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A litigious road ahead

Michael Schwartz August 20, 2013 0
The Union First Market Bank headquarters in Richmond.

The Union First Market Bank headquarters in Richmond. (RBS photo)

Four days was all it took.

After unveiling a proposed acquisition on June 10 that would create a Virginia banking colossus, Union First Market Bankshares and StellarOne Corp. were quickly dragged into a class action lawsuit in federal court.

The case was filed June 14 against StellarOne, its board of directors, and Richmond-based Union First Market seeking either to block the $445.1 million deal or win damages.

The filing came after at least half a dozen class action securities law firms plastered the Internet with press releases in search of a StellarOne shareholder to be lead plaintiff.

The New York firm of Faruqi & Faruqi struck first and found Jaclyn Crescente, a StellarOne shareholder willing to file the case on behalf of herself and her fellow shareholders.

Crescente’s case alleges that StellarOne Corp., the Charlottesville-based parent of StellarOne Bank, along with 13 of its directors breached their fiduciary duty to shareholders by engaging in the pending deal to be acquired by Union.

The 22-page suit alleges the merger process was flawed and the deal will “unfairly deprive” Crescente and other StellarOne shareholders of the true value of their investment in the bank.

The deal, as proposed, is valued at approximately $445.1 million. The combined companies will retain the Union name and keep its corporate headquarters in downtown Richmond. StellarOne shareholders are to receive 0.97 shares of Union stock for each share of StellarOne common they own.

The case also claims that the deal was driven by the alleged self-interest of certain officers and directors of StellarOne.

Union is named as the final defendant in the suit on a count of “aiding and abetting” StellarOne’s alleged breach of fiduciary duty.

Armed with lawyers from major Richmond law offices, Union and StellarOne aren’t backing down. Both banks have argued last month that the cases should be tossed out.

Union’s motion for dismissal filed July 26 calls the claim “ludicrous” and “woeful,” arguing that Crescente lacks standing to pursue her claim and has failed to allege any fact that makes the claim against Union plausible.

The new StellarOne branch at 11450 Robious Road. (Photo by Michael Schwartz)

The new StellarOne branch at 11450 Robious Road. (Photo by Michael Schwartz)

StellarOne argues in its dismissal request that the deal was proposed at a 20-percent premium for its shareholders and will create an institution with more than $7 billion in assets.

StellarOne also admonished the suit for being “hastily-filed” and without merit.

“Plaintiff’s complaint is an unfortunate example of a disturbing trend facing public companies upon the announcement of virtually all mergers and acquisitions – meritless strike suits are filed in an attempt to extract settlements from companies unwilling to risk the high costs of litigation and, more significantly, the loss of a positive transaction for their shareholders.”

The bank goes on to cite statistics that 96 percent of all merger and acquisition deals in 2012 valued over $500 million targeting U.S. public companies were challenged by lawsuits.

Union declined to comment on the suit, though its chief executive Billy Beale told BizSense in June that these sorts of cases have become an expected roadblock in such deals.

Union is represented by LeClairRyan attorneys Charles Sims and Michele Burke.

StellarOne through its attorneys did not respond to a request for comment. It has retained Alan Wingfield and H. Scott Kelly from the Richmond office of Troutman Sanders.

A judge has not yet ruled on the banks’ dismissal motions.

Shareholders of both banks and regulators must still approve the deal. It is expected to close by early 2014.

If approved, the combined bank would have more than 140 branches that cover Richmond, Fredericksburg and Charlottesville and extend west to Roanoke, Blacksburg and Staunton.

It would be the largest of its Virginia peers by far, leapfrogging TowneBank and Carter Bank & Trust.

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