UNITED COMMUNITY FINANCIAL CORP. (NASDAQ:UCFC) Files An 8-K Other Events
Item 8.01
As previously disclosed, on September 9, 2019, United Community Financial Corp., an Ohio corporation (UCFC), entered into an Agreement and Plan of Merger (the Merger Agreement) with First Defiance Financial Corp., an Ohio corporation (FDEF), to which, among other things, upon the terms and subject to the conditions set forth therein, UCFC will merge with and into FDEF (the Merger), with FDEF surviving the Merger.
On October 16, 2019, an action captioned Robert J. Fellman v. United Community Financial Corp. et al., Case No. 1:19-cv-09572, was filed in the U.S. District Court for the Southern District of New York against UCFC and its directors (the Fellman Action). On October 18, 2019, a second action, on behalf of a putative class of United Community shareholders, was filed under the caption Parshall v. United Community Financial Corp. et al., Case No. 1:19-cv-01989, in the U.S. District Court for the District of Delaware against UCFC, its directors, and FDEF (the Parshall Action and, together with the Fellman Action, the Actions). Both Actions contend, among other things, that the registration statement on Form S-4 filed by FDEF on October 9, 2019 (as amended, the Registration Statement) is false and misleading because it omits certain allegedly material information concerning the background of the proposed merger transaction and certain valuation analyses performed by UCFCs financial advisor in violation of Sections 14(a) and 20(a) of the Securities Exchange Act of 1934, as amended (the Exchange Act), and Rule 14a-9 promulgated under the Exchange Act.
On October 30, 2019, an alleged shareholder of UCFC, Shiva Y. Stein, sent a letter to UCFC demanding to inspect books and records for the purpose of investigating suspected wrongdoing in connection with the Merger. After UCFC made certain materials available for inspection, the shareholder made a demand for supplemental disclosures (the disclosure demand).
The plaintiffs and defendants have reached an agreement to resolve the Actions, and Ms. Stein and UCFC have reached an agreement to resolve her disclosure demand. In connection with resolution of the Actions and the disclosure demand, UCFC has agreed to make the following supplemental disclosures (the litigation-related supplemental disclosures) to the Registration Statement. The plaintiffs have agreed that, following the filing of this Current Report on Form 8-K (this Report), the plaintiffs will dismiss the Actions in their entirety.
The defendants believe that the Actions are without merit, and UCFC believes the disclosure demand is meritless. Defendants and UCFC deny that any further disclosure beyond that already contained in the Registration Statement is required under applicable law to supplement the Registration Statement and the joint proxy statement included therein which has been disseminated to UCFC and FDEF stockholders. Nonetheless, to avoid the risk that the Actions or the disclosure demand may delay or otherwise adversely affect the consummation of the Merger and to minimize the expense of defending such Actions or disclosure demand at the expense of UCFCs shareholders, the defendants are making the litigation-related supplemental disclosures, as set forth herein. Nothing in this Report shall be deemed an admission of the legal necessity or materiality under applicable laws of any of the supplemental disclosures set forth herein.
The litigation-related supplemental disclosures contained below should be read in conjunction with the Registration Statement, which is available on the Internet site maintained by the Securities and Exchange Commission (the SEC) at http://www.sec.gov, along with periodic reports and other information UCFC and FDEF file with the SEC, and with respect to UCFC, on UCFCs investor relations Internet site at http://platform.mi.spglobal.com/IRW/Docs/4002033. To the extent that the information set forth herein differs from or updates information contained in the Registration Statement, the information set forth herein shall supersede or supplement the information in the Registration Statement. All page references are to pages in the definitive proxy statement that was filed by UCFC on October 30, 2019 and forms a part of the Registration Statement, and terms used below, unless otherwise defined, have the meanings set forth in the Registration Statement.
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Supplemental Disclosures
The disclosure under the heading The MergerBackground of the Merger is hereby amended and supplemented by replacing the third sentence in the fifth paragraph of that section, which begins on page 54 and continues on page 55 of the Registration Statement, with the following:
Sandler ONeills presentation covered a review of the then current environment for the banking industry, United Communitys stand-alone valuation metrics, a list of 44 western Pennsylvania and Ohio banks and thrifts with assets between $250 million and $750 million who could be potential acquisition targets of United Community, a list of 17 western Pennsylvania and Ohio banks and thrifts with assets between $750 million and $1.5 billion who could be potential acquisition targets of United Community, a list of 4 potential partners for a strategic merger (which included First Defiance) and a list of 12 potential acquirers of United Community.
The disclosure under the heading The MergerBackground of the Merger is hereby amended and supplemented by replacing the second sentence in the first full paragraph on page 55 of the Registration Statement with the following:
Sandler ONeill explained to the board its view that the number of potential acquirers of banks generally was limited in the current market and that it had narrowed its list of potential acquirers of United Community to seven institutions based on the criteria established by the United Community board, although it was not certain whether any of the institutions would have an interest in engaging in a transaction.
The disclosure under the heading The MergerBackground of the Merger is hereby amended and supplemented by replacing the second sentence in the second full paragraph on page 55 of the Registration Statement with the following:
During this time, Mr. Small also had discussions with a fifth institution who reached out to him independently of the outreach being conducted by United Community. This institution had been included on the list that was prepared by Sandler ONeill and evaluated by the board and was not selected for outreach because of concerns regarding the attractiveness of that institutions stock as merger consideration.
The disclosure under the heading The MergerBackground of the Merger is hereby amended and supplemented by adding a sentence to the end of the fifth full paragraph on page 55:
Mr. Small and Mr. Hileman had not had any discussions regarding a potential transaction between the two companies since September 2017.
The disclosure under the heading The MergerBackground of the Merger is hereby amended and supplemented by replacing the third paragraph on page 56 of the Registration Statement with the following:
At a regularly scheduled meeting of the United Community board of directors on May 23, 2019, Mr. Small updated the board on the outreach from Mr. Hileman as well as his view on the potential strategic and financial benefits of such a transaction. The board expressed its support for Mr. Small to continue these discussions to assess the viability of a strategic merger with First Defiance and the potential economic and governance terms of such a transaction.
The disclosure under the heading The MergerBackground of the Merger is hereby amended and supplemented by replacing the ninth sentence of the first full paragraph on page 58 of the Registration Statement with the following two sentences:
Sandler ONeills review of potential strategic alternatives included an overview of the general merger and acquisition market at that time as well as a review of potential counterparties of similar or larger size for a business combination transaction. As part of this review, Sandler ONeill discussed the evaluation of and outreach to potential acquirers that had been conducted by United Community earlier in the year and noted that there had not been any new developments on that front.
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The disclosure under the heading The MergerOpinion of United Communitys Financial AdvisorNet Present Value Analyses is hereby supplemented by adding the following as a new third sentence following the number 205% in the paragraph at the bottom of page 88 of Registration Statement:
Sandler ONeill selected these price to earnings and tangible book value multiples based on Sandler ONeills review of, among other things, the trading multiples of selected companies that Sandler ONeill deemed to be comparable to First Defiance.
The disclosure under the heading The MergerOpinion of United Communitys Financial AdvisorNet Present Value Analyses is hereby supplemented by adding the following table after the Earnings Per Share Multiples chart (Annual Budget Variance) in the middle of page 89 of the Registration Statement:
The following table describes the discount rate calculation for First Defiance common stock prepared by Sandler ONeill. In its normal course of business, Sandler ONeill employs the Duff & Phelps Cost of Capital Navigator in determining an appropriate discount rate in which the discount rate equals the sum of the risk free rate, the equity risk premium, the size premium and the industry premium.
The first paragraph under the heading The MergerOpinion of United Communitys Financial AdvisorPro Forma Transaction Analysis at the bottom of page 89 of the Registration Statement is hereby amended and restated in its entirety as follows:
Sandler ONeill analyzed certain potential pro forma effects of the merger on First Defiance and United Community assuming the merger closes December 31, 2019. Sandler ONeill utilized the following information and assumptions: (a) publicly available mean analyst net income, earnings per share and dividends per share estimates for United Community for the years ending December 31, 2019 and December 31, 2020, as confirmed by the senior management of United Community, as well as an estimated long-term annual earnings per share growth rate and estimated dividends per share for the years ending December 31, 2021 through December 31, 2023, as confirmed by the senior management of United Community, (b) publicly available mean analyst net income, earnings per share and dividends per share estimates for First Defiance for the years ending December 31, 2019 and December 31, 2020, as confirmed by the senior management of First Defiance, as well as an estimated long-term annual earnings per share growth rate and estimated dividends per share for the years ending December 31, 2021 through December 31, 2023, as confirmed by the senior management of First Defiance, and (c) certain assumptions relating to purchase accounting adjustments, cost savings and transaction expenses, as provided by the senior management of First Defiance and confirmed by the senior management of United Community. For more information about the assumptions provided by First Defiance and confirmed by the senior management of United Community for use in Sandler ONeills pro forma analysis, see the Investor Presentation, dated September 9, 2019, attached as Exhibit 99.2 to an 8-K filed by First Defiance on September 9, 2019 which is incorporated by reference herein. The analysis indicated that the transaction could be accretive to United Communitys estimated earnings per share (excluding one-time transaction costs and expenses) in the years ending December 31, 2020 through December 31, 2023 by 8.1%, 10.5%, 11.0% and 11.4%, respectively, and dilutive to United Communitys estimated tangible book value per share at close and for the years ending December 31, 2020 and December 31, 2021 by 9.5%, 6.4% and 3.1%, respectively, and accretive to United Communitys estimated tangible book value per share at December 31, 2022 and December 31, 2023 by 0.2% and 3.4%, respectively. The analysis indicated that the transaction could be dilutive to United Communitys estimated common dividends per share in the years ending December 31, 2020 through December 31, 2023 by 12.6%, 18.9%, 23.9% and 28.1%, respectively. The analysis indicated that the transaction could be accretive to First Defiances estimated earnings per share (excluding one-time transaction costs and expenses) in the years ending December 31, 2020 through December 31, 2023 by
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10.7%, 13.1%, 13.6% and 14.0%, respectively, and dilutive to First Defiances estimated tangible book value per share at close and at December 31, 2020 by 4.2% and 1.8%, respectively, and accretive to First Defiances estimated tangible book value per share at December 31, 2021, December 31, 2022, and December 31, 2023 by 0.7%, 2.8% and 4.6%, respectively.
The disclosure under the heading The MergerCertain Unaudited Prospective Financial InformationCertain Unaudited Prospective Financial Information of First Defiance is hereby supplemented by adding the following as a new second sentence in the second paragraph of such section at the bottom of page 90 of Registration Statement:
The publicly available mean analyst estimates with respect to First Defiance were derived from Bloomberg and S&P Global Market Intelligence and included analyst estimates from KBW, Janney Montgomery Scott LLC, Raymond James & Associates, Inc., and Sandler ONeill.
The disclosure under the heading The MergerCertain Unaudited Prospective Financial InformationCertain Unaudited Prospective Financial Information of United Community is hereby supplemented by adding the following as a new second sentence in the first paragraph of such section on page 91 of Registration Statement:
The publicly available mean analyst estimates with respect to First Defiance were derived from Bloomberg and S&P Global Market Intelligence and included analyst estimates from Boenning & Scattergood Inc., KBW, Raymond James & Associates, Inc., and Sandler ONeill.
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Important Additional Information About the Merger
This communication is being made in respect of the proposed merger transaction between FDEF and UCFC. On October 9, 2019, FDEF filed a registration statement on Form S-4, as amended on October 18, 2019 and October 28, 2019, with the SEC to register the shares of FDEF common stock that will be issued to UCFCs shareholders in connection with the Merger. The registration statement included a joint proxy statement/prospectus and other relevant materials in connection with the transaction. The registration statement was declared effective by the SEC on October 30, 2019, and UCFC and FDEF commenced mailing the definitive joint proxy statement/prospectus to stockholders of UCFC and FDEF on or about October 31, 2019. Before making any voting or investment decision, investors and security holders of FDEF and UCFC are urged to carefully read the entire registration statement and joint proxy statement/prospectus, as well as any amendments or supplements to these documents and any other relevant documents, because they will contain important information about the proposed transaction. The documents filed by FDEF and UCFC with the SEC may be obtained free of charge at the SECs website at www.sec.gov. In addition, the documents filed by FDEF may be obtained free of charge at FDEFs website at http://www.fdef.com and the documents filed by UCFC may be obtained free of charge at UCFCs website at https://www.homesavings.com. Alternatively, these documents can be obtained free of charge from FDEF upon written request to First Defiance Financial Corp., Attention: John R. Reisner, Executive Vice President, Chief Risk Officer and Legal Counsel, 601 Clinton Street, Defiance, Ohio 43512 or by calling (419) 782-5015 or from UCFC upon written request to United Community Financial Corp., 275 West Federal Street, Youngstown, Ohio 44503, Attention: Jude J. Nohra, Executive Vice President, General Counsel, Chief Risk Officer and Secretary, or by calling (330) 742-0500.
This communication shall not constitute an offer to sell or the solicitation of an offer to buy securities nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of such jurisdiction. This communication is also not a solicitation of any vote in any jurisdiction to the proposed transactions or otherwise. No offer of securities or solicitation will be made except by means of a prospectus meeting the requirements of Section 10 of the Securities Act of 1933, as amended. The communication is not a substitute for the joint proxy statement/prospectus that FDEF and UCFC have filed with the SEC.
Cautionary Statements Regarding Forward-Looking Information
Certain statements contained in this communication which are not statements of historical fact constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such
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statements include, but are not limited to, certain plans, expectations, goals, projections and benefits relating to the merger transaction between FDEF and UCFC, which are subject to numerous assumptions, risks and uncertainties. Words such as may, believe, expect, anticipate, intend, will, should, plan, estimate, predict, continue and potential or the negative of these terms or other comparable terminology, as well as similar expressions, are intended to identify forward-looking statements but are not the exclusive means of identifying such statements. Please refer to each of FDEFs and UCFCs Annual Report on Form 10-K for the year ended December 31, 2018, as well as their other filings with the SEC, for a more detailed discussion of risks, uncertainties and factors that could cause actual results to differ from those discussed in the forward-looking statements.
Forward-looking statements are not historical facts but instead express only managements beliefs regarding future results or events, many of which, by their nature, are inherently uncertain and outside of the managements control. It is possible that actual results and outcomes may differ, possibly materially, from the anticipated results or outcomes indicated in these forward-looking statements. In addition to factors disclosed in reports filed by FDEF and UCFC with the SEC, risks and uncertainties for FDEF, UCFC and the combined company include, but are not limited to: the possibility that any of the anticipated benefits of the proposed merger will not be realized or will not be realized within the expected time period; the risk that integration of UCFCs operations with those of FDEF will be materially delayed or will be more costly or difficult than expected; the parties inability to meet expectations regarding the timing, completion and accounting and tax treatments of the merger; the inability to complete the merger due to the failure of FDEFs or UCFCs shareholders to adopt the merger agreement; the failure to satisfy other conditions to completion of the merger, including receipt of required regulatory and other approvals; the failure of the proposed merger to close for any other reason; diversion of managements attention from ongoing business operations and opportunities due to the merger; the challenges of integrating and retaining key employees; the effect of the announcement of the merger on FDEFs, UCFCs or the combined companys respective customer and employee relationships and operating results; the possibility that the merger may be more expensive to complete than anticipated, including as a result of unexpected factors or events; dilution caused by FDEFs issuance of additional shares of FDEF common stock in connection with the merger; and general competitive, economic, political and market conditions and fluctuations. All forward-looking statements included in this filing are made as of the date hereof and are based on information available at the time of the filing. Except as required by law, neither FDEF nor UCFC assumes any obligation to update any forward-looking statement.
Participants in the Solicitation
FDEF, UCFC, their directors, executive officers and certain other persons may be deemed to be participants in the solicitation of proxies from FDEFs and UCFCs shareholders in connection with the merger. Information about the directors and executive officers of FDEF and their ownership of FDEF common stock is set forth in the definitive proxy statement for FDEFs 2019 annual meeting of shareholders, as previously filed with the SEC on March 8, 2019, and FDEFs Annual Report on Form 10-K for the year ended December 31, 2018, as previously filed with the SEC on February 28, 2019, as well as other documents filed with the SEC. Information about the directors and executive officers of UCFC and their ownership of UCFC common stock is set forth in the definitive proxy statement for UCFCs 2019 annual meeting of shareholders, as previously filed with the SEC on March 22, 2019, as well as other documents filed with the SEC. Additional information regarding the interests of such participants is included in the joint proxy statement/prospectus filed with the SEC and other relevant documents regarding the merger filed with the SEC when they become available.
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