South Financial Group shareholders will vote on the proposed merger with TD Bank Financial Group on Sept. 28 in Greenville, the company said in a filing with the US Securities and Exchange Commission.
The meeting, set for 10:30 a.m., will take place at Poinsett Plaza, the same building that houses South Financial’s corporate headquarters.
Lest there be any doubt where the company comes down on the deal, this line should set the record straight: “The TSFG board of directors unanimously recommends that you vote ‘FOR’ the approval of the plan of merger.”
In May, South Financial announced it would be acquired by TD for 28 cents a share. As recently as early 2008, TSFG was trading for $17 a share.
Hurt by more than two years of staggering losses, South Financial was in a world of trouble when the deal was announced. According to a recent filing with the US Securities and Exchange Commission, TSFG and TD entered into a share-purchase agreement that called for TSFG to issue and sell 100 shares of preferred stock in consideration for every 1,000 shares of TD common stock.
The stock issuance was an essential component of TD’s willingness to enter into the deal, which, in turn, was essential to maintaining South Financial’s financial viability, according to the SEC filing.
While NASDAQ rules generally would require shareholder approval prior to the issuance of this kind of preferred stock, NASDAQ’s shareholder-approval rules provide an exception in cases where the delay involved in securing shareholder approval would seriously jeopardize the financial viability of the listed company.
In accordance with that exception, TSFG’s audit committee “unanimously determined that the delay necessary in securing shareholder approval prior to the issuance of the preferred stock to TD would seriously jeopardize the financial viability of TSFG,” according to the SEC filing.
“In reaching this conclusion, the audit committee considered various factors, including the lack of alternatives available to meet TSFG’s capital and other regulatory obligations and prevent the ultimate seizure of Carolina First Bank and resulting failure of TSFG,” the filing added.
Interestingly, following announcement of the merger, NASDAQ informed TSFG that it had interpreted the rules to not apply in the specific context of the merger.
But because there is no process for appealing NASDAQ’s conclusion other than as part of the delisting appeal process and the preferred stock remains an important requirement under the terms of the proposed transaction, South Financial will proceed with the preferred stock issuance, the company said.
South Financial has lost more than $1.7 billion over the past two-plus years, including $400 million during 2010.