Washington Banking Co. rattled by failed merger

Published 8:20 pm Wednesday, June 4, 2008

Shares of Washington Banking Co. plunged 22 percent Wednesday, the day after the Oak Harbor-based parent of Whidbey Island Bank called off its acquisition by Frontier Financial Corp.

Washington Banking’s share price fell $2.81 to a new 52-week low of $9.69. That dropped the bank’s market value from more than $118 million to less than $92 million.

Shares of Frontier Financial, the Everett-based holding company for Frontier Bank, fell just 29 cents, or 2 percent, to close at $14.25. That also was a 52-week low.

Washington Banking said Tuesday that Frontier had failed to gain regulatory approval for the merger in a timely manner. The deal initially was expected to be done by March 31, but June 30 was set as the new deadline.

Frontier and Washington Banking announced their proposed merger, a deal valued at approximately $191 million, last fall. It would have been the latest addition for Frontier, which also bought the Bank of Salem in Oregon last year.

John Dickson, Frontier’s president and chief executive officer, said he was frustrated by the regulatory delays and by Washington Banking’s resulting decision. He added that Frontier intends to keep growing, but he sees a short-term slowdown in mergers across the banking industry.

“In this particular market, where stock prices are being pushed downward and there are more challenges, I think acquisitions will be a lot fewer and farther between. I think it will be much more quiet on that front,” Dickson said.

The merger agreement between Frontier and Washington Banking included a clause that allows for a $5 million termination fee if either side called off the deal. Dickson declined to comment on whether Frontier will insist that Washington Banking pay that amount.

Reporter Eric Fetters: 425-339-3453 or fetters@heraldnet.com.