Shareholders of Atlantic Coast Financial Corp. on Tuesday rejected a proposed buyout offer from a South Florida bank holding company, sending the Jacksonville-based bank "back to the drawing board" in its efforts to raise additional capital.
The outcome was not a surprise because former Atlantic Coast Financial Chairman Jay Sidhu and several other shareholders owning a total of 26 percent of the stock already pledged to vote against the merger.
The company did not announce the results of the vote and it barred media from attending the shareholders' meeting at the Sheraton Jacksonville Hotel, near the company's Deerwood Park Boulevard headquarters.
However, after the meeting, Sidhu said there were 846,357 votes in favor of the buyout agreement and 1.04 million against it.
That still left about 800,000 shares not voting either way, but Sidhu said the abstentions were "in essence" votes against the deal.
The large shareholders who pledged in advance to vote against the buyout hold about 689,000 shares collectively.
Sidhu resigned as chairman a year ago after disagreeing with other directors on Atlantic Coast Financial's strategy, but he remains on the board of directors.
Before the company accepted the buyout proposal from Bond Street in February, Sidhu and fellow board member Bhanu Choudhrie had said they would propose three new directors to replace existing directors at Atlantic Coast Financial's regular annual shareholders meeting.
Because of the merger agreement, the company has not held that meeting. Tuesday's meeting was held solely to vote on matters related to the buyout.
Sidhu said Tuesday the next step for the company is to find additional sources of capital, and he is confident it will be able to do that.
"We're going to raise capital and we'll get that done very quickly," he said. "I hope the rest of the board cooperates."
The board had approved the buyout proposal from Bond Street by a 7-2 vote, with Sidhu and Choudhrie opposing the agreement. Choudhrie had pledged along with Sidhu to vote his shares against the deal.
The proposal called for Bond Street to pay $5 a share to acquire Atlantic Coast Financial. If the deal was approved, the company's Atlantic Coast Bank subsidiary would have been merged into Bond Street's Fort Lauderdale-based subsidiary, Florida Community Bank.
Sidhu has argued that the company is worth more, perhaps as much as $8 a share. He thinks the company will be better off by recapitalizing and remaining as an independent bank and after Tuesday's shareholder vote to reject the Bond Street deal, he thinks most stockholders agree with him.
"They knew what the options were and they voted against that," he said.
Atlantic Coast Financial has been operating under a mandate from the U.S. Office of the Comptroller of the Currency to raise additional capital. The bank has lost money in each of the past five years as it dealt with rising levels of bad loans, like other banks in Northeast Florida.
"We will do whatever it takes to recapitalize the bank," Atlantic Coast Financial President and CEO G. Thomas Frankland said after Tuesday's meeting.
"We will go back to the drawing board and see what makes the most sense," he said. "What we want to do is solve the capital problem and solve the mandate from the OCC."
Frankland said the bank can succeed operating independently.
"This is a great market to have a commercial bank in," he said.