Dissident shareholders trying to block the takeover of their small bank by Mercantile Bankshares of Baltimore suffered another setback last week.
A Baltimore County circuit judge threw out a lawsuit against Mercantile and Sparks State Bank in which the three shareholders had charged, among other things, that Sparks could've gotten a price as much as $15 a share higher than what it settled on.
Early last month, Sparks State agreed to be acquired by Mercantile in an exchange of stock valued at roughly $43 million, or $55 a share based on the market price at that time.
Though unsuccessful, the legal effort mounted by the minority shareholders represents another example of the shareholder activism taking root in the industry.
"It's probably a new breed of lawsuit," said John A. O'Connor Jr., senior vice president and general counsel for $6 billion-asset Mercantile, the largest Maryland-based bank.
"It seems like every time you get a merger, someone files a lawsuit. This may be the way things will be done."
The judge's ruling last week followed his decision in early July to deny the dissident shareholders' request to delay Sparks State's vote on the deal. Just an hour after the judge's order, the bank's shareholders overwhelmingly voted to be acquired by Mercantile.
More than 95% of those voting were in favor of the acquisition.
Despite the tide moving against them, the three minority shareholders do not yet appear ready to give up the fight. Charles J. Piven, lawyer for the plaintiffs, said they will likely appeal the ruling.
"It is our current intention to do so," he said.
In addition to contesting the price of the deal, the suit complains about the process by which Sparks State and Mercantile came together. It alleges that the directors and management of Sparks State breached fiduciary duty by not properly disclosing their plans to shareholders and by not considering alliances with other institutions.
"I think it just came down to them wanting more money," said Bradley G. Moore, president of the $192 million-asset bank, located in the town of Sparks just outside of Baltimore. "It wasn't about staying independent, and I think the judge recognized that."
Though not as high a price as some other recent acquisitions in the market, the deal still fetches a healthy premium and will nearly double stock dividends, Mr. Moore pointed out. Merging with Mercantile is also appealing, he said, because the Baltimore bank allows its affiliates to operate autonomously.
Chief executive H. Furlong Baldwin has expanded Mercantile to include 21 affiliates, all of which retain their own names and boards of directors. This was the first time a Mercantile acquisition was contested by a lawsuit, the company's lawyers said.