Doral Financial ( DRL) sank 27% after FBOP Corp. dropped its takeover offer for the struggling Puerto Rican bank. FBOP, which is Doral's second-largest shareholder, with a 4.6% interest, said it instead plans to vote in favor of a $610 million deal previously proposed by a private-equity consortium led by Bear Stearns ( BSC). Shares of Doral slid 43 cents to $1.17 on Monday. Last month, Bear Stearns' merchant banking arm, along with Marathon Asset Management, Perry Capital, D.E. Shaw, Tennenbaum Capital Partners, Eton Park Capital Management, Canyon Capital Advisors, Goldman Sachs ( GS) and GE Asset Management, offered to acquire a majority interest in Doral for $610 million, or 63 cents a share -- barely half of Doral's current trading price. That deal would leave Doral shareholders with just 10% of the company. But in early June, it appeared that Doral's white knight had appeared. FBOP, a closely held bank owner based in Oak Park, Ill., submitted a competing proposal offering $1.41 a share. That deal also totaled $610 million, but it left investors with 20% of the company. The stock soared more than 51% on the news. Now it appears that Doral investors will have to settle for the steep discount originally proposed by the consortium. Doral said Monday that FBOP pulled out of its offer after completing due diligence on the company.
Doral has had a messy couple of years. The company needed to restate earnings from 2000 to 2004 because of its improper use of derivatives to hedge its mortgage portfolio against interest rate fluctuations. Later, Doral found problems related to the sale of some of its mortgages to other Puerto Rican banks. It has been embroiled in regulatory investigations related to accounting problems and has had a host of executive shake-ups as a result of the scandal. The financing will help Doral repay $625 million in floating rate notes that mature in July and also pay for the company's $129 million settlement of shareholder lawsuits filed two years ago. Doral is in the process of seeking shareholder approval of the consortium proposal. It has scheduled a meeting for July 17.