Patterson.
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.”
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New 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.