Shareholder Can’t Block TowneBank Merger Deal

RICHMOND, Va. (CN) - A shareholder objecting to the proposed merger of Franklin Financial Corporation and TowneBank is not entitled to an injunction blocking the deal, a federal judge ruled.

The $275 million merger, through which TowneBank will acquire Franklin Financial, was announced in July. Shareholders of both financial institutions voted to approve the merger Thursday afternoon.

In a class action filed on Oct. 1, Franklin Financial shareholder Andrew Mallon accused the two entities of "breaches of fiduciary duties and/or aiding abetting such breach, arising out of their attempt to sell the Company to TowneBank by means of an unfair process and for an unfair price."

According to Mallon, "the Proposed Transaction provides Franklin stockholders with a negative premium to the Company's recent trading high of $24.60 per share."

"Since the deal announcement," Mallon said in his complaint, "Franklin's stock has tumbled to a post-announcement low of $18.81 per share."

But District Judge Henry Hudson found the proposed exchange rate of 1.4 shares of TowneBank stock per Franklin stock to be inadmissible as a breach of fiduciary duty.

"62% of Franklin's shareholders have already cast their votes, with 99% favoring the merger." said Hudson in his Dec. 2 ruling. "No other stockholder has expressed concerns about the sufficiency of the Proxy."

Mallon claims that Franklin used dodgy language in their proxy statement to stockholders, and cites a conflict of interest in appointment of TowneBank board members previously employed with Franklin. "Moreover," Mallon says, "members of the Board and Franklin's management will benefit from acceleration of their unvested stock."

But according to Hudson, "These benefits do not appear atypical of a transaction of this type and the disclosure in the Proxy appears sufficient to place voting stockholders on notice of any potential conflicts of interest."

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