Blue Lion Capital Encourages HomeStreet Board to Remove Management Team Change in Control Payments as Part of FSUN Merger

Rhea-AI Summary

Blue Lion Capital, which owns 1.3% of HomeStreet (HMST) stock, has called for the company's board to remove $19.6 million in Change in Control (CIC) payments to executives as part of the FirstSun Capital Bancorp (FSUN) merger. FSUN had encouraged HomeStreet's CEO Mark Mason to hedge interest rate risks, which he refused. Subsequent rate increases led to a decline in the value of HomeStreet's portfolios. This resulted in an amended merger agreement on April 30, reducing the consideration for HomeStreet shareholders by $30.5 million. Shareholders recently voted against the CIC payments, although the vote was non-binding. Blue Lion is advocating for the board to honor shareholders' wishes and eliminate the CIC payments.

Positive

• The merger with FirstSun Capital Bancorp offers potential strategic benefits.

Negative

• Reduction in merger consideration by $30.5 million due to lower profitability.
• Shareholders voted against $19.6 million in Change in Control payments to executives.
• Management's refusal to hedge interest rate risks led to decreased portfolio value.

Insights

Financial Analyst

The reduced merger consideration for HomeStreet shareholders from $30.5 million to reflect the company's declining profitability and value is a significant financial event. This reduction highlights the poor financial management practices at HomeStreet, notably the refusal to hedge interest rate risk, which directly impacted profitability as interest rates rose.

From a financial standpoint, this reduction represents a tangible loss to shareholders, who are now receiving 11% less in merger consideration. The consequences of this decision are profound, reflecting negatively on the strategic decision-making of the management team, particularly CEO Mark Mason.

Additionally, the proposed $19.6 million change in control payments to executives amidst declining shareholder value is controversial. Shareholders' advisory vote against these payments reflects a disconnect between executive compensation and company performance, emphasizing the need for better alignment of executive incentives with shareholder interests.

Corporate Governance Expert

The advisory and non-binding nature of the shareholders' vote against the change in control payments presents a critical governance issue. Although shareholders have voiced their discontent, the final decision rests with the Board. This scenario underscores the importance of a Board's fiduciary duty to act in the best interest of shareholders, especially in light of significant underperformance and strategic missteps.

Furthermore, the call to remove these payments illustrates a broader concern about corporate governance practices at HomeStreet. The Board's willingness to heed shareholders' concerns will be a key indicator of their commitment to proper governance and accountability.

Should the Board ignore shareholder wishes, it risks eroding trust and further damaging the company's reputation and potentially its stock price. Strong governance mechanisms are important to ensuring that management actions align with shareholder value creation.

HomeStreet was Encouraged by FirstSun Capital Bancorp Management to Hedge Interest Rate Risk After Merger was Announced in January 2024 but Mark Mason Refused

HomeStreet's Profitability and Value Declined as Interest Rates Increased

On April 30^th, FirstSun Amended and Lowered the Merger Consideration to HomeStreet Shareholders by $30.5 Million to Reflect HomeStreet's Lower Profitability and Value

If Shareholders Receive $30.5 Million Less, Why Should HomeStreet Executives Receive $19.6 Million More Via Change in Control Payments?

Last Week, HomeStreet Shareholders Voted Against HomeStreet Management Receiving the Payments

Blue Lion Capital Encourages HomeStreet's Board to Do the Right Thing and Remove the Management Team Change in Control Payments as Part of the FirstSun Merger

Blue Lion Encourages Shareholders to Contact James Mitchell, HomeStreet's Lead Independent Director

DALLAS, June 27, 2024 /PRNewswire/ -- Blue Lion Capital, a Dallas-based investment firm ("Blue Lion") that beneficially owns approximately 1.3% of the stock of HomeStreet, Inc. (Nasdaq: HMST) ("HomeStreet" or the "Company"), has issued a letter to the HomeStreet Board of Directors ("Board") regarding Change in Control (CIC) payments that the Company's management team may receive as part of the FirstSun Capital Bancorp ("FSUN" or "FirstSun") merger.

Blue Lion learned that at the time of the original merger announcement on January 16th of this year that FSUN management strongly encouraged HomeStreet's CEO Mark Mason to hedge the interest rate risk imbedded in the fixed rate loan and securities portfolios that caused HMST all the problems to begin with. Mark Mason refused. Over the ensuing months, interest rates increased and the value of the two portfolios declined.

On April 30th of this year, HMST and FSUN amended their merger agreement. The price that HMST shareholders would receive is now 11% less ($30.5 million) than what was previously announced in January. The primary reason given for the lower consideration to HMST shareholders on the April 30^th conference call was the higher for longer interest rate outlook and the impact it would have on HMST's profitability. Blue Lion believes virtually all the blame for the $30.5 million reduction in the consideration for shareholders was due to Mark Mason and the Board.

Blue Lion is strongly encouraging the Board to remove the CIC payments as part of the merger as a result of these missteps. Blue Lion believes these CIC payments, which total $19.6 million, were already egregious. Chuck Griege stated in his letter to the Board, "Why should executives still receive millions when their negligence directly resulted in the $30.5 million reduction in the merger consideration to shareholders? If shareholders are receiving less because of poor management decisions, management should not receive the payments."

Based on the 8k released last week, HMST shareholders voted against the CIC payments to be made to Mark Mason and other named executive officers. However, the outcome of the vote was "advisory and non-binding." Griege stated "Shareholders have spoken and the Board needs to do its fiduciary duty and follow the wishes of shareholders." Griege goes on to say, "Candidly, this outcome was not surprising with the poor performance of the stock and the Board over the past twelve years. Shareholders have been fleeced by this management team and Board."

Blue Lion encourages shareholders to contact James Mitchell, HomeStreet's Lead Independent Director to strongly discourage any CIC payments being made to HMST's management team.

Important Information
Investor Contact:
Chuck Griege
Managing Partner
Blue Lion Capital
214-855-2430
chuck@bluelioncap.com

Website: https://www.bluelioncap.com

Copyright (c) 2024

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SOURCE Blue Lion Capital

FAQ

What is the impact of the FirstSun Capital Bancorp merger on HomeStreet shareholders?

The merger agreement was amended to reduce consideration for HomeStreet shareholders by $30.5 million due to lower profitability.

Why did HomeStreet shareholders vote against Change in Control payments?

Shareholders voted against the $19.6 million in Change in Control payments due to management's poor decisions, resulting in lower merger consideration.

What role did Mark Mason play in the financial decline of HomeStreet?

Mark Mason refused to hedge interest rate risks, which led to a decline in portfolio value and lower profitability.

What action is Blue Lion Capital urging HomeStreet’s board to take?

Blue Lion Capital is urging the board to remove the $19.6 million Change in Control payments to executives as part of the FirstSun merger.