On his way out the door as chairman of Brookline Bank’s board, Richard Chapman Jr. fired a parting shot with potentially serious implications for the bank, possibly sparking shareholder litigation against the board and altering how potential buyers approach the bank.
The shot came in the form of a resignation letter, made public last week, in which Chapman tore down the bank’s board – and CEO Paul Perrault in particular – for rejecting a takeover bid from an unnamed potential buyer. The letter does more than air the bank’s internal squabbling, analysts say.
“He’s created a big problem for the rest of the board,” said Stanley V. Ragalevsky, partner with Boston-based K&L Gates. He said the action may plant the seeds for a shareholder lawsuit accusing the board of breaching fiduciary duty by foolishly rejecting the offer.
In his resignation, Chapman accuses the board of erratic and misguided decision-making. Rather than accept the buyer’s offer, Perrault discouraged the sale by instead presenting overly optimistic “strategic visions” for the bank’s prospects that were unsupported by hard facts, Chapman wrote.
Chapman essentially accused the board of breach of fiduciary duty already, and while they could probably defend themselves successfully, Ragalevsky said, it would be a big burden to do so.
Chapman’s status as a major shareholder adds considerable weight to the move. Douglas P. Faucette, partner with Washington, D.C.-based Locke Lord Bissel & Liddell, said it’s notable that the bank’s largest individual shareholder thinks the bank ought to be sold.
That signal will bring other potential buyers swarming “like bees to honey” around Brookline Bank, Faucette said, exerting more pressure on the bank’s board to make a move.
But Ragalevsky said the bank would likely be getting offers regardless of the letter. Brookline is a strong public bank in the coveted Boston market, so it wouldn’t have lacked for buyers anyway.
He Said, She Said
Paul Perrault, appointed Chapman’s successor as CEO just last spring, defended the board’s decision, saying the 10-2 final vote against accepting the buyout offer was the result of diligent inquiry by a board dedicated to doing right by its shareholders. As for the specifics of the deal, Perrault declined delve deeper.
“We are not going to engage in a ‘he said, she said’ kind of thing,” Perrault told Banker & Tradesman, although he added that the letter didn’t exert any pressures on the board to sell. Buyers were always on the hunt, and Chapman’s move wouldn’t hasten the board’s actions one way or another, he said.
Sean Mahoney, partner with K&L Gates, said Brookline’s board likely reasoned it would be prudent to wait for a better offer. The recession has created a slump in the acquisition market, he said, where buyers are paying less than they would in a healthier environment.
Brookline Bank is not in a weak position, and Mahoney and Ragalevsky agreed that, like a homeowner waiting for home values to go upward, the bank probably just thought it could get a better offer in a year or two.
Chapman’s own actions indicate that he thinks the time to sell is now. Chapman currently owns 722,580 shares, but spent much of 2009 selling stock, steadily unloading chunks at a time as the value increased from its early-in-the-year low.
At the time of his first sale, in March of last year, shares stood at $8.41 apiece. By the time of his last recorded sale, in September, they had risen to $11.30 per share.
“He’s putting his money where his mouth is,” Mahoney said.
Chapman appears to have a lot to gain from accepting the buyer’s offer. Because of his role as recent CEO and chairman, he’s defined as an “insider,” which means securities laws keep him from dumping stock rapidly, Mahoney explained. An acquisition, however, would have yielded a far faster sale of his holdings.
