Another class action lawsuit has its hooks in a big Richmond M&A deal.
A shareholder of Franklin Federal Savings Bank’s holding company is looking to potentially block the Glen Allen bank’s pending $275 million acquisition by Suffolk-based TowneBank and has filed suit in Richmond federal court.
Franklin shareholder Andrew Malon is the lead plaintiff in a case filed Oct. 1 that calls the deal a “flawed process” that allegedly undervalues the company and would result in a negative premium for Malon and his fellow shareholders.
The case is seeking class action status with Malon filing on behalf of potentially thousands of Franklin Financial Corp. shareholders.
It claims breach of fiduciary duty against Franklin Federal, Franklin Financial, its CEO Rick Wheeler and the rest of the company’s board of directors. TowneBank is also named as a defendant for claims of aiding and abetting the alleged breaches.
The case also claims violations of certain federal securities laws.
TowneBank and Franklin Federal announced the acquisition on July 15. As proposed, Franklin shareholders would receive 1.4 shares of TowneBank stock for each of their Franklin shares.
The deal’s value was based on Franklin’s closing stock price $23.04 per share the day before the announcement. The Malon lawsuit argues that Franklin’s stock has fallen to as low as $18.81 per share since the deal was announcement. It closed at $19.90 per share on Friday. Towne’s stock closed at $14.59 per share on Friday.
“Despite the company’s solid and continually improving performance, the board failed to secure a sufficient price for the Franklin stockholders’ stock,” the lawsuit claims.
The payouts, or so-called “golden parachutes” that will be due to Franklin executives upon closing of the deal, are also pointed out in the suit. Wheeler, for example, is due a total of $3.4 million in cash, equity, and other compensation, according to court documents.
Franklin and TowneBank’s deal is at least the third recent merger or acquisition involving local firms to be targeted by a class action case.
Richmond-based Union First Market Bank got caught up in a similar suit during its acquisition of StellarOne Bank. That case was eventually settled.
Mechanicsville-based Owens & Minor is facing a similar suit for its acquisition of a New York medical supply company. The case is still pending.
The cases all make similar claims and use similar language.
Washington, D.C. law firm Levi & Korsinsky is representing the shareholder in the Franklin case. It was one of many law firms that took to the internet within days of the deal’s announcement using alerts aimed at getting the attention of Franklin shareholders who might not agree with the terms of the acquisition and would be willing to stamp their name as lead plaintiff onto a class action case.
The practice has become the norm with big mergers involving publicly traded companies. TowneBank is publicly traded, and Franklin Financial went public with a $138 million IPO in 2011.
As is typical of such cases, the Franklin-Towne suit does not ask for specific damages, but requests that a judge to order the deal stopped either temporarily or permanently.
These cases are often settled by the companies being sued with a payment going to the plaintiff and a payday for the lawyers. Other such cases are dismissed if the companies agree to make certain changes to the language of deal’s proxy documents.
Wheeler said he could not comment on the case.
A message left for TowneBank CEO Bob Aston was not returned by Friday evening.
A message for Levi & Korsinsky attorney Elizabeth Tripodi was not returned by press time.