Judge blesses Fifth Third-Comerica deal, shuts down lawsuit

• Key insight: Judge rejects HoldCo's attempts to block Fifth Third's planned acquisition of Comerica on Feb. 1.
• What's at stake: The legal battle was the last potential hitch in the deal, which will create a $290 billion bank with a national presence.
• Forward look: The legal decision also notches a win for banks looking to merge amid a frothy dealmaking environment.

A federal judge has denied an activist investor's legal effort to stop Fifth Third Bancorp from acquiring Comerica .

HoldCo Asset Management's claims that the banks breached fiduciary duties to shareholders by agreeing to merge were shut down by a Delaware court. Vice Chancellor Morgan Zurn wrote in an explanation, filed Monday, that she didn't think the terms of the transaction were preclusive, nor did closing the transaction present imminent irreparable harm to shareholders.

She added that the risk of barring the deal could outweigh the benefit.

"Enjoining a premium merger on the eve of closing will introduce substantial delay and uncertainty," Zurn said in the explanation of her order. "While HoldCo mourns a topping bid that never appeared, an injunction may very well deprive stockholders of Fifth Third's certain premium."

Fifth Third and Comerica declined to comment about the motion. HoldCo did not immediately respond to a request for comment.

Now that the legal threat has been diffused, Fifth Third and Comerica have ticked all the required boxes to proceed with their planned $10.9 billion combination on Feb. 1. The companies will have a combined $290 billion of assets, becoming the 16th largest insured depository institution in the country.

"Bank boards and executive management should take comfort in this opinion, which affirms the basic judicial deference to carefully exercised business judgment," wrote Wachtell, Lipton, Rosen & Katz, Fifth Third's legal representation, in a memo Monday. "Boards, like Comerica's, that faithfully serve the interests of their stockholders and seek to reasonably protect a well-constructed merger will not be second-guessed."

HoldCo, a Comerica shareholder, began battling the bank when it called for the company to sell itself last summer, and later sued in the Delaware Court of the Chancery on claims that the plan to sell to Fifth Third hurt shareholders.

Earlier this month, after Fifth Third said it planned to close the purchase of Comerica on Feb. 1, HoldCo filed an emergency motion for a temporary restraining order to stop the deal. HoldCo said the closing date was a "maneuver to short-circuit discovery," referring to certain materials and depositions it had planned to get from the defendants.

Zurn said, though, that the deal was closing as per the conditions of the merger agreement.

"One way to read HoldCo's motion is as an ask to enjoin a merger so that HoldCo can obtain more discovery to support its claim to enjoin that merger," Zurn wrote. "But HoldCo must meet its burden with what it has now. I have assessed HoldCo's request for relief based on what HoldCo has shown, not what it would like to explore if given the chance."

Zurn also expressed concern that "HoldCo and its counsel have taken excessive liberties with the facts."

She added that she didn't agree with the hedge fund's claims that Comerica rushed into and locked up the agreement with Fifth Third, preventing other stronger potential bids.

HoldCo also alleged that Comerica acted defensively to protect certain executives from a potential proxy contest, but Zurn said that HoldCo will obtain stock in the post-closing entity, and can launch a proxy contest against the combined company.

"HoldCo's allegations about a 'firesale price' can be addressed after closing," Zurn added in her opinion.

The banks have steadily worked on integration plans since they agreed to merge on Oct. 5. In less than four months, the deal earned green lights from the Office of the Comptroller of the Currency, the Federal Reserve Board, the Texas Department of Banking and an overwhelming majority of shareholders.

Tim Spence, Fifth Third's CEO, said in a press release earlier this month that operating as a combined entity will be "an exciting new chapter." Spence had repeatedly expressed confidence that the deal would close, despite the legal opposition.

"As we move forward, our focus will be on leveraging our expanded footprint and complementary strengths to provide exceptional value to current and future customers," Spence said.