Was former Sovereign Bankcorp Inc. CEO Jay Sidhu trying to redeem himself? Sovereign may have gotten an offer last month to acquire the bank for almost $4 billion in cash by a bidding party that included Sidhu, who was ousted
by the bank's board in 2006 after agreeing to sell a stake in the bank to Banco Santander SA. His offer was twice that of the $1.9 billion bid Banco Santander
offered in October to acquire the 75.65% stake in Sovereign that it did not already own.
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The $4 billion bid was apparently received on Nov. 11 and would be financed through a special
purpose vehicle in cooperation with private equity
co-investors. What's even more interesting is that Sidhu sold Santander a 19.8% stake in the Redding, Pa.-based bank in October 2005 for $2.4
billion, infuriating activist investors who thought he could make more. Under the terms of the transaction, Santander received two board seats and had the right to boost its stake
in Sovereign to 24.9%.
Sovereign likely didn't accept his offer not just because the former CEO burned his bridges when he sold the stake to Santander in the first place. But why else didn't the bank pursue the better offer on the table?
"Jay Sidhu is a wealthy man, but he doesn't have that kind of money,"
said Matthew Kelley, a bank analyst at Sterne, Agee & Leach Inc.
told
Bloomberg.
"It would have been next to impossible to finance that type of
transaction considering the risks that remain on Sovereign's balance
sheet."
Although Sidhu's offer was generous, what was on the balance sheet was risky and without for-sure financing. "There were concerns at a number of banks about where the next round of
capital was going to come from," said Joseph Fenech, an analyst at
Sandler O'Neill & Partners LP told
Boston.com. "That played a role in some of the transactions we saw at some pretty low valuation multiples."
Sovereign had raised
$1.9 billion selling shares and debt in May. When CEO Joseph Campanelli took charge, the company was already ailing from residential mortgage losses from
Fannie Mae and Freddie Mac. After the credit crisis escalated when the mortgage lenders were nationalized
in September, Sovereign experienced a run on the bank as customers began pulling out, and ultimately withdrew $4.2
billion in deposits prior to the U.S. government's $700
billion bank bailout.
With the situation stabilizing for the U.S. bank, Santander is projecting Sovereign will post a net profit of $750 million in 2011.
- Maria Woehr
