CHARLOTTE -- A Charlotte judge ruled Friday evening that Wells Fargo will be allowed keep its nearly 40 percent shareholder voting power when Wachovia investors gather this month to vote on their bank's takeover by Wells.
A class-action lawsuit filed in October by a Wachovia investor argues that the Charlotte bank disenfranchised shareholders when it granted that voting stake to Wells and virtually locks up the vote in favor of Wells.
That contention "is literally incorrect," wrote Judge Albert Diaz of the N.C. Business Court in Charlotte, because it is still technically possible for Wachovia shareholders to defeat the merger proposal.
State Treasurer Richard Moore has spoken out against the share-exchange provision, and called the price that San Francisco-based Wells is paying "highway robbery." He urged citizens to follow his lead and write to Diaz in support of the lawsuit. Moore couldn't be reached Friday night.
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Moore and others worry that the share-exchange clause will set a precedent for companies to disregard shareholder rights whenever they prove inconvenient. But, Diaz wrote, "The stark reality is that (the Wachovia board) recognized that Wachovia was on the brink of failure because of an unprecedented financial tsunami."
Wachovia shareholders are scheduled to vote on the deal on Dec. 23.
Shareholder Mike Greene, a retired government accountant from Belmont who wrote to Diaz that the voting super shares were unfair, said Friday night he had hoped the court would side with the shareholders "but as far as me expecting it, no." The 40-percent share provision, he said, "just waters down our vote to being essentially worthless."
Wachovia has opposed the shareholder lawsuit. Christy Phillips-Brown, a spokeswoman for the bank, said Friday evening that Wachovia was "very pleased with the court's ruling."
"We believe the Wells Fargo transaction is in the best interest of Wachovia's constituencies: our shareholders, employees, customers and communities," she said.
Moore and others had hoped that the Wells purchase could be blocked and that Wachovia could remain an independent company, though that seems unlikely given Diaz's ruling.
Wells will make Charlotte its East Coast headquarters, but it's almost certain that Charlotte will lose jobs, especially in headquarters operations such as human resources and marketing. If the Wells deal is approved, Bank of America will be the sole pillar supporting Charlotte's status as the country's No. 2 bank town by assets.
"Even though the Wells Fargo people and the Wachovia people will say, "Oh, no impact,' there will be an impact," said Ken Thomas, a Miami-based banking consultant.
"The real decisions are going to be made in San Francisco," Thomas said, adding that Charlotte could lose out on some sponsorships and prestige that it gained from Wachovia's headquarters presence.
Outside Charlotte, Wachovia's impending sale is just another chapter in the story of how the nation's banking industry is being turned upside down, with weaker banks failing or being snapped up for fire-sale prices, and the federal government stepping in to condone it.
Diaz' ruling was issued on the same day that Bank of America shareholders voted to approve its purchase of wounded Merrill Lynch, the once-venerable Wall Street investment firm.
Diaz said that the Wachovia board acted in good faith, under duress because Wachovia was on the brink of bankruptcy.
The shareholder's lawsuit contended that Wells Fargo's share-exchange precluded any other companies stepping in with a higher offer for Wachovia, but Diaz wrote that there is no "reasonable prospect that a superior offer will materialize even absent the share exchange."
The judge did rule in favor of the shareholders on one provision. A clause of the Wachovia-Wells agreement said that Wachovia could not buy back Wells Fargo's shares for 18 months if the deal were to fail to get shareholder approval. Diaz said that would impede the board's duty to seek out other merger partners.
Diaz' ruling came a day after a New York judge dismissed lawsuits filed by shareholders of Bear Stearns, who logged similar complaints about how Bear was sold at a fire-sale price to JPMorgan Chase this spring. Bear Stearns directors allowed JPMorgan Chase to purchase a bloc of shares worth 39.5 percent of voting power before the shareholder vote. The N.Y. judge dismissed those complaints because the directors didn't directly benefit or grant a "controlling interest," meaning shareholders still technically had the ability to defeat the merger.
About 71 percent of all Bear Stearns shares voted for the JPMorgan takeover. Without the 39.5 percent bloc of shares issued, the takeover still would have passed, but with only 52 percent approval, according to the judge's ruling. However, JPMorgan also purchased other Bear shares on the open market before the vote. Had all of them been excluded from the vote, the deal would have failed, with only 42.7 percent shareholder approval.