We did a post last month about the upcoming shareholder vote at Friendly Hills Bank (FHLB) regarding the proposed acquisition of three branches, all from Southern California Bancorp (BCAL). A Friendly Hills shareholder wrote in today with his analysis of the situation, which we are sharing below.
The key thing to understand is that the proposed acquisition is a "story of two CEOs": one CEO is buying three branches that the other CEO owns and wants to get rid of.
What you worry about is an adverse selection problem: how can the buying CEO make sure that the price he's paying is low enough when he's buying an asset from someone who knows it better (asymmetric information problem) and wants to get rid of it.
Is the Friendly Hills CEO familiar with one of the all-time most important economics papers, "The Market for Lemons"? Since the assets come with expense commitments, it is even possible that he should be getting paid to take them!
Great letter and hopefully shareholders vote this down.
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