The complaint is pointed: The men who run Somerville’s Central Bancorp sold the bank just for the big payday, shareholders be damned.
Filed on behalf of Rational Strategies Fund and “others similarly situated” as Central Bancorp shareholders, the complaint alleges the $55 million acquisition of Central by Independent Bank Corp., parent of Rockland Trust, was orchestrated by Central Chairman and CEO John D. Doherty and President and COO William P. Morrissey, “for their own personal benefit.”
But you’d be hard pressed to find a banker or lawyer who is taking the suit seriously. These days – almost without fail – when two stock banks (or two publicly traded companies of any kind) announce an acquisition or merger, some dissatisfied shareholder or quick-thinking lawyer will pop up to take advantage.
“We call it trolling for plaintiffs,” Richard Gavegnano, president and CEO of East Boston Savings Bank, told Banker & Tradesman. “The lawyers come out of the woodwork, and all it takes is one. They push to probe the integrity of the process. They’re pushing to try to make a few bucks, and you kind of have to dance around these issues.”
Suits like this hardly come as a surprise to the so-called defendants, Gavegnano continued.
“[Merging entities] anticipate this,” Gavegnano said. “They make sure they’ve done everything right. They’ve dotted every ‘I’ and crossed every ‘T,’ but no matter how well they prepare themselves…”
Bank mergers take months to put together, and by the time they’re announced, each party has done its part to make sure very little can go wrong. One Boston banking attorney called the suit against Central and Independent “a typical disgruntled shareholder suit.”
Another attorney said despite being “typical,” suits like these aren’t all that common in Massachusetts, where most banks use a mutual charter. Also, bank mergers often involve a small bank and a much larger acquirer. In that case, the attorney said, shareholders of the acquired bank “get a pretty large multiple. The shareholders are happy.”
Central’s shareholders should be happy, according to some industry watchers who told Banker & Tradesman in recent months that Independent was overpaying for Central – which, according to one, “has never been considered a particularly strong bank.”
Stick ’Em Up
Nevertheless, Thomas B. Shapiro and Adam M. Stewart, the Shapiro, Haber & Urmy LLP attorneys who brought the suit on behalf of Rational Strategies Fund, say John Doherty, William Morrissey and other top Central executives simply stand to get too rich in the deal.
But again, that’s nothing new. Executives of acquired institutions often make a boatload of money in the deal. And the cash, equity and other payments arranged for Doherty ($2.2 million, according to filings) and Morrissey ($2.7 million) are not out of line.
Still, to some the windfalls are a sure sign that Central’s executives did not have the company’s shareholders’ best interests at heart while they were constructing the deal with Independent.
The complaint alleges aiding and abetting breaches of fiduciary duty; failure to disclose; and breach of fiduciary duty, good faith, loyalty, fair dealing and due care. The plaintiff(s) demand a jury trial, unspecified damages, fees and costs, as well as “such other relief as the court may find just and proper.”
The lawyers who file these class action suits “are looking to get $100,000 and go away,” Gavegnano said.
Although Gavegnano puts it bluntly, banking attorneys say he’s right.
One Boston banking attorney said about half the mergers his firm has worked on in recent years have been subject to trolling.
“They’re trying to find clients who are shareholders who they can convince they have received or will receive consideration that is inadequate,” he said. In most cases, the effort amounts to little more than “a stick-up.”
“These boards consult legal counsel who counsels them on what their duties are. In most cases, (suits brought by trolling) are meritless.”
