Wednesday, January 16, 2008

Shareholders Sue to Stop Commerce Bancorp Deal

Reuters, 16 January 2008

Two Commerce Bancorp shareholders go to court on Thursday to try to block a shareholder litigation settlement that is key to the bank's $8.5 billion merger with Toronto-Dominion Bank .

In court documents filed late last week, Ben Rozwood, an attorney for the two plaintiffs, asked the judge to throw out the proposed settlement reached by the companies and shareholder litigation firm Bernstein Litowitz Berger & Grossmann.

The two shareholders also ask the court to appoint Rozwood, of Robbins Umeda & Fink in San Diego, as lead counsel in new settlement talks.

Rozwood and his clients say the settlement reached by Bernstein Litowitz, which acted as lead counsel for shareholders in nearly a dozen consolidated lawsuits aimed at stopping the merger, did not cure problems with the deal.

Shareholders claimed, among other things, that the deal was undervalued, riddled with conflicts of interest, and that the termination fee that deters Commerce from seeking another suitor was too high.

"The only thing they got for the class was a reduction in the termination fee (but) the reduction is contingent on the TD Bank deal closing (when) it's too late for another suitor to come in and bid," Rozwood said.

A representative for Bernstein Litowitz had no comment.

In affidavits filed with the court on Thursday, Rozwood and financial adviser Matthew Morris of Fin/Econ Partners said the deal contained no protections for shareholders against a sharp drop in the acquiring company's share price.

The lack of a "collar" in the cash- and stock-based deal has cost Commerce shareholders $750 million as TD Bank's share price has fallen since October 1, the affidavits said.

Rozwood and Morris also contend that shareholders lost $1 billion in equity by allowing the chairman and CEO of Commerce Bancorp's insurance arm, CBIS, to head the special committee that oversaw the merger and to later purchase CBIS for half its assessed value, according to the affidavits.

In the settlement, which has not yet been approved by the court, Commerce Bancorp agreed to modify the merger agreement to reduce the fee it would pay if the merger falls apart, to $255 million from $332 million, according to a securities filing.

In exchange, the plaintiffs agreed to dismiss federal and state claims.