As I reported last month, Bank of Smithtown was bought by Connecticut’s People’s United Financial. The deal was for $60 million ($30 million in cash and $30 million in stock) and was set to close by year’s end.
However, two class action lawsuits have been brought against Bank of Smithtown, Bank of Smithtown’s CEO Brad Rock, the Bank of Smithtown Board of Directors, and People’s United Financial.
The lawsuits claim that the $60 million sale price is too low compared to the value of the Bank of Smithtown’s assets and growth potential. With the shares valued around $4.60 at the time of the announcement, the $4 per share sale price does indicate that the sale may be taking place below market value. Additionally, with Bank of Smithtown set to open four new branches and deposits up nearly $500 million over the previous year, there is significant evidence of growth. Attorneys involved in filing the class action suits claim that Brad Rock stands to gain $10 million if the sale goes through, citing a potential conflict of interest. In addtion, the terms of the current deal are written in such a way that it would be next to impossible for other potential buyers to submit competitive bids. There is a $2.4 million fee that Bank of Smithtown must pay if the deal falls through and there is a “no shop” clause which means that the Bank of Smithtown cannot solicit other offers.
The attorneys are not looking to necessarily block the sale, they are just looking out for investors in order to ensure that they are receiving a fair payout from People’s United Financial…some analysts are putting a $7 per share value on the Bank of Smithtown stock, 75% higher than the current sale price.
