CalPERS officials joined shareholder efforts to block or require a shareholder vote on a proposed three-way deal involving Sovereign Bancorp Inc., Banco Santander Central Hispano SA and Independence Community Bank Corp.
On Oct. 24, Sovereign officials simultaneously announced plans to sell a 19.8% stake in Sovereign to the Spanish bank for $2.4 billion and to use the funds to help buy Independence Community Bank for $3.6 billion. In unusual provisions, the Santander deal would give the Spanish bank veto power over any plans to replace Sovereign's chief executive, Jay Sidhu, and would lock in Sovereign's directors for 10 years if Santander bought the bank outright. Santander would also be able to buy another 5.1% of Sovereign and would have the right to buy 100% of the bank's shares at set terms of the next three years. The deal would also give Santander two seats on Sovereign's board.
Under New York Stock Exchange rules, a transaction involving less than 20% of a company's stock does not require shareholder approval, but opponents argue the deal effectively gives Santander a 24% stake.
Mark Anson, chief investment officer the $197.4 billion California Public Employees' Retirement System, both of Sacramento, wrote in a Nov. 18 letter to Richard Ketchum, chief regulatory officer of the New York Stock Exchange, that "the proposed transaction not only violates both the spirit and doctrine of (NYSE standards) but also clearly demonstrates a clear disregard for shareholder rights."
On Friday, Jack Ehnes, CEO of the $134 billion California State Teachers' Retirement System, Sacramento, wrote to Mr. Ketchum that the proposed deal circumvents shareholders without paying them for ceding control.
Relational Investors, which manages portfolios for both CalSTRS and CalPERS, has led an effort to block the transaction; Relational previously had announced plans to wage a proxy fight to win two seats on Sovereign's board. Relational is Sovereign's largest shareholder, with a 7.3% stake. Also, the New Jersey State Investment Council, Trenton; Franklin Mutual Advisers and the Council of Institutional Investors have raised strenuous objections to the transaction.
"Our pending transactions were thoroughly reviewed by the advisers to Sovereign, Santander and Independence, and we are confident that both transactions are in accordance with applicable laws and regulatory requirements," said a bank spokesperson, who asked not be quoted.