Activist investor HoldCo Asset Management on Monday probed Comerica’s $10.9 billion deal to be acquired by Fifth Third and threatened legal action against the bank if more information on the deal process isn’t released.
Additionally, Birmingham, Alabama-based Regions was Comerica’s first suitor, before the Dallas-based bank struck a deal with Fifth Third, American Banker reported Tuesday, citing unnamed sources.
Spokespeople for Regions and Fifth Third declined to comment. A Comerica spokesperson didn’t immediately respond to a request for comment.
Fort Lauderdale, Florida-based HoldCo prodded Comerica to sell itself to a larger bank in July, accusing the regional lender of making “disastrous decisions” and having “objectively poor performance.” HoldCo, which owns about 2.04 million shares of Comerica stock, suggested PNC, Fifth Third or Huntington as possible buyers.
In October, Fifth Third said it was acquiring Comerica for $10.9 billion in stock. Earlier this month, a regulatory filing revealed that the Cincinnati-based lender was not Comerica’s first suitor.
The CEO of another bank, identified as Financial Institution A in the filing, proposed an all-stock transaction with $78 billion-asset Comerica in September. But Comerica’s board determined the terms “were not likely to be more attractive than the consideration that could be offered by another counterparty.”
HoldCo’s 65-page presentation issued Monday, which parsed recent regulatory filings, alleged a lack of board oversight in Comerica CEO Curt Farmer’s interactions with Fifth Third CEO Tim Spence and the absence of a competitive process in the Fifth Third deal, saying “this isn’t negotiation; it’s surrender.”
HoldCo accused Comerica’s board of ignoring Financial Institution A’s proposals, a choice it called “indefensible,” and contended “had you engaged, we believe those ‘preliminary’ bids would have matured into definitive proposals — at likely materially higher levels.”
HoldCo also critiqued Farmer’s “windfall” – he’s set to become a Fifth Third vice chair and make nearly $9 million annually, among other perks – and the deal’s “aggressive” breakup fee of $500 million. The acquisition is set to face a shareholder vote in January.
HoldCo demanded a raft of details, calling on Comerica to “provide a more complete and transparent chronology of the events leading up to the Fifth Third transaction.”
That includes when the board first discussed potential responses to shareholder pressure and when it authorized Comerica management to explore a merger, as well as information on the identity of Financial Institution A, the timing, substance and financial terms of its proposals, and whether Comerica or its advisers engaged with that bank.
“The apparent absence of any follow-up engagement with a bidder who made an offer — combined with the lack of evidence that J.P. Morgan sought to create competition between bidders — suggests a process engineered to favor Fifth Third rather than one designed to maximize shareholder value,” the activist investor said.
HoldCo also pressed for details on the decision to hire JPMorgan Chase as Comerica’s financial adviser, and seeks more specifics related to Farmer’s conversations with Spence.
“The size and timing of Mr. Farmer’s compensation package strongly indicate a potential conflict of interest — namely, that Fifth Third effectively ‘overpaid’ the CEO to secure a lower purchase price for shareholders,” the activist said.
If the bank doesn’t provide the requested detail, “we will have to consider seeking expedited relief in the Delaware Court of Chancery to obtain the disclosures we believe are warranted,” HoldCo said.
The activist may also consider bringing fiduciary-duty claims in the Delaware court.
In recent months, Regions executives have repeatedly expressed disinterest in acquiring a bank, instead eyeing the opportunity to snag customers and talent amid disruption caused by other M&A activity.
Regions CFO David Turner reiterated those views this month at the BancAnalysts Association of Boston conference – which would have been after the bank reportedly proposed a deal with Comerica.
“We're, I think, the only bank that hadn't done an acquisition since 2006,” Turner said Nov. 7.
The bank had just finished its strategic plan, “and M&A is not part of that plan,” he said.
“It's just not part of where we want to focus our time and attention. And we understand things can change, but that's just not where we are today,” Turner added.
Still, one analyst noted some wonder whether the bank’s position may change.
“With increased M&A activity in their Southeast backyard, there have been investors who wonder if [Regions management] would start to feel compelled to take part in the M&A wave, particularly since the company is profitable but has had challenges growing organically,” Truist Securities analyst Brian Finneran wrote in a Tuesday note.
