A Chicago law firm has sued Sumitomo Bank of California, alleging that the $5.1 billion-asset bank is shortchanging shareholders in agreeing to be bought by Zions Bancorp.
The suit, filed last Tuesday by Krislov & Associates Ltd. in San Francisco Superior Court, alleges that the bank breached its fiduciary duty by agreeing to sell for an unusually low price.
Fifteen percent of the San Francisco banking company's shares are publicly held, including 500 shares owned by Krislov. Sumitomo Bank Ltd. of Osaka, Japan, holds the other 85%.
Salt Lake City-based Zions announced nearly two weeks ago that it would buy the California bank for $546 million. Sumitomo agreed to sell for 1.3 times book value and about 14 times 1997 earnings. Other recent bank acquisitions have cost closer to 2.7 times book value and more than 20 times earnings.
Krislov asked the court to block the proposed merger and require Sumitomo to conduct a "thorough investigation" to achieve a higher price. "If they want to dump their own shares, that is their business. But to do that to the public shares is unacceptable," said the law firm's principal, Clinton Krislov, who is seeking class-action status for the suit.
Sumitomo shares had been trading near $50 before the acquisition was announced. But $10.5 billion-asset Zions would pay only $32.26 a share to Sumitomo. Other shareholders would get $38.25 per share. "If a transaction like this is going to go through, it should be done at a fair price," Mr. Krislov said.
Sumitomo spokesman Kyle Tatsumoto declined to comment. However, after the merger announcement, he said that Sumitomo had retained NationsBanc Montgomery Securities as a financial adviser. "They provided us with a true, fair price for Sumitomo," Mr. Tatsumoto said.
"We understand that this deal was certainly well-shopped," added Zions chief financial officer Dale M. Gibbons. He said it would be "unusual" for a claim like Krislov's to prevail in court.
Similar lawsuits are commonplace. For example, shareholders recently sued CoreStates Financial Corp., claiming that the Philadelphia institution cheated them when it agreed to be acquired by First Union Corp. of Charlotte, N.C.
"Lawsuits following an announced sale of a bank are as common as flies on a dung heap," said H. Rodgin Cohen, a partner in the New York law firm Sullivan & Cromwell, but are "very rarely successful."