NYSE Approves Sovereign-Santander Deal

Philadelphia-based Sovereign Bancorp plans to sell a stake to Spain's Banco Santander, then use the proceeds to help acquire New York-based Indepen...
Stephen TaubNovember 23, 2005

Sovereign Bancorp Inc. announced that it has revised its deal with Banco Santander Central Hispano S.A. and that as a result, the New York Stock Exchange will not require shareholder approval.

The news appears to be a setback for hedge fund Relational Investors LLC, which along with other activist investors has been vigorously opposing the deal and is mulling a proxy fight.

Relational has been trying to replace two Sovereign directors and has been attempting to stop a deal in which the Philadelphia-based bank would sell a 19.8 percent stake to Spain’s Banco Santander for $2.4 billion, then use the proceeds to help acquire New York-based Independence Community Bank Corp. for $3.6 billion.

Peter Langerman, chief executive officer of Franklin Mutual Advisers LLC, which owns 4.8 percent of Sovereign, told Bloomberg, “We still believe this deal should be put to a shareholder vote and we will continue to explore our options.”

In winning NYSE approval, Sovereign did have to make some concessions. For example, it must respond to acquisition proposals from third parties. What’s more, if Santander then walks away from the deal, Sovereign must pay the Spanish bank a $200 million breakup fee.

Under the arrangement, Santander is not required to vote its stake in Sovereign in favor of Sovereign’s board nominees. Dow Jones points out that this could make it easier for Relational to wage a proxy campaign. In addition, Santander now has no say over changes to Sovereign’s chief executive, according to reports.

Dow Jones observed that Relational’s next best chance of derailing the deal will come when the Federal Reserve Board mulls whether to approve certain aspects of the transaction. The dissident shareholders are hoping the Fed will be sympathetic to their concerns that the deal represents a change in control, according to the wire service.

The new revisions could make this less likely, however. “The Fed had no objections to the structure of this transaction,” Juan Rodriguez Inciarte, the Santander executive who negotiated the agreement with Sovereign, told Dow Jones.