A Massachusetts Superior Court judge has sided with the $300 million-asset Westborough Bank in a dispute with shareholders over its proposed sale.
An attorney for Westborough says the ruling has larger significance for all mutual holding companies, because it says that directors are not merely required to answer to public shareholders.
"The decision squarely affirms that directors have an obligation to the interests of the mutual holding company as well as the interests of the public shareholders, and that, indeed, they have to balance those interests," said Richard A. Schaberg, a partner at the Washington law firm Thacher Proffitt & Wood LLP. "That has been something that has been constantly debated." (View the ruling
The 29-page ruling cleared the way for the deal to proceed but came only a day before the closing deadline the two companies had set.
Joe MacDonough, Westborough's president and chief executive officer, did not return a phone call seeking comment. Mr. Schaberg said that Westborough and Assabet plan to extend the deadline so the deal can close next week. It still needs approval from the state Division of Banks.
In selling itself to Assabet, Westborough would essentially "remutualize." Mr. Schaberg said it would be only the eighth time a thrift with public shareholders would return to being mutually owned.
Roughly 36% of Westborough's stock is publicly held. The rest is owned by its mutual holding company, Westborough Bancorp.
Assabet also has a mutual holding company structure, but it has never sold any stock. To absorb Westborough Bank, Assabet would have to buy out only the publicly held shares.
The deal, announced in November, has sparked an unusual amount of controversy over its price of $35 a share. Westborough even received three counterbids from its own shareholders - for $38.50, $40, and $41 a share.
Last month two Westborough shareholders, Phillippe E. Gut and Gwen Pratt Gut, who were not among the bidders, sued to stop the deal with Assabet. They also sought an injunction to prevent Westborough from being sold until the case is resolved; a hearing on that request, the subject of Judge Agnes' ruling, took place last week.
The complaint accuses Westborough's directors - including Mr. MacDonough and John Casagrande, its chief financial officer - of breaching their fiduciary duties by agreeing to a "grossly inadequate" price and of pursuing the Assabet offer over the higher ones for their own personal gain.
If the deal closes, Mr. MacDonough, Mr. Casagrande, and other board members would receive about $2.5 million from cash bonuses, consulting agreements, and other benefits.
But Judge Agnes ruled that the deal "appears to be fair" both to Westborough Bancorp, the majority shareholder, and to the minority public shareholders. The price is "significantly higher" than where Westborough stock had traded the day before the deal was announced.
The judge also rejected the claim that directors put personal interests ahead of the shareholders' interests. Far from "self-dealing," the directors agreed to lower compensation than they were entitled to under agreements they had with Westborough, the ruling said.
The deal with Assabet "not only is fair and reasonable to its shareholders," but one that "meets the needs of its customers and the community," Judge Agnes ruled.
Mr. Schaberg said the decision helps clarify the role of directors at mutual holding companies, who often come under pressure from their minority public shareholders to take actions such as a second-step stock offering.
"There's always been this need to navigate potentially competing interests, and I think this case is helpful in that it gives clarity to exactly what the fiduciary obligations are," he said.
