A Suffolk Bancorp shareholder has filed a federal lawsuit seeking to block the company’s merger with People’s United Financial Inc.
In a complaint filed Aug. 4 in Federal District Court in Brooklyn, shareholder Paul Parshall claims that Suffolk Bancorp president and CEO Howard Bluver and Suffolk Bancorp’s board of directors may have put their own interests ahead of shareholders in striking the deal with People’s United, announced June 27.
The directors and executive officers of Suffolk have “certain interests in the merger that may be different from, or in addition to, the interests of Suffolk’s shareholders generally… which may create conflicts of interest,” according to the complaint.
The complaint says Bluver “steered the deal” toward Connecticut-based People’s United “to secure employment with the combined company.” Bluver, Suffolk’s president and CEO since January 2012, will become People’s New York market president after the merger.
Bluver and Suffolk Bancorp directors will enjoy “a substantial financial boon” as a result of the merger that would not exist had the company continued as an independent entity, according to the complaint. As a result of the transaction, company stock options and restricted shares will become fully redeemable and key officers will receive large cash and equity payments. According to the complaint, Bluver, for example, will be paid nearly $3.26 million, Suffolk director and chief financial officer Brian Finneran more than $1.9 million, and chief lending officer Michael Orsino $1.2 million, as a result of the transaction.
Suffolk’s board of directors hired financial adviser Keefe, Bruyette & Woods Inc. in March to explore “strategic alternatives” for the company, the complaint says.
But the board of directors did not adequately investigate proposals submitted by other prospective suitors — in some instances even refusing to entertain proposals or enter into discussions, according to the complaint.
“The process leading up to the Proposed Transaction was spearheaded by Individual Defendant Bluver, a conflicted and self-interested director and the CEO of Suffolk who steered the deal towards its favored bidder, People’s United, to secure employment with the combined company,” the complaint states. “During this process, Bluver and the Individual Defendants refused to entertain inquiries from four different companies that reached out expressing an acquisition interest, telling those companies that a deal was not likely to occur and any strategic discussions would be unproductive.”
The all-stock transaction, valued by the companies at $402 million, was approved by the boards of directors of both Suffolk Bancorp and People’s United and now awaits approval by federal regulators and 70 percent of Suffolk Bancorp shareholders.
The complaint also alleges that the bank filed SEC statements regarding the proposed transaction that were incomplete and factually inaccurate.
The lawsuit, first reported by Newsday on Aug. 9, seeks an injunction to prevent Suffolk Bancorp and People’s United from consummating the transaction. It also seeks class-action status.
Suffolk Bancorp CFO Brian Finneran said Friday the bank does not expect the lawsuit to delay the transaction. Actions like this have become commonplace when banks announce mergers, he said. He said he could not comment on the substance of the claims made by Parshall.
The Riverhead-based Suffolk Bancorp was organized in 1890. It is the parent company of Suffolk County National Bank, which operates 27 branches on Long Island.
The company suffered turbulent times following the 2008 financial crisis, including: being determined by federal regulators in 2010 to be in “troubled condition” and forced to enter into a written oversight agreement with the Office of the Comptroller of the currency; being threatened with delisting by NASDAQ in 2011 for failing to meet SEC filing deadlines as it re-examined its financial records; and seeing its stock plummet more than 67 percent in value.
Suffolk Bancorp hired Bluver as president and CEO in December 2011 and the bank has been restored to stability under his four-and-a-half-year tenure.
In 2011 and 2012, besides hiring Bluver, the bank named a new chief lending officer, a new chief financial officer, a new chief information officer, and new heads of its loan administration and residential lending departments. It also hired a new accounting firm.
Suffolk had to issue restated results of operations for the third quarter of 2010 and for the year ending Dec. 31, 2010, reporting a drop in net income of more than 72 percent compared to its net income for 2009. It posted a net loss of $7.57 million in the first quarter of 2011. Though it returned to profitability during subsequent quarters of 2011, it still posted a net loss of $76,000 for the year, down more than 100 percent compared to its restated results for 2010.
Suffolk Bancorp’s condition turned around in 2012 and in May 2013, the OCC released the company from formal oversight. The bank has since increased profitability and resumed payment of quarterly dividends to shareholders. Its stock value has climbed from a 2011 low of $7.67 to a current $33.56 — a restoration of its value prior to its 2010-2011 troubles.
