Banco Santander Central Hispano SA's revised deal to buy a 19.8% stake in Sovereign Bancorp Inc. without shareholder approval was blasted by institutional investors, which threatened to appeal to the SEC.
The New York Stock Exchange said the revised deal would not require shareholder approval. The deal no longer would give Santander veto power over terminating Sovereign's CEO, and it would drop a requirement that a new CEO receive the Spanish bank's blessing. It would also remove a controversial provision continuing the terms of Sovereign's directors for 10 years if the bank were sold. New provisions would bar Sovereign from responding to other offers before the deal is closed and would require Sovereign to pay Santander $200 million if Sovereign sells the bank to a third party, according to a Sovereign press release.
The revised deal would still enable Santander to buy an additional 5.1% stake in the bank, but those shares would be placed in a voting trust where the trustees would vote any shares in proportion to how all other Sovereign shares are voted, the Sovereign release said.
"We are disappointed that the NYSE has chosen to allow this transaction to proceed, which disenfranchises the existing owners of Sovereign," Franklin Mutual Advisers CEO Peter Langerman and CIO Michael Embler said in a press release. "We continue to believe that the terms and circumstances of this deal have irretrievably compromised the independence of the Sovereign board of directors and results in an effective change in control of the business to Grupo Santander," they added.
Ralph Whitworth, principal of Relational Investors, Sovereign's biggest shareholder, said the firm will considering appealing the NYSE ruling to the SEC. "The (New York Stock) Exchange has made it clear that form trumps substance when it comes to its listing standards," he said in a statement.
"We're still looking at the details, but we were very disappointed with the NYSE ruling," said Ann Yerger, executive director of the Council of Institutional Investors.
Clark McKinley, a spokesman for the $197.4 billion California Public Employees' Retirement System, Sacramento, said: "We continue to be supportive of Relational, who has taken the lead point" in dealings with Sovereign. Relational said in a filing last month that it planned to wage a proxy fight to win two seats on Sovereign's board.
