Md. Bank Approves Sale to Mercantile After Dissidents Fail to Gain

A Maryland community bank beat back a legal challenge from dissident shareholders and agreed to be acquired by the largest bank based in the state, Mercantile Bankshares of Baltimore.

An overwhelming majority - 83% - of Sparks State Bank shareholders brushed aside concerns over the price offered by Mercantile and voted to accept an exchange of stock valued at about $43 million.

"Whenever you're selling a community bank you have dissenting shareholders who don't want to see change," said Daniel R. Wernecke, executive vice president of the $192 million-asset bank in the tiny hamlet of Sparks. "But the majority wanted us to be sold to Mercantile, and they did it."

The vote in favor of the deal came just an hour after a Baltimore County circuit judge denied an injunction filed by three minority shareholders to prevent the meeting from being held.

The dissenting shareholders had accused Sparks of breaching its fiduciary duties by supporting the Mercantile offer, asserting that the offer of 2.33 shares of Mercantile stock for each share of Sparks was too low.

Based on Mercantile's Wednesday closing price of $23.87, Sparks's stock would be worth $55.34 in the exchange, or 1.96 times book value. Analysts said that amount is slightly below average for similar-sized transactions in that market.

Most of the recent, higher deal prices, however, came from Pennsylvania or New Jersey banks, which are used to paying heftier premiums than Maryland institutions, analysts said.

Sparks may have chosen to go with the in-state Mercantile because of the autonomy the $6 billion-asset bank allows its affiliates. Sparks would be its 21st subsidiary.

"It's not a grandiose price," said Lew Sosnowik, analyst at Koonce Securities in Rockville. "But those who take the stock will be rewarded because Mercantile itself will be taken out one of these days. Then there will be two booms."

The suit, which lists Sparks, its directors and Mercantile as the defendants, is still pending. The court is expected to rule July 31 on a recently filed Sparks motion to have the entire case dropped. Pending regulatory approval, Sparks believes the deal would close by the end of the summer.

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