NAPLES, Fla., Nov. 14 /CNW/ -- Private Capital Management, L.P.,
announced today that it has informed the Board of Directors of TierOne
Corporation (Nasdaq: TONE) that it intends to vote against TierOne's proposed
merger with CapitalSource, Inc. (NYSE: CSE) A copy of Private Capital
Management's letter is attached to this release. Private Capital Management
is a registered investment adviser based in Naples Florida. On behalf of its
clients, Private Capital Management currently holds in excess of 9% of
TierOne's outstanding shares.
November 9, 2007
Board of Directors
1235 N Street
Lincoln, Nebraska 68508
Dear Members of the Board:
I am writing on behalf of Private Capital Management ("PCM"), TierOne
Corporation's largest shareholder. PCM has been an investor in TierOne since
October of 2002 and through its clients currently holds in excess of 9% of the
Company's outstanding shares.
As you know, as a condition of securing an acquisition offer from
CapitalSource, Inc. in May of 2007, TierOne agreed to pay a $24 million
termination fee to CapitalSource should its Board fail to recommend the
proposed transaction to shareholders. We do not question the Board's judgment
in agreeing to recommend the transaction. At the time it was announced, the
proposed cash and stock deal valued TierOne at a price in excess of $34.00 per
share. Unfortunately, the market's view of CapitalSource's prospects and
financial results has soured, resulting in what is now a totally inadequate
deal price for TierOne shareholders.
In light of the significant termination fee, TierOne's Board is clearly
constrained from reversing its recommendation to shareholders. Accordingly,
we feel it is appropriate as a long-term investor in TierOne that we publicly
share with the Board our intention to vote against both the proposed merger
with CapitalSource and any possible adjournment of the shareholders meeting to
be held on November 29, 2007.
The financial sector in general and CapitalSource in particular have
suffered significant market reversals since the proposed transaction was
announced in May. CapitalSource's share price has dropped from over $25.00
per share to less than $16.00. Of equal concern, we believe the relative
values of TierOne and CapitalSource have diverged significantly since the deal
was announced. For instance, CapitalSource's specialty lending franchise has
proven much more vulnerable to recent market reversals than conservatively run
institutions with strong deposit franchises and long track records such as
TierOne. However, with its share price effectively pegged to CapitalSource's
shares, TierOne has fared significantly worse than a number of the deposit
based franchises with which it competes.
The registration statement filed by CapitalSource clearly, if
unintentionally, underscores the dramatic erosion in value of the
CapitalSource stock TierOne shareholders will receive should the deal close.
Page three of the registration contains a chart intended to show the differing
payouts TierOne shareholders will receive based on various moving averages for
CapitalSource shares in the 10 days preceding the closing of the transaction.
The chart shows a range of share prices from a low of $17.00 per share to a
high of $27.00. As of yesterday's close, CapitalSource shares were trading at
$15.66; less than the low end of the trading range that CapitalSource and its
counsel appear to have viewed as reasonable for TierOne shareholders to
consider in determining how to vote their shares. In fact, CapitalSource
shares have traded below the levels specified in the merger agreement to
trigger a renegotiation of the deal price for 48 of the last 60 trading days,
including each of the last 22 trading days. In this respect we see the merger
agreement itself as clearly recognizing that at CapitalSource's trading levels
the consideration to be paid to TierOne shareholders is inadequate to justify
a transaction. While the Board may be able to negotiate additional
consideration for TierOne shareholders prior to the closing, we cannot in good
faith support a deal at what amounts to a yet to be negotiated price.
The unanticipated and persisting decline in CapitalSource's share price
also calls into question the reasonableness of the $9.6 million in closing and
"milestone" payments to be made to TierOne's CEO and President in connection
with the transaction. While these amounts may well have fallen within the
customary range when the transaction valued TierOne at more than $34.00 per
share, we question whether TierOne would have negotiated similarly large
payments had the deal valued TierOne as it does currently.
Given the uncertainties we see regarding CapitalSource's current
prospects and the material reduction in its share price, we are of the strong
view that the proposed transaction is no longer in the best interest of
TierOne shareholders. We expect to share our views with other TierOne
shareholders over the coming weeks.
Very truly yours,
/s/ Bruce S. Sherman
Bruce S. Sherman
Chief Executive Officer
cc: Eugene B. Witkowicz
For further information:
For further information: Marisa Rosati of Legg Mason for Private Capital
Management, L.P., +1-212-805-6036, firstname.lastname@example.org