New York Stock Exchange
to intercede in its battle for the future of
On Tuesday, the San Diego-based asset management firm announced it had filed a 38-page letter asking the exchange to require Sovereign to seek shareholder approval for its plans to sell a $2.4 billion stake to Spain's
Relational, which is also trying to elect two of its top officials to Sovereign's board, says the deal with Santander "contravenes NYSE shareholder approval policy."
Relational and other critics contend the deal with Santander undercuts the bank's existing shareholders and is intended to preserve the jobs of Sovereign's top management. The transaction doesn't 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.
The NYSE request comes as Relational prepares to try to rally shareholder support for its opposition to the Philadelphia-based bank's plan. A person familiar with Relational says 300 people, including representatives from other institutional investors, hedge funds and bank analysts, are expected to attend a meeting on the issue in New York Tuesday.
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
for $3.6 billion. Relational and other critics contend Sovereign is paying too much for Independence.
Last week Franklin Mutual Advisers, a subsidiary of
, joined Relational in opposing the two deals. Franklin owns 5% of the bank's stock.
Relational specializes in targeting companies whose shares it believes have underperformed because of an entrenched management with a history of poor corporate governance. The nine-year-old firm, according to its Web site, generally invests in no more than 12 companies at a time. The firm only takes a long position in the company it targets.
A year ago, Relational began a proxy battle over
, a North Carolina-based manufacturer of cooling equipment for heavy industry. Relational was critical of SPX's history of excessive pay packages. The asset-management firm abandoned the proxy fight after SPX's chairman and CEO was forced out by the board, and the company overhauled its process for determining executive pay.
However, proxy battles are rare for Relational. A person familiar with the firm says it prefers to work with management to bring about structural changes for the benefit of shareholders.
Relational is led by Ralph Whitworth and David Batchelder, both of whom worked in the 1980s at T. Boone Pickens' Mesa LP. Both Whitworth and Batchelder will be at the meeting, along with many of Relational's 12 analysts.
There is much sympathy on Wall Street for Relational's battle with Sidhu, who owns 1% of the bank's shares and is not highly regarded by many institutional investors. But several said they doubt the proxy battle will succeed.