In twist, Provident is sued for not acquiring bank

March 04, 1994|By Timothy J. Mullaney | Timothy J. Mullaney,Sun Staff Writer

Baltimore-based Sterling Bancorp yesterday sued its prospective merger partner, Provident Bankshares Corp., claiming that the parent of Provident Bank of Maryland backed out of a deal to buy Sterling because of second thoughts about the price.

The suit filed in Baltimore City Circuit Court contends that a Dec. 15 merger agreement provided that Provident would exchange 1.291 shares of its stock for each share of Sterling.

But Provident's stock started climbing after the deal, rising to $20.50 on Feb. 10, when the deal was to be finalized, from $18.375 when the deal was announced, adding $1.4 million to the cost of the deal. The stock since has declined to $19.125, down 50 cents yesterday. The original deal would have been worth about $10 million.

Sterling said Provident tried to back out of the merger because the total price had risen. "The market price of Provident shares has gone up, which makes [the merger] more beneficial for Sterling shareholders and less advantageous for Provident," said David Clarke Jr., an attorney at Piper & Marbury who is representing Sterling. "We want the deal to go forward as it was structured. We were promised Provident stock and that is what the shareholders of Sterling want."

The small, privately held Sterling is a three-branch bank with $70 million in assets that caters to high-net-worth individuals. (It is not affiliated with Sterling Bancorp of New York, a publicly traded bank holding company.)

Provident, with $1.7 billion in assets and 43 branches, itself has been seen as a likely takeover target.

The merger was announced in December on the strength of a three-page letter of intent signed by both sides. The letter left some terms to be resolved later, but it said that the parties intended it to be a legally binding merger agreement. It did not say the deal was contingent on the signing of a more detailed final agreement.

The last draft of the final merger agreement was written by Provident's lawyers at Semmes, Bowen & Semmes and sent to Piper & Marbury on Feb. 10, Mr. Clarke said. Provident Chairman Carl W. Stearn then told Sterling that Provident was concerned about Sterling's loan portfolio and wanted out of the deal, according to the lawsuit. Neither side would discuss those concerns yesterday.

"We determined that their business was not what we had been led to believe," Mr. Stearn said in a statement. "Usually banks sue to avoid being acquired. The whole thing strikes me as a little strange."

Sterling, in the lawsuit, insisted that any doubts about Sterling's operations are a canard.

"Provident's alleged concerns . . . were unreasonable and often based on shoddy analysis that had resulted in elementary errors of fact," the suit said. The suit asks for an order that Provident complete the merger. If the court won't order the merger, the suit asks for damages of at least $5.4 million, claiming that the termination of the merger damaged Sterling's reputation.

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