Showdown for Sovereign

Relational Investors will take its battle for the future of Sovereign Bancorp(SOV Quote) to New York on Tuesday.

The San Diego-based asset management firm will seek to rally shareholder support for its opposition to the Philadelphia-based bank's plan to sell a $2.4 billion equity stake to Spain's Grupo Santander. Two Relational nominees will run for election to Sovereign's board.

A person familiar with Relational says 300 people, including representatives from other institutional investors, hedge funds and bank analysts, are expected to attend the meeting.

Relational is Sovereign's largest shareholder, owning 7.9% of the bank's outstanding shares. In May, Relational disclosed it had acquired a huge stake in the bank's stock for the purpose of forcing changes in Sovereign's management and reforming its "poor corporate governance structure."

Throughout the summer, Relational, a $6 billion fund, stepped up its rhetoric against Sovereign's management, accusing the bank's board and CEO Jay Sidhu of "self-dealing." Relational, in a series of regulatory filings, has criticized lucrative bonuses paid to management and excessive loans to board members and top executives.

In recent days, Relational and Sidhu have gotten into an escalating war-of-words in the aftermath of the Santander deal and Sovereign's simultaneous announcement that it is buying New York-based Independence Community Bank(ICBC Quote) for $3.6 billion. Relational and other critics contend Sovereign is paying too much for Independence.

The critics also contend the deal with Santander undercuts the bank's existing shareholders and is intended to preserve the jobs of Sovereign's top management. The deal with Santander does not require shareholder approval because the Spanish bank is acquiring a 19.8% equity stake, just shy of the 20% threshold that would have triggered a vote.

Last week Franklin Mutual Advisers, a subsidiary of Franklin Resources(BEN Quote), joined Relational in opposing the two deals. Franklin owns 5% of the bank's stock.