Activist investor HoldCo Asset Management urged Comerica shareholders to vote against the proposed acquisition of the bank by Fifth Third, according to a presentation issued Monday.
“Voting the deal down does not terminate the merger – and Fifth Third is constrained from walking away,” HoldCo wrote Monday. “It is contractually obligated to try to re-cut and resubmit the deal.”
HoldCo asserted Monday that Fifth Third has “material room” to improve its $10.9 billion bid, adding that the Cincinnati-based bank “most likely did not expect the low end of its first offer to be accepted.”
Further, if Fifth Third doesn’t up its offer, “Institution A” – a suitor, reported to be Regions, that earlier offered to buy Comerica but was rebuffed – “is likely still in the wings,” HoldCo wrote.
Monday’s presentation represents the latest salvo in HoldCo’s campaign of influence over the banks in which it invests. The Fort Lauderdale, Florida-based firm published a separate slide deck to Comerica shareholders last month, alleging the bank’s board had insufficient oversight into CEO Curt Farmer’s interactions with Fifth Third CEO Tim Spence and derided the deal over what it saw as the lack of a competitive process.
“This isn’t negotiation; it’s surrender,” HoldCo said at the time, further accusing Comerica’s board of ignoring Financial Institution A’s proposals. “Had you engaged, we believe those ‘preliminary’ bids would have matured into definitive proposals — at likely materially higher levels.”
Comerica shareholders are due to vote on the Fifth Third acquisition Jan. 6. Four days earlier, the Delaware Court of Chancery is set to hear HoldCo’s case against Fifth Third and Comerica. The company sued both banks over the “rushed” deal and its “draconian” provisions.
But that’s not where the rift began. HoldCo pressured Comerica in July to sell itself, then sued the bank after it did.
At a conference last week, Spence, of Fifth Third, said he is “not worried at all” about the lawsuit.
“Frankly, given the feedback that we’ve gotten from Comerica shareholders, and the way that the market is trading the deal in general, it’s pretty clear to me that the shareholder vote’s going to be very smooth on that front,” Spence said. “If the worst thing that our shareholders are going to say about the deal is that there could have been more tangible book value dilution, I think we’re probably in really good shape.”
Tangible book value, indeed, is a key component to one of HoldCo’s arguments. The company called the Fifth Third proposal (and its lack of tangible book dilution) “virtually unprecedented among large bank deals over the last five years and a sharp break” from the roughly three-year earn-back periods inherent in deals executed this year by PNC, Huntington, Synovus and Columbia Banking System.
“Applying a 3-year earn-back framework … would have implied consideration exceeding $100 per [Comerica] share,” HoldCo wrote Monday.
Under the Fifth Third deal, Comerica shareholders would receive $82.88 for each share they own.
HoldCo added that “a number of logical strategic buyers and other potential counterparties were apparently never contacted in the sale process Comerica ran.”
“A properly run process that finally reaches these parties would, in our view, have a strong chance of surfacing a higher bid,” the company wrote. “Even if this merger is ultimately terminated, we believe other uncontacted buyers provide meaningful downside protection.”
Comerica is hardly the only bank HoldCo is pushing for change. The investor this month demanded that KeyBank fire its CEO and adopt a “no acquisitions” policy. Further, it questioned the intentions of Canada’s Scotiabank, which last year bought a 14.9% stake in the Cleveland-based lender.
KeyBank CEO Chris Gorman last week reiterated a “moratorium on doing bank deals,” adding that he thinks “we and that particular investor are pretty closely aligned on the most important themes.”
