A shareholder of Centric Financial is seeking to block the Harrisburg-area bank’s planned merger into a western Pennsylvania bank.
- In a class-action lawsuit filed this month in Cumberland County court, shareholder Charles Reinhardt claims the $144 million deal undervalues Centric, which is based in Lower Paxton Township, Dauphin County.
- The lawsuit also takes aim at other terms of the deal and some of the disclosures made by Centric and the buyer, First Commonwealth Financial, based in Indiana, Pennsylvania.
- An attorney for Reinhardt, Marc Ackerman of Bala Cynwyd-based law firm Brodsky & Smith, declined to comment.
- First Commonwealth spokesperson Jonathan Longwill declined to comment, citing the pending litigation.
- Through a spokesperson, Centric president and CEO Patricia Husic said she was unable to comment on legal matters.
- In a regulatory filing, the two banks said they believe the claims in the complaint are “without merit.”
What’s the deal: First Commonwealth announced plans to buy Centric last summer in an all-stock deal worth $16.20 per share, or $144 million in all. The deal is expected to close in the first quarter of this year.
- The merged bank would have about $10.6 billion in assets, with about $1 billion coming from Centric.
- In addition to loans and deposits, the deal would give First Commonwealth a foothold in Central Pennsylvania and the Philly suburbs.
- Centric has offices in Bucks, Chester, Cumberland, Dauphin and Lancaster counties.
- First Commonwealth has branches in western and north-central Pennsylvania, as well as Ohio.
What’s the issue: Drawing from regulatory disclosures the lawsuit notes Centric had been talking to potential merger partners since the second half of 2020.
- One would-be partner, identified only as Party D, agreed to a deal valued at $17 per share, according to the lawsuit and a regulatory filing.
- However, talks with Party D ended in April following a decline in its stock price, according to the regulatory filing, which noted the decision to end talks was mutual.
- Centric then decided to go with First Commonwealth, which had discussed a potential deal with Centric in 2021.
What’s the claim: The lawsuit alleges that Centric board members and the bank breached their fiduciary duty to shareholders by failing to maximize the bank’s value.
- The suit also claims that provisions in the bank’s agreement with First Commonwealth prevent consideration of a better offer, should one materialize.
- Other claims focus on merger-related compensation to Husic and other bank officers.
- “Instead of attempting to negotiate an agreement reflecting the best consideration reasonably available for the Centric shareholders they are duty-bound to serve, the individual defendants disloyally placed their own interests first, and tailored the terms and conditions of the proposed transaction to meet their own needs and objectives,” the lawsuit argues.
- The lawsuit further cites what it claims are incomplete disclosures related to how an outside consultant determined Centric’s value to First Commonwealth.
- In addition, the suit alleges that First Commonwealth has “aided and abetted” the breaches of fiduciary duty.
What’s the remedy: Essentially, the lawsuit is asking the court to block the deal “unless or until the company adopts and implements a fair sales process and discloses all material information to Centric shareholders.”
- The two banks disclosed additional information this week, though they argued the disclosures were not legally necessary — and that the disclosures do not constitute any admission of liability or wrongdoing.
- The additional disclosures, the banks said, were made to avoid the risk that the legal complaint would delay the merger and to minimize the risks, costs and uncertainty associated with litigation.