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Suits Seek To Block NewAlliance Sale

by Paul Bass | Aug 26, 2010 2:34 pm

(12) Comments | Commenting has been closed | E-mail the Author

Posted to: Business/Labor/ Economic Development

Outraged shareholders have gone to court to try to stop Peyton Patterson from collecting $33.8 million by selling New Haven’s NewAlliance Bank to an out-of-state company.

Two shareholders filed class-action lawsuits this week in state Superior Court in New Haven to try to stop the proposed $1.5 billion takeover of NewAlliance by Buffalo, N.Y.-based First Niagara.

The proposed deal, announced last week, provoked criticism from New Haven’s mayor as well as other local critics concerned about losing a locally based lender. (Read about that here.)

The lawsuits add a second twist to the emerging opposition to the deal; the charge by some shareholders that NewAlliance CEO Patterson and her board engaged in an illegal “conspiracy” to sell the bank to enrich themselves at the expense of shareholders, who say they got a raw deal.

Click here to read one of the two complaints, which were filed by shareholders Cynthia Kos and Stanley P. Kops, an attorney in Bala Cynwyd, Penn.

Kops and Kos filed their suits on Monday and Wednesday, respectively. They seek class-action status on behalf of all shareholders. They’re asking the court to stop the sale to First Niagara. Their attorney is Jonathan P. Whitcomb of the Stamford-based firm Diserio, Martin, O’Connor & Castiglioni. The suits will probably be combined.

“We can’t comment on” the suits, Paul McCraven, NewAlliance’s senior vice-president responsible for community development, said Thursday. “It’s our policy not to comment on any pending legal actions.”

“We are aware of the litigation filed in Connecticut Superior Court,” said First Niagara spokeswoman Leslie Garrity in an email Thursday afternoon. “It is typical of litigation commonly filed when transactions of this nature are announced. We do not believe it has any merit.”

Paul Bass PhotoNew Haven-based FirstAlliance, the publicly traded successor to the old New Haven Savings mutual bank, has 87 branches and 1,200 employees throughout Connecticut and western Massachusetts.

Adding to the controversy, NewAlliance quietly filed a letter with the federal Securities and Exchange Commission this week revealing that CEO Patterson will collect a $16 million exit package, whether or not she stays on with the new bank, since she won’t be serving as CEO of the combined entity. Read the details in the letter here. (Executive Vice-President Gail E.D. Grathwaite received a similar letter.)

Patterson and the board “conspired” to “recklessly violate their fiduciary duties” and “stand on both sides of the transaction, are engaging in self-dealing, are obtaining for themselves personal benefits, including personal financial benefits, not shared equally by plaintiff or the Class,” the new suit charges.

“In refusing to act in good faith and in accordance with the fiduciary duties owed to its shareholders, the Company’s Board violated applicable law by directly breaching and/or aiding the other Individual Defendants’ breaches of their fiduciary duties of loyalty, due care, independence, good faith and fair dealing.  Rather than acting in the best interests of the shareholders, as their fiduciary duties mandate, the Individual Defendants – without good faith consideration – have elected to enter into the Proposed Acquisition to secure benefits that accrue to themselves at the expense of the interests of shareholders.”

The class-action lawsuit focuses on the total $33.8 million Patterson stands to take home in the deal, including cashed-out shares of stock. Instead of fulfilling their legal duty to protect shareholder value, the suit charges, Patterson and board members made the deal to reap millions for themselves.

“The market did not view the Proposed Acquisition so generously,” the complaint argues. It notes that NewAlliance shares rose “only” 12.5 percent the day of the proposed sale’s announcement, finishing at $12.78 share—less than the $13.36 per share the stock stood at on May 3.

The new shareholder suit quotes First Niagara CEO John R. Koelmel as saying he wants to retain the NewAlliance “team” to run the new bank’s regional headquarters.

“In being retained by First Niagara, members of NewAlliance’s management get the best of both worlds:  they can cash out their equity holdings, but remain in their current positions without being subject to the hassles and filing requirements of running a publicly traded company,” the suit charges.

The New York Times last Saturday estimated CEO Patterson’s parachute at $23.4 million assuming she leaves the company; it said that package would top that given to any other exiting bank CEO, including the head of the country’s fourth-largest bank.

The parachute has outraged even the New Haven Register. When NewAlliance first went public in 2003—and critics tried to stop the deal, saying Patterson was enriching herself at the expense of the community in order to set up an eventual sale to an out-of-state bank—the Register editorialized in favor of the deal, saying it would benefit New Haven. This Tuesday it changed course when the predictions of critics came true, blasting the new deal and Patterson’s payout.

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posted by: Observer on August 26, 2010  5:07pm

This Board could not wait for Charlie Terrell to be out of the way so they could scheme to make themselves rich. They are robbing the bank in broad daylight!

posted by: 20 year customer on August 26, 2010  5:27pm

I’m taking my business elsewhere. We only banked with them because they (New Haven Savings Bank then) offered a favorable Yale employee mortgage rate. We paid off our mortgage, so…goodbye.

posted by: FOXIN PAK on August 26, 2010  10:50pm

As a shareholder I’m appalled at what this board of directors has done. If it’s not about cashing in their shares, they all need to tell the shareholders in simple language, why? When they made the initial offering of the shares years ago, they couldn’t guarantee me a buy order of 10,000 shares. I have been a customer before Ms. Patterson was even wearing diapers. Where’s my loyalty check? This deal will not, and I repeat, will not go through. For all these hotshots, do yourself a favor, go away. Let the door hit you on the way out too. You won’t be cashing in your chips on all the shareholders dime. Disgusting, appalling and absurd.

posted by: brian parker on August 28, 2010  12:22pm

Three years ago I warned of this - all the huge M/As enticed this New Yorker to come to Connecticut and “get hers.”

So predictable. The only reason for the sale is for executives to grab millions. How does this sale help investors get more return on their money? It won’t. M/As seldom do.

How about the fact that she went public when she dot the job and said she would sell - she “always wanted to run” and mutual bank.

posted by: Joe on August 28, 2010  6:25pm

Where is the Chamber of Commerce President in all of this????? Deafeningly silent.

posted by: Mike on August 29, 2010  10:53pm

I’m confused as to why people think this is a bad thing? First off.. this is a business.. not a government entity.. so they are designed to make money.. SECOND.. all the research I’ve done on First Niagara shows a stable bank who is heavily involved in community projects and has donated millions of dollars over the last couple years to improving life in areas where it has customers.. they even donated $7 million to projects apart of the New Alliance Foundation.. are they trying to look good? Yes.. but they have a track record of being very generous AND responsible when it comes to lending.. they have one of the best credit reports out there and some of the fewest bad loans..

So again I ask.. why are you mad? Is it because you didn’t invest in New Alliance? Or do you just feel like people shouldn’t make any money if you aren’t?

posted by: robn on August 30, 2010  10:56am

MIKE,

The reason we had to bail out institutions that were “too big to fail” was because we let too many mergers happen. The grossly asymmetrical compensation packages related to this particular merger is indicative of that vulture culture and ultimately, taxpayers and customers will have to pay for the value which is implied by this transaction, but which is actually not real.

posted by: Louis on August 30, 2010  8:18pm

I should have bought Google!

posted by: jimmy5 on September 1, 2010  8:18am

Hats off to Peyton a very smart woman who did her job….whats wrong with that, you stockholders hired her!!!

posted by: To Jimmy5 on September 1, 2010  2:13pm

Jimmy5 - Wrong on the facts.  Peyton Patterson was hired by a board of directors of a mutual bank which wanted to demutualize so they could all get rich.  There were no shareholders, just depositors.  They took a valuable public asset that was chartered to the people of New Haven and changed its structure for their own private gain.

posted by: FOXIN PAK on September 1, 2010  8:54pm

As I mentioned earlier, this is a sham. It’s obvious the directors are wanting this. They stand to make big bucks. All the directors should be terminated immediately. They have done nothing to enhance the value of this stock. Observer was right about his comments about Mr. Terrell. The comment about Ms. Patterson is far from the truth. The shareholders will shoot this down very easily. And all the who’s in whoville, will be crying BOO HOO…...

posted by: PO'd Stockholder on September 3, 2010  12:44pm

The outrageous part of this is that while Patterson and the other insiders makes tens of millions, the shareholders make nothing. The takeover price is less than what the stock traded for immediately after the IPO, and is less than the average price since then.

In fact, the acquisition price is less than the book value of the company. That basically means the ongoing business of the bank is worth less than the net cash and retained earnings. So management has created a bank that would be more valuable to shareholders if they liquidated the bank and returned the proceeds to us.

I’m an investor and have no illusions regarding the nature of markets, but this is looking like a dirty personal enrichment scheme for the insiders. To screw over the shareholders by giving us next to nothing in return is not acceptable, and the shareholders should vote against this deal.

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