5, 2006) to reflect design changes related to payment
formulas and overall SERP design.
The SERPs for non-employee directors have not been amended in the prior
twelve months, but will need to be amended for compliance with Section 409A of
the Internal Revenue Code prior to the end of calendar 2007.
Mr. David Lyon
Division of Corporation Finance
U.S. Securities and Exchange Commission
May 16, 2007 Page 9
Appraisal Rights, page 11
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6. Please explain what appraisal rights are.
Disclosure has been added to the beginning of the "Appraisal Rights"
section of the Summary to explain what appraisal rights are. Please see page
13.
7. Please disclose why you have made arrangements for shareholders to
dissent if you do not believe that dissent is available.
Pursuant to the Massachusetts Business Corporation Act, the Company must
disclose in the proxy statement that the Company has concluded that
shareholders are, are not or may be entitled to appraisal rights in connection
with the merger (emphasis added). The section of the Massachusetts Business
Corporation act that governs appraisal rights is somewhat ambiguous and has not
yet been the subject of judicial interpretation. As noted in the previous draft
of the proxy statement, the Company has concluded that appraisal rights may be
available to shareholders in connection with the merger. The "Appraisal Rights"
section of the Summary, the "Appraisal Rights" section itself and the
discussion of appraisal rights in the "Notice of Annual Meeting" have been
revised to make the Company's conclusion clear and to disclose that the Company
and Assabet will not contest the availability of appraisal rights with respect
to any Company shareholder who properly asserts those rights.
8. Disclose how this issue will be decided and the time frame for this
decision.
We believe that this comment is no longer applicable in light of the
revisions to the proxy statement described in the response to comment 7 above.
9. Disclose what will be the result for shareholders who attempt to dissent
if it is later decided that they do not have dissenters rights, and the
time frame for this closure.
We believe that this comment is no longer applicable in light of the
revisions to the proxy statement described in the response to comment 7 above.
10. Supplementally provide the staff with an analysis as to why MGL 168
Section 34D, and 156B MGL Sections 76 or 85 do not apply to this
transaction.
MGL Chapter 168 Section 34D governs the appraisal rights of shareholders
of Massachusetts chartered savings banks. The proxy statement relates to public
shareholders of the Company. The Company is a Massachusetts corporation, not a
savings bank. Therefore, MGL Chapter 168 Section 34D does not apply to the
acquisition of the Company.
MGL Chapter 156B was superseded nearly three years ago on July 1, 2004 by
MGL Chapter 156D (the Massachusetts Business Corporation Act). As a result,
Chapter 156D, rather than Chapter 156B, now applies to mergers of Massachusetts
corporations, including the Company.
Mr. David Lyon
Division of Corporation Finance
U.S. Securities and Exchange Commission
May 16, 2007 Page 10
It should be noted that, in connection with the acquisition of the
Company, the Company's subsidiary, The Westborough Bank, will merge with
Assabet's Valley Bancorp's subsidiary, Hudson Savings Bank. That merger is
governed by Chapter 168, Section 34D (the Massachusetts law governing savings
bank mergers). Moreover, despite the adoption of Chapter 156D, described above,
for Massachusetts business corporations (such as the Company), Chapter 168,
Section 34D continues to incorporate by reference the merger-related provisions
of the superseded corporation statute, Chapter 156B, including its appraisal
rights provision. As a result, if Westborough Bank (rather than the Company)
were the entity with public shareholders, their appraisal rights would be
governed by Chapter 168, Section 34D and the appraisal rights provisions of
Chapter 156B.
Background of the Merger, page 23
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11. Please disclose how the $38.50 offer was "supplemented," as disclosed at
the top of page 28.
Bullet points have been added on page 33 to disclose how the offer was
supplemented.
12. Please disclose if the $40.00 offer was from a different party than the
$38.50 offer.
The disclosure in the "Background of the Merger" section has been revised
to clarify that the $40.00 offer was from a different party than the $38.50
offer. The party that delivered the $38.50 offer is now referred to as
"Prospective Buyer A" and the party that delivered the $40.00 offer is now
referred to as "Prospective Buyer B" in the proxy statement.
13. Please update for any further offers or events subsequent to the date of
the amendment.
The "Background of the Merger" section as been updated to disclose events
subject to the filing of Amendment No. 1. Please see pages 37 and 38.
Westborough Financial's Reasons for the Merger.....page 32
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14. We note from page 34 that the board specifically found that aggregate
book value was not relevant to their consideration. Please explain why
the board took this position.
Please be advised that the Board of Directors did not find aggregate book
value to be relevant to their consideration because, as discussed previously in
this response letter, no consideration will be paid for approximately 64% of
the Company's outstanding shares.
Mr. David Lyon
Division of Corporation Finance
U.S. Securities and Exchange Commission
May 16, 2007 Page 11
15. We note that the board did consider the fairness opinion figures for per
share book to per share purchase price ratio. Please disclose your
understanding of these figures in some detail. Please address the
significant dilution to pro form book value stemming from the lack of
contribution for the majority of shares held by the MHC. Note our related
comments at the fairness opinion heading.
As discussed in the response to comment 14 above and elsewhere in this
letter, since the public shareholders only have a claim to the Company's book
value in proportion to their share ownership, and do not have claim to the
entire book value of the Company, looking at book value on a per share basis as
compared to the purchase price is the most appropriate form of analysis. When
comparing the purchase price per share of $35.00 and the value of in-the-money
options to the book value per share of $17.54, the public shareholders are
receiving a purchase price of 206% of book value, which as it shows in RBC's
fairness opinion, is representative of similar transactions.
We do not see significant dilution to book value occurring in the
transaction. As described above, in all mutual-to-mutual transactions, the book
values of both institutions are combined and no consideration changes hands. As
the Westborough transaction can be viewed as part mutual-to-mutual combination
and part stock purchase for cash, the public shareholders receive cash for
their public shares at a multiple of approximately 206% of their book value and
cease to have an interest following the transaction. Book value dilution is not
a concept in the context of a mutual institution, and in fact the pro forma
shareholders equity of the combined institution is enhanced because the 64% of
the Company's equity owned by the MHC is assumed by the combined company in the
combination.
Given this answer as well as previous discussion in this comment letter
and earlier revisions made to the proxy statement to disclose that public
shareholders only have claim to shareholders' equity in proportion to their
share ownership, we do not feel it necessary to revise the disclosure.
Opinion of Westborough's Financial Advisor, page 34
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16. Supplementally advise the staff if there have been any sales in the last
2 years of financial institutions that have completed only a first step
mutual to stock conversion. If not, disclose in this section. If there
have been, and with a view towards additional disclosure, provide the
staff with details.
Please be advised that there have not been any sales in the last two
years of financial institutions that have completed only a first step mutual to
stock conversion. The last such transaction was completed in April 2004 (Skibo
Financial Corp., SEC File No. 0-25009).
Mr. David Lyon
Division of Corporation Finance
U.S. Securities and Exchange Commission
May 16, 2007 Page 12
Comparable Regionally Based Peers, page 38
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17. Please disclose why RBC conducted this analysis with respect to book
value and how it evaluated the results. Take into account the dilution to
first step, per share book value relative to shares of fully converted
savings and loans included in the peer group.
In connection with rendering its fairness opinion, RBC analyzed the
trading history of comparable public companies. In an effort to understand the
values of such companies from two separate perspectives, RBC analyzed both a
regionally based peer group of Selected Thrifts in the Eastern United States
and a nationwide peer group of Selected Nationwide Publicly Traded Mutual
Holding Companies. In its analysis of the trading history peer groups, RBC
reviewed the market trading prices relative to book value per share and
tangible book value per share of the selected companies and the Company prior
to the announcement of the merger. RBC did not attribute any particular weight
to any analysis but instead made qualitative judgments as to the significance
and relevance of each analysis.
RBC considered, among other factors, book value per share and tangible
book value per share because they are industry accepted measurements used to
evaluate the performance of publicly traded banks. These measurements are
relevant to publicly traded mutual holding companies because both book value
and tangible book value are calculated irrespective of who owns the shares. The
Company's public shareholders have a claim to the equity of the Company in
proportion to their share ownership which make the Company's public
shareholders not unlike the shareholders of any publicly traded entity.
Disclosure to this effect has been added to pages 44 and 45 of the proxy
statement.
We supplementally advise you that, for the reasons stated above, in
undertaking this analysis on a per share basis, the ownership of a block of
shares by any individual or entity, mutual holding company or otherwise, is
thus placed outside the scope of the analysis, and comparison between the
Company's first step, per share book value is properly made to the per share
book value of fully converted savings and loans included in the peer group.
Also, as described earlier, as the Company has decided not to consummate a
second-step conversion, and with no need for additional capital or a suitable
use of proceeds over the life of the financial forecast, both we and RBC
believe that explicitly or implicitly implying that a second-step conversion is
a likely alternative for the Company would be misleading to the public
shareholders of the Company. Given our previous responses and revisions
discussed earlier, we do not feel it is appropriate to revise the disclosure to
take into account the dilution to first step or the per share book value
relative to shares of fully converted savings and loans included in the peer
group.
Mr. David Lyon
Division of Corporation Finance
U.S. Securities and Exchange Commission
May 16, 2007 Page 13
18. Please revise the subheading for this section to better describe the peer
group, Note also for the peer group column headings on pages 39 and 41.
The subheading for this section (and also the peer group column headings)
has been revised to better describe the peer group. The peer groups are now
referred to as "Selected Thrifts in the Eastern United States," "Selected
Nationwide Publicly Traded Mutual Holding Companies" and "Selected Thrift
Merger Transactions in the Northeast" in the proxy statement and in this
letter.
Comparable Mutual Holding Companies, page 39
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19. Please disclose why there is little or no change between the book value
figures on page 39 and 41.
Both the Selected Thrifts in the Eastern United States and the Selected
Nationwide Publicly Traded Mutual Holding Companies are analyses of the stand
alone trading value of the companies in the peer groups. The data indicates
that both peer groups trade in a fairly consistent fashion. Neither the Company
nor RBC can definitively determine the reason that the peer groups trade in a
consistent fashion. Rather, this would be determined by market forces. We do
not believe it is appropriate to speculate as to the reason for the similarity
in the filing. Accordingly, no additional disclosure has been added in response
to this comment.
20. For this and the next subsection, please disclose what consideration RBC
gave to the fact that the peer group numbers are market prices rather
than merger transaction values. Please address the increase over market
price that is normally expected with the sale of a company.
RBC analyzed both stand alone trading values in the case of the Selected
Thrifts in the Eastern United States and the Selected Nationwide Publicly
Traded Mutual Holding Companies and merger transaction values in the case of
the Selected Merger Transactions, an approach which is standard and consistent
in the financial industry and bank valuation in particular. Since none of the
peer companies in the Selected Nationwide Publicly Traded Mutual Holding
Companies peer group have announced a merger, implying merger values for these
entities would be highly speculative, unusual and misleading to the public
shareholders of the Company. An analysis as to the increase over market price
expected with the sale of the Company is included as part of the Selected
Thrift Merger Transactions in the Northeast analysis. As both stand alone and
merger valuations are standard analyses in fairness opinions, and merger
transaction values have been discussed in the "Selected Thrift Merger
Transactions in the Northeast" section, we do not feel it necessary to revise
the disclosure in the proxy statement. However, disclosure has been added to
this section on page 44 to explain that the section does not compare the
consideration to be paid in the merger with the consideration paid, or proposed
to be paid, in other merger transactions.
Mr. David Lyon
Division of Corporation Finance
U.S. Securities and Exchange Commission
May 16, 2007 Page 14
21. Please confirm supplementally that the peer group book value numbers on
page 39, 41 and 42 are calculated in the same manner as Westborough, that
is, on a "dilutive" basis using all outstanding shares.
Please be advised that the referenced peer group book value numbers are
calculated in the same manner as the Company, on a "dilutive" basis using all
outstanding shares.
Analysis of Selected Merger Transactions, page 41
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22. Please disclose the type of merger for each referenced company, that is
the form of the companies involved and the form of consideration. Also,
disclose how any mergers other than remutualizations impacted the
comparison values.
The form of the companies involved and form of consideration for each of
the Selected Thrift Merger Transactions in the Northeast have been added to the
filing. Disclosure stating that none of the transactions are remutualizations
has also been added to the proxy statement. Please see page 48.
23. If correct, please disclose where appropriate why RBC did not compare
this transaction to a peer group of other remutualizations.
RBC did not compare the merger to any remutualization transactions
because:
(1) remutualization transactions are relatively dated, with the most
recent transaction having been announced in 2003 and having closed
in 2004 and thus there are no remutualization transactions in this
group of Selected Thrift Merger Transactions in the Northeast;
(2) there has only been one such transaction since the issuance of the
previously described Office of Thrift Supervision policy statement
on remutualization transactions which limits the premium paid to
public shareholders in remutualization transactions so as not to
result in disparate treatment of minority stockholders and mutual
members of the target entity. While the Office of Thrift
Supervision is not the Company's primary banking regulator, we and
RBC believe it is likely that such guidance would be considered by
the other banking agencies that must approve the transaction (the
Massachusetts Division of Banks, the Federal Reserve Board and the
Federal Deposit Insurance Corporation). We have enclosed a copy of
that policy statement for your information; and
(3) as discussed in our response to comment 22, the Company's public
shareholders own and participate in the Company in proportion to
their share ownership, as is the case with any other publicly
traded company, and therefore the consideration received by the
Company's public shareholders can be compared to the
Mr. David Lyon
Division of Corporation Finance
U.S. Securities and Exchange Commission
May 16, 2007 Page 15
consideration received by the shareholders of the sellers in the
Selected Merger Transactions.
24. Please explain the next to last sentence on page 41 and explain why the
book values calculated here for the company are different.
We have updated the disclosure in the filing to more clearly explain the
referenced sentence. Please see page 49.
The following disclosure has been added to page 49 to explain why the
book values calculated for the trading peer groups are different from the book
values calculated for the merger peer group:
"The calculations in this section, including price to book value per
share and price to tangible book value per share for Westborough Financial and
the peers, are different from the calculations in Selected Thrifts in the
Eastern United States and Selected Nationwide Publicly Traded Mutual Holding
Companies because the calculations in those prior sections were made prior to
the announcement of the merger and the peer companies in those cases are not
undergoing a merger themselves. The calculations in this section are merger
multiples, both for Westborough Financial and for the Selected Thrift Merger
Transactions in the Northeast peer group. The consideration to be paid to
Westborough Financial's shareholders in the merger represents a premium to
Westborough Financial's trading value. Therefore, the merger multiples of price
to book value per share and price to tangible book value per share are higher
than the comparable measures prior to the announcement of the merger. For
similar reasons, the median peer group calculations of price to book value per
share and price to tangible book value per share are higher than the median
calculations in the Selected Thrifts in the Eastern United States and Selected
Nationwide Publicly Traded Mutual Holding Companies peer groups."
Affordability Analysis Valuation, page 42
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25. Please address here why the book value calculation used, that is using
all outstanding shares, is a valid basis for this analysis. We note that
there has been no contribution for the MHC shares as would be the case
after a complete, second step offering.
The following disclosure has been added to the "Affordability Analysis
Valuation" section on page 50 of the proxy statement.
"The public shareholders of Westborough Financial have a claim to the
equity of Westborough Financial in proportion to the shares owned by public
shareholders and do not have a claim to all cash flows and equity of
Westborough Financial. This analysis calculates the ability of a buyer to pay
for Westborough Financial, using the company's financial forecast, along with
assumptions on cost savings, one time transaction costs, discount rate and
terminal value. As the public shareholders of Westborough Financial only have
claim to the value of
Mr. David Lyon
Division of Corporation Finance
U.S. Securities and Exchange Commission
May 16, 2007 Page 16
Westborough Financial in proportion to their share ownership, using total fully
diluted shares outstanding is the valid basis for this analysis."
As discussed earlier in this letter, Westborough Financial is not
considering a second-step conversion and there is no reasonable basis for
concluding that a second-step conversion will occur in the foreseeable future.
In addition, we respectfully disagree with the assertion that there has
been no contribution for the MHC shares. As noted earlier in this letter,
immediately prior to The Westborough Bank's mutual holding company
reorganization, it had a net worth of $19.3 million, that had been built up
over the 130 years that The Westborough Bank had existed as a mutual savings
bank prior to the mutual holding company reorganization. As provided in and
required by applicable banking law, the ownership of this pre-existing net
worth was preserved for the benefit of the holders of mutual interests in The
Westborough Bank (i.e. its depositors) through the issuance by the Company of a
majority of its shares to Westborough Bancorp, MHC.
* * *
Should you have any questions or require additional information regarding
the foregoing, please do not hesitate to contact the undersigned or Michael P.
Seaman at (202) 347-8400.
Very truly yours,
THACHER PROFFITT & WOOD LLP
BY: /S/ RICHARD A. SCHABERG
-----------------------
Richard A. Schaberg
cc: Joseph F. MacDonough
President and Chief Executive Officer
Westborough Financial Services, Inc.