A 'Sad Day' at Sovereign

The immediate reaction from Sovereign's dissidents was a promise to continue the fight. Just how they intend to do that isn't clear.

"We are disappointed that the NYSE has chosen to allow this transaction to proceed, which disenfranchises the existing owners of Sovereign," said the top executives of Franklin Mutual Advisors, in a prepared statement. "We will continue to consider all available options to us in order to protect the rights of Sovereign's owners.''

Franklin, a subsidiary of mutual fund giant Franklin Resources(BEN Quote), is Sovereign's second-biggest shareholder.

Officials with Relational Investors, the San Diego-based investment firm that is the bank's biggest shareholder and which began the crusade to upend the Santander deal, were equally vague in outlining their next step. In a prepared statement, Relational, which owns 7% of Sovereign's stock and is trying to elect two of its officials to the bank's board, says it may ask the Securities and Exchange Commission to review the NYSE's decision.

"This is a sad day for the American capital markets,'' said Relational principal Ralph Whitworth. "It reverses two decades of progress. We are considering whether the NYSE's participation in restructuring this transaction and the resulting rule change should be appealed to the SEC.''

But Langevoort says appealing to the SEC is even less likely to succeed than a lawsuit.

"The SEC generally takes a hands-off attitude on the issue of when shareholders can vote,'' says Langevoort. "The courts have said that is a state law issue and not a matter of federal concern.''

An SEC spokesman declined to comment on the Sovereign dispute.

Oddly, Relational Investors and Franklin aren't yet talking about filing a lawsuit to block the deals. But waging a court battle is far more costly and time-consuming than their tactics thus far.