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DIME BANCORP, INC.
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NORTH FORK BANCORPORATION, INC.
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The following is a report of Institutional Shareholder Services which North
Fork Bancorporation, Inc. has made available on its website at
www.northforkbank.com.
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*** PLEASE NOTE: THIS ALERT UPDATES OUR ***
*** PREVIOUSLY DELIVERED ANALYSIS WHICH FOLLOWS. ***
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[LOGO] INSTITUTIONAL
SHAREHOLDER SERVICES
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THOMSON FINANCIAL
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Proxy Alert:
DIME BANCORP, INC.
TICKER: DME
SPECIAL MEETING: March 15, 2000
RECORD DATE: February 4, 2000
SECURITY ID: 2268099 (SEDOL), 25429P104 (CUSIP), 25429Q102
(CUSIP), 254309107 (CUSIP), 25432R105 (CUSIP), 25432R204 (CUSIP),
US25429Q1022 (ISIN)
MEETING AGENDA
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Item Code Proposals Mgt. Rec. ISS Rec.
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|_|1 M0405 Approve Merger Agreement For AGAINST
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ALERT: This alert is intended to clarify apparent inconsistencies
in our prior alerts for Dime Bancorp, in which the vote
recommendation appearing in the meeting agenda was not consisted
with the ensuing analysis. Therefore, we are reiterating our
recommendation that shareholders vote AGAINST the merger
agreement, and we have attached, immediately following this
paragraph, the correct discussion/rationale pertaining to our
against recommendation.
Following this discussion, you will see the series of alerts and
analyses previously distributed with respect to this merger, some
of which contain the inconsistencies mentioned above.
Shareholders who desire to read the original analysis of the
merger agreement between Dime and Hudson, written before North
Fork came forward, should refer to the last analysis contained in
this document.
ITEM 1: APPROVE MERGER AGREEMENT
In our analysis dated Feb. 28, 2000, ISS recommended that
shareholders vote in favor of a proposed merger between Dime
Bancorp, Inc., and Hudson United Bancorporation. That merger,
structured as a "merger of equals," would result in the formation
of a new company, "Dime United," owned 54 percent by Dime's
shareholders and led by Dime's CEO, Lawrence Toal, until December
2002 (at which time it is expected that Hudson's CEO, Kenneth
Neilson, would assume the helm of the combined institution). ISS
recommended in favor of the merger at that time based on various
factors, including: (1) the fairness opinion rendered by Credit
Suisse First Boston Corp.; (2) management's belief that the merger
would aid its efforts to transition Dime from thrift to commercial
banking operations; and (3) management's projections that the
merger would be accretive to Dime's shareholders by 2001, assuming
pre-tax cost savings of $78 million per year.
On March 6, 2000, however, a new party entered the picture and
made a competing offer for Dime. North Fork Bancorporation, Inc.,
a bank holding company doing business primarily in the New York
metropolitan area, has indicated that it will tender an offer to
acquire all the shares of Dime via an exchange offer and
subsequent second-stage merger. North Fork proposes that each
share of Dime be exchanged for 0.9302 shares of North Fork common
stock and $2.00 in cash. As of March 6, the value of North Fork's
offer was $16.99 per Dime share, or 39.9 percent more than the
value of the consideration Dime shareholders would receive in the
Hudson merger (based on North Fork and Hudson stock prices on that
date).
North Fork has conditioned its offer on the satisfaction of
several conditions, including (among others) rejection of the
Dime-Hudson merger by Dime's shareholders, the valid termination
of the Dime-Hudson transaction, and waiver by Dime's board of the
company's poison pill, which could otherwise preclude completion
of the North Fork tender. Therefore, North Fork, which currently
owns a small stake in Dime, is now soliciting Dime shareholders to
reject the Hudson merger. In addition to satisfying the first of
the above-enumerated conditions that are necessary to proceed with
North Fork's offer, a rejection of the merger, North Fork
believes, will give Dime's board a strong message that
shareholders would like to hear from North Fork (and, potentially,
from other suitors as well).
This analysis is intended to supplement and amend our prior
analysis of the Dime-Hudson merger, in the context of North Fork's
new offer and counter-solicitation. For further information about
the Dime-Hudson transaction, shareholders may refer to our
original analysis of Feb. 28, 2000. In evaluating the issues
raised by North Fork's offer, ISS met with John Kanas and Dan
Healy, CEO and CFO of North Fork, respectively, and with Lawrence
Toal, CEO of Dime, as well as other members of Dime's senior
management, legal counsel, and a representative of Credit Suisse,
Dime's financial advisor.
THE NORTH FORK OFFER
North Fork is a bank holding company that has historically pursued
an aggressive strategy of acquiring, or "rolling up," thrifts in
the New York metropolitan market. Since 1988, North Fork has
completed 12 M&A transactions, including its recently closed
acquisitions of JSB Financial, Inc., and Reliance Bancorp, Inc.
Pro forma for these acquisitions, North Fork now has approximately
$16 billion in assets and 150 branch locations in the New York
metropolitan area and Connecticut.
North Fork's strategy, in addition to acquiring various thrift
banks and pieces of such banks, has been to seek to change the
deposit mix of its acquisitions over time, from lower-yield
thrift-like deposits to more profitable commercial deposits. North
Fork has historically focused on increasing its penetration in a
tightly focused New York metro area footprint, and in particular
has identified Manhattan as a prime market for commercial
banking-oriented future growth. North Fork believes that the
acquisition of Dime will greatly enhance its market position,
especially in Manhattan.
Exchange Ratio and Structure: North Fork has announced that it
will offer to exchange each outstanding share of Dime common stock
for 0.9302 shares of North Fork common stock plus $2.00 in cash.
Based on North Fork's most recent closing price, this represents a
value of $16.24 per Dime share, or a premium of 25.5 percent over
Dime's closing price on the last trading day before North Fork
announced its offer. Based on Dime's closing price on Sept. 14,
1999, the last day prior to announcement of the proposed
Dime-Hudson transaction, North Fork's offer constitutes a discount
of 8.5 percent.
After consummation of the tender offer (which requires that a
majority of the Dime shares be tendered), North Fork would acquire
all of Dime's remaining shares in a second-step merger at the same
terms as in the tender. Unlike the Dime-Hudson transaction,
therefore, which has been described by management as a merger of
equals, the North Fork transaction would be a change-of- control
transaction, resulting in the acquisition of Dime by North Fork.
Related Transactions: In connection with its offer for Dime, North
Fork has entered into certain arrangements with FleetBoston
Financial Corp., pursuant to which North Fork has agreed to sell
FleetBoston 17 of Dime's retail banking offices with deposits (as
of Dec. 31, 1999) of approximately $2 billion. In return, Fleet
has agreed not to make any competing offers for Dime prior to
2001. Fleet will also purchase 250,000 shares of North Fork
convertible preferred stock and rights to acquire 7.5 million
shares of North Fork common stock. The aggregate price of the
convertible preferred and common stock purchase rights will be
$250 million.
Note, however, that Fleet may terminate the Dime/Hudson standstill
and make a bid for Dime by providing notice to North Fork and
paying North Fork a fee of $2.5 million. If Fleet were ultimately
to acquire Dime, it would be obligated to pay North Fork an
additional $2.5 million.
Pro Forma: If the acquisition of Dime by North Fork and the
related Fleet transactions are completed, Dime's current
shareholders will own approximately 41 percent of the resulting
company. Fleet would own approximately seven percent, and North
Fork's current shareholders would retain the remaining 52 percent.
After giving effect to the sale of 17 branches to Fleet, the
combined institution, as of Dec. 31, 1999, would have had total
assets of $36.7 billion, shareholders' equity of $3.2 billion,
total deposits of $21.5 billion and loans of $24.0 billion.
Conditions Precedent: Shareholders should note that
notwithstanding its announced intention to offer to acquire Dime,
North Fork has not yet tendered such offer to Dime shareholders
and is not obligated to do so. North Fork indicates that its offer
will be conditioned upon the satisfaction of various factors,
including the following:
o The number of shares tendered by Dime shareholders,
including shares held by North Fork, be at least a majority
of the Dime shares outstanding;
o Dime shareholders have rejected the Hudson merger;
o The Hudson merger agreement has been validly terminated;
o Dime has entered into a definitive merger agreement with
North Fork; and
o Dime's board has waived application of Dime's shareholder
rights plan to the North Fork offer.
Although a rejection of the Hudson merger will satisfy the second
condition listed above, Dime's board will have the ability to
continue to rebuff North Fork by refusing to negotiate with North
Fork or refusing to render the poison pill inapplicable to the
North Fork transaction. North Fork believes that a vote against
the Hudson merger, however, will send a strong signal to Dime's
board, encouraging the board to negotiate with Mr. Kanas and
consider a transaction in which North Fork would acquire Dime.
NORTH FORK'S ARGUMENT
In support of their argument that Dime shareholders should reject
the Hudson merger, Messrs. Kanas and Healy make three basic
points. First, they maintain that whatever the merits of the
original Hudson transaction, there is now a better offer on the
table in the form of the transaction proposed my North Fork.
Pointing out that Hudson's stock price has declined by over
one-third since the date of the original Dime-Hudson announcement,
Messrs. Kanas and Healy note that the current value of North
Fork's offer is roughly 40 percent greater than what shareholders
would receive in the Dime- Hudson merger. This alone, in North
Fork's view, should be sufficient to warrant canceling the Hudson
merger in order to explore Dime's alternatives.
Second, Messrs. Kanas and Healy contend that the long-range value
of an equity stake in North Fork is superior to anything
shareholders could reasonably hope to realize from a Dime-Hudson
combination. Mr. Kanas and Mr. Healy note that North Fork has
completed over a dozen acquisitions since 1987, with what they
maintain has been an overwhelming record of success. Mr. Kanas
states that North Fork has achieved average cost savings of
approximately 51 percent across all of its prior deals, with no
acquisition failing to yield savings of at least 50 percent. North
Fork expects to realize comparable savings in the present deal,
with commensurate benefits to the combined company's financial
results and ultimately to shareholder value. Messrs. Kanas and
Healy also tout the fact that North Fork ranks among the top
thrift banks in the nation in terms of its efficiency ratio,
return on common equity, return on assets, and reserve to
nonperforming loans. Based on North Fork's historical financial
strength and its strong record of making good strategic
acquisitions, Mr. Kanas argues that shareholders would be well
served by a Dime-North Fork merger.
Third and finally, Mr. Kanas believes that the combined bank will
be well positioned to accelerate North Fork's continuing
transition from thrift to commercial banking. The transaction will
double North Fork's presence in the Manhattan market, raising its
number of branches (after the sale of one- half of Dime's
Manhattan branches to Fleet) and boosting its Manhattan deposits
to approximately $700 million. As a highly fragmented market with
substantial commercial activity, Manhattan, in the opinion of Mr.
Kanas, offers unprecedented opportunities to a strong entity, like
a combined North Fork-Dime, that is ready to compete for the
two-thirds of the $300 billion deposit market not owned by Chase
Manhattan. If shareholders reject the Dime merger and the company
is ultimately acquired by North Fork, shareholders will be able to
participate in North Fork's growth in the Manhattan market.
MANAGEMENT POSITION
Dime management has rejected the terms of North Fork's offer and
instead continues to support the Hudson transaction. Mr. Toal and
his colleagues argue that the merger of equals with Hudson will
create a new, combined company that is financially stronger and
better positioned for the future than either a stand-alone Dime or
the result of a Dime-North Fork transaction. In any event,
management contends, the board has already considered North Fork
and found its proposal wanting. Management maintains that even if
the Hudson merger is rejected, Dime will not proceed with a
transaction with North Fork.
Mr. Toal offers a multi-pronged argument against the North Fork
proposal. First, he maintains that North Fork proposal is from the
"wrong company" to merit serious consideration. Noting that Dime's
strategic goal is to become more commercial and less reliant on
traditional thrift banking business, and pointing to the fact that
a significant driver of the Hudson transaction has been
management's assessment that Dime United will be less reliant on
residential mortgages than the stand-alone Dime, Mr. Toal contends
that merging with North Fork, in contrast, will produce a company
that is more rather than less "thrift-like." As a result, it is
likely that North Fork's price earnings multiple will decrease
over time to come in line with that of other thrift institutions,
in stark contrast to the rising multiple one might expect of a
more commercially oriented Dime United. Dime management concludes
that while North Fork's offer price might be greater than the
consideration in the Hudson merger at the moment, the longer-term
value of shares of Dime United would be superior to what
shareholders would receive from North Fork.
Also under the "wrong company" heading, management notes that
North Fork is too small and has too narrow a footprint to
effectively integrate Dime. Management observes that North Fork is
seeking to acquire an institution that is, in terms of total
assets, more than three times its size, more than seven times the
size of North Fork's largest acquisition ever, and, in fact, more
than three time the size of all of North Fork's acquisitions put
together. Furthermore, the Dime-North Fork company would be highly
concentrated in a small region, with 40 percent of its operations
concentrated in just two counties. The merger with Hudson, on the
other hand, will bring together two companies that are nearer in
size, producing a geographically broad company with branches in
four states.
Second, management maintains that North Fork's offer arrives at
the "wrong time" and comes in at the "wrong price." Noting the
significant decline in Dime's stock price since last September,
Mr. Toal argues that North Fork is seeking to exploit Dime's
severely undervalued stock price to acquire an institution it
could not otherwise afford. In particular, given Dime's goal of
expanding its commercial banking operations, it would be unwise to
sell the company while it is still chiefly a thrift and before the
stock price increase that would be expected to accompany an
enhanced commercial business. Dime shareholders would be much
better served by approving the Dime-Hudson transaction, which will
create a more commercially oriented bank whose price-earnings
multiple should rise over time. Such a transaction will not
foreclose the possibility of selling the combined company and
realizing a change-of-control premium in the future, management
points out, after the company's stock price has come to reflect
the true value of its business.
Mr. Toal and his colleagues also maintain that the North Fork
proposal would be highly dilutive to Dime shareholders, even
taking into account assumed efficiencies that management flatly
rejects as unachievable. In 2001, management projects that North
Fork-Dime's earnings per share would be $2.26, versus projected
numbers of $2.66 per share for a stand-alone Dime and $2.67 for
Dime United. Management states that it has assumed that the
$2.00-per-share cash component of North Fork's offer would be
reinvested in computing North Fork's pro forma figure.
Furthermore, Mr. Toal suggests that even these results are unduly
generous to North Fork. Management asserts that North Fork has
made cost savings assumptions that are entirely out of line with
what can be reasonably expected (equal to 64 percent of Dime's
operating expenses, excluding its mortgage subsidiary, and
representing 86 percent of North Fork's expense base). More
realistic cost savings, management concludes, would exacerbate the
dilution associated with a North Fork transaction.
Finally, management warns that the North Fork transaction is
unlikely to be completed because of the various conditions North
Fork has attached to its proposed tender offer. Furthermore, while
a North Fork transaction would be completed in the third quarter
of the year at the earliest, management points out that the Hudson
transaction would close within a month. Comparing the present
situation to a bird in the hand versus another (potentially less
appealing) bird in the bush, management argues that if
shareholders reject the Hudson merger, Dime is likely to be left
at the altar with no suitors in sight.
ANALYSIS
Based on current stock prices, the value of North Fork's proposed
offer represents a significant improvement over the consideration
Dime shareholders would receive in the Hudson transaction. As
described previously, North Fork's offer is 40 percent greater
than what shareholders would receive in the merger with Hudson.
And while we sympathize with management's contention that the
current offer price alone is not dispositive of which of two or
more offers is most desirable, we believe that where a new offer
trumps an existing one by such a significant margin, it raises
legitimate questions about the sufficiency of the original bid.
In particular, we note that the Hudson transaction was not the
product of an exhaustive examination of various potential merger
partners or an open solicitation for bids. Indeed, although
management maintains that it has regular contacts with potential
strategic partners, Mr. Toal told us that the company is not for
sale at this time. Rather, the Hudson transaction resulted from an
approach initiated by Hudson in mid-1999, which led to
negotiations during which it is not apparent that Dime contacted
other potential bidders to gauge interest in the company. In this
context, the arrival of a substantially higher bid than implied by
the Hudson transaction, even at this late date, should compel the
board and shareholders to consider whether there are superior
alternatives to merging with Hudson.
We take issue with management's comparison of the current North
Fork offer price to Dime's price in September 1999. Dime, North
Fork, and Hudson have each experienced price declines since that
time (although North Fork's, at approximately 20 percent, is more
modest than the 30-percent plus dips experienced by Dime and
Hudson), and it would be unreasonable to compare the value of
North Fork's offer based on its current price to a high Dime price
of almost six months ago. A more valid comparison at this point is
between North Fork's offer value and that of Hudson. Based on both
the companies' respective September prices and those of today,
North Fork's offer is substantially more generous to Dime
shareholders.
We are more sympathetic to management's argument that now is not
the time to sell Dime because of the company's current low stock
price. Certainly, it is widely accepted that selling a company at
time when its stock is undervalued is a dangerous proposition and
inimical to shareholder value. However, as mentioned previously,
North Fork's stock price has also decreased with the declining
fortunes of bank stocks generally. Therefore, it is not clear that
North Fork is in a particularly good position to "exploit" Dime's
undervaluation, as management suggests, since North Fork is
offering to (primarily) use its own stock to pay for the
acquisition of Dime. If the banking sector rebounds in the future,
North Fork stock is likely to experience as great a boost as Dime
(or perhaps even better, given North Fork's historically superior
stock price performance); therefore, the exchange of Dime for
North Fork stock does not appear to "lock shareholders" in to the
current evaluation in the way that, say, an all cash merger
would.
Moreover, the exchange ratio in the Hudson merger appears to have
been derived based on the respective market values of the two
companies. Based on Credit Suisse's contribution analysis, for
instance, it is apparent that Dime shareholders' prospective
ownership of Dime United is more in line with Dime's contribution
to the total market capitalization than with its share of
deposits, assets, or other financial results. If management viewed
Dime's market value as appropriate to set the terms of the merger
with Hudson, we are skeptical of claims that its market value is
suddenly an inappropriate measure of the sufficiency of the terms
of North Fork's offer.
As an initial matter, therefore, we conclude that the value
reflected by North Fork's offer appears significant enough to
warrant postponement of the Hudson transaction. If North Fork (or,
indeed, a third party who may enter the bidding at a later date)
is willing to pay substantially more than the value reflected by
the Hudson merger, shareholders would be best served by being
given every opportunity to field and consider such bids.
With respect to the long-range value of a combined Dime-United
versus a Dime-North Fork combination, we cannot reach a solid
conclusion at this time. Management and North Fork trade
conflicting estimates of the relative dilution/accretion of the
North Fork and Hudson transactions, based on a range of
assumptions and projections. Naturally, projections of results in
2001 are somewhat speculative in nature, and comparisons of
projected results of a Hudson versus North Fork combination are of
limited usefulness to shareholders. We note, however, that North
Fork has assumed no revenue enhancements in connection with an
acquisition of Dime, and North Fork has successfully realized
substantial cost savings from its acquisitions in the past. On the
other hand, we recognize, as management argues, that Dime is a
substantially larger entity than North Fork's prior acquisitions
and that North Fork's cost savings projections could prove to be
overly optimistic.
On the whole, we do not believe that management has conclusively
demonstrated that North Fork's proposal would be significantly
more dilutive to shareholders than the formation of Dime United.
Management projects Dime stand-alone earnings of $2.66 in 2001,
Dime-United earnings per share of $2.67, and Dime-North Fork
earnings per share of $2.26. This reflects a difference of
approximately 18 percent between the results of Dime United and
Dime-North Fork. Given the speculative nature of these
projections, we do not regard the difference as sufficient to
conclude that North Fork, which enjoys a substantially better
price/earnings ratio than either Dime or Hudson, would fail to
produce a higher stock price than a combined Dime United (even
accepting management's projections).
In sum, we do not agree with Dime management that the value of
North Fork proposal is clearly inferior to what shareholders would
realize through a Dime-Hudson merger. North Fork's current offer
value is plainly superior, and North Fork's historically superior
stock price performance mitigates the degree to which even hostile
dilution estimates can force the conclusion that its long range
value is inferior to that of Dime United.
Furthermore, we do not believe it is necessary to prove that the
North Fork proposal is definitively superior to Hudson's to
warrant rejection of the current merger agreement. We recognize,
as management argues, that North Fork's proposal is at this point
a "bird in the bush," subject to the satisfaction of various
conditions and North Fork's own decision to proceed with the
transaction (although most of the conditions for proceeding with
North Fork's offer can be unilaterally satisfied simply by Dime's
board agreeing to negotiate with North Fork). However, perhaps the
greatest value that Dime shareholders receive by rejecting the
Hudson merger will be the opportunity to receive offers from any
party, including North Fork, Hudson, or other interested bidders,
and to choose the best of the resulting bids. It is possible, for
instance, that Hudson might be willing to renegotiate its merger
with Dime on terms more favorable to shareholders. It is also
possible, as Messrs. Kanas and Healy have admitted, that North
Fork would be willing to raise its own offer once formal
negotiations between North Fork and Dime have begun. And if
management remains convinced that North Fork is a bad strategic
fit and Hudson drops out of the bidding, it is possible that
management could seek a "white knight" for the company. None of
these options are adverse to shareholder value; in fact, each of
the alternatives appears likely to yield better value to
shareholders than proceeding with the current transaction.
Indeed, Dime's stock price jumped 15 percent on the day following
North Fork's announcement, confirming the market's anticipation
that one or more of these alternatives could very well occur.
We conclude, therefore, that shareholders would be best served by
rejecting the proposed merger between Dime and Hudson at this
time. With the North Fork offer, shareholders are presented with a
much broader range of alternatives, with two offers on the table
and perhaps more unseen in the wings. By rejecting the merger,
shareholders will give their board the time (and the incentive) to
start the process of negotiating directly with North Fork, Hudson,
and any other parties that may emerge to make competing offers,
and retaining whatever expert advise is necessary to realistically
assess the financial values of each transaction. We do not believe
that it would be prudent, as management suggests, to evaluate,
judge, and reject North Fork's proposal in a matter of only days.
WE RECOMMEND A VOTE AGAINST ITEM 1.