Former Sovereign Bancorp Inc. chief executive officer Jay Sidhu made a bid last month to buy the Philadelphia company for almost $4 billion in cash, according to three people familiar with the offer.
Sovereign's board of directors received a letter on Nov. 11 from a third party "indicating an interest" in acquiring all of Sovereign's outstanding shares for $6 each, according to a regulatory filing.
The third party, who was not identified in the filing, is an investment firm affiliated with Mr. Sidhu, according to the people familiar with the situation, who requested anonymity because Sovereign is involved in another deal. Mr. Sidhu was ousted from Sovereign in 2006, after losing a boardroom battle that started the previous year when shareholders pressured him to boost the company's share price. The former CEO would be going up against Banco Santander SA, which owns almost 25% of Sovereign. The Spanish banking company bought a 19.8% stake from in October 2005 and is poised to acquire the remaining shares outstanding in a transaction that values Sovereign at $2.1 billion. That deal is expected to close next quarter.
Analysts said they doubt Mr. Sidhu would be able to raise the funds to outbid Santander, Europe's second-largest bank by market value. "Jay Sidhu is a wealthy man, but he doesn't have that kind of money," said Matthew Kelley, a bank analyst at Sterne, Agee & Leach Inc., a regional brokerage based in Birmingham, Ala. "It would have been next to impossible to finance that type of transaction considering the risks that remain on Sovereign's balance sheet."
Sovereign spokeswoman Ellen Molle declined to comment and Mr. Sidhu did not immediately return telephone calls to his home and office seeking comment. Mr. Sidhu, who is now in India, filed with the Securities and Exchange Commission earlier this year to raise money for a so-called blank-check company created to pursue acquisitions.
Sunjeet Gill, a lawyer at Stevens & Lee who did legal work on the stock sale for the blank-check company, said he did not know anything about Mr. Sidhu's proposal to acquire Sovereign. Joseph Harenza, an investment banker representing Mr. Sidhu, did not return telephone calls and e-mails seeking comment.
Santander forged the deal to acquire the rest of Sovereign in October amid rising investor doubts about asset quality and capital adequacy at some regional banks. Santander's offer, a stock swap that now equals about $3.14 a share, is a discount to Sovereign's tangible book value of $5.16 a share at Sept. 30, according to data compiled by Bloomberg.
Sovereign raised $1.9 billion selling shares and debt in May and named a new CEO to replace Joseph Campanelli in September. It tried to save itself by curtailing lending and shrinking its balance sheet in the face of rising losses from home defaults and impairments on holdings of Fannie Mae and Freddie Mac. Sovereign said customers pulled $4.2 billion in October, or 9% in deposits in the weeks leading up to the U.S. government's $700 billion bank bailout. Sovereign's shares have fallen roughly 74% this year.
According to documents Santander filed Tuesday with the SEC, the unnamed third party said it would create a special-purpose vehicle for the acquisition together with private-equity investors. The letter also requested that Sovereign pay "significant fees" before the suitor was willing to engage in any discussions, including $10 million for a due-diligence review of the bank's financial condition. Sovereign's board was unable to determine whether the unsolicited offer was likely to result in a superior proposal to the Santander bid, the filing said.