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Friday, August 22, 2014         

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Central Pacific stock seen declining after 24 percent rise

Investors are driven by a rights offering from the bank, which eyes profitability this year

By Dave Segal

POSTED:



Central Pacific Financial Corp.'s stock is expected to open sharply lower Monday following a torrid weeklong ascent that catapulted the shares 23.6 percent over the last four trading days.

Analyst Joe Gladue of B. Riley & Co. said he expects the shares to open around $22.51 or $22.52 next week after closing yesterday at $35.03. The stock rose $2.32, or 7.1 percent, yesterday as bargain hunters scooped up shares on the final day to be eligible for the company's $20 million rights offering.

Shareholders who owned the stock as of the close of trading yesterday are eligible to purchase additional shares for $10 each at a future date. The shareholders will be able to purchase at least 1.3 shares for every share they own.

Beginning Monday, though, Central Pacific's stock will trade without the $10 rights offering attached. That means the common shares will be worth less. The "rights" will trade as a separate entity and can be bought or sold independent of the common shares.

Gladue said he derived his projected Monday opening price by taking yesterday's close of $35.03, adding the $10 rights offering to get to $45.03 and then dividing by two shares, since investors will be able to buy roughly one share at the $10 price for every share that they own.

The time period to purchase those shares won't be determined until Central Pacific's registration statement related to that rights offering is filed and approved by the Securities and Exchange Commission. Central Pacific said yesterday it expects to file that statement early next week.

Earlier this week, Gladue downgraded his rating on Central Pacific's stock to "sell" from "neutral" and lowered his 12-month target price to $18 from $20 based on his outlook for earnings and tangible book value (liquidation value of the company). He said the target price is based on how the stock would trade without the rights offering attached.

"I think the management has been doing a great job of turning the company around, but I think the stock has sort of gotten ahead of itself trading at higher levels," he said.

Gladue said he expects the bank, which has had seven straight losing quarters, to become profitable in the third quarter of 2011. He said profitability could occur earlier if the company sets aside less than he expects for potential loan losses.

"It would be difficult to justify the current price even with greater reserve release (from the money set aside for potential loan losses) and a more rapid return to profitability," he wrote. "We see little upside to the stock from its current level."

Separately, Central Pacific said it is reducing the size of its board of directors on the holding company to eight from 12 and for the bank to nine from 14. Resigning from the company and the bank are Richard Blangiardi, Jeannie Hedberg, Ronald Migita, Mike Sayama, Maurice Yamasato and Dwight Yoshimura. Jeffrey Cavanaugh, who was only on the bank's board, also resigned.

Remaining as members of both boards are Executive Chairman John Dean, Christine Camp, Earl Fry, Paul Kosasa, Colbert Matsumoto and Crystal Rose. Duane Kurisu, who was only a member of the bank's board, also will remain in that capacity.

In addition, the two lead investors, The Carlyle Group and Anchorage Capital Group, each will have a representative on the dual boards. James Burr is a managing director of The Carlyle Group and Alvaro Aguirre, who will represent Anchorage Capital, is chairman of Cygnus Business Media, a business-to-business communications company.






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