Friday, May 15, 2009

PNC May Have to Unseal National City Buyout Documents

PNC Financial Services Group, the fifth-largest U.S. bank by deposits, may have to unseal documents related to its $5.2 billion acquisition of National City Corp., a judge said.

Delaware Chancery Court Judge William B. Chandler III said he’ll decide whether sealed exhibits and a redacted memorandum included in court filings for the settlement of shareholder lawsuits about the buyout should be made public. Investors want Chandler to approve an accord providing more details about the deal.

“My leaning is strongly in favor of lifting the sealing order,” Chandler told lawyers for the company at a hearing today in Georgetown, Delaware.

“We’re not going to comment,” said Fred Solomon, a PNC spokesman. “We don’t comment on pending litigation matters.”

PNC, based in Pittsburgh, acquired National City in an all- stock deal in December as PNC also sold $7.6 billion in preferred shares to the U.S. government. National City, ranked among the top 10 originators of subprime loans in 2006, was forced into a sale after racking up more than $4 billion in losses and seeing its stock plunge almost 90 percent last year.

As part of the buyout, National City investors got 0.0392 of a share of PNC common stock for each of their shares, according to court papers. National City shareholders voted to approve the deal Dec. 23.

Lawsuits Dropped

Some National City investors filed suit claiming the company’s board failed to get a high enough price for the bank and that executives pushed for the sale to reap bonuses tied to the buyout, according to court papers.

Shareholders later agreed to drop those suits in exchange for more details on National City’s negotiations with PNC and the companies’ willingness to pay $1.2 million to cover investors’ legal fees.

Lawyers for the company that owns the Columbus Dispatch newspaper, which was a National City shareholder, objected to the settlement in part because some of the court filings about the accord were sealed. The company sued National City in state court in Ohio.

The Columbus, Ohio-based newspaper is asking Chandler to unseal court filings related to an April 2008 deal in which National City received a cash infusion from outside investors. The newspaper company says its stock holdings were diluted as part of that deal. Internal bank documents related to the cash injection were filed under seal as part of the Delaware settlement.

The newspaper also has asked for a redacted memorandum about the accord to be filed without deletions. Bloomberg News and the Associated Press also are seeking to have the filings unsealed and memorandum filed without redactions.

Free-Speech Protections

Using secret documents to justify a legal settlement violates constitutional free-speech protections, Steven Tigges, one of the newspaper’s lawyers, told Chandler today.

“It would be unfair to have a settlement adjudicated on the basis of sealed evidence,” he told the judge.

Greg Williams, a Wilmington, Delaware-based lawyer representing National City, said the newspaper could have had access to the documents if officials agreed to sign a non- disclosure agreement.

Chandler said he’d rule quickly on whether to unseal the documents and to approve the settlement.

PNC said earlier this week that it may sell as many as 15 million shares after U.S. regulators told the bank to raise $600 million to bolster capital. The order came after a government stress test of PNC’s ability to weather a deeper, prolonged recession.

Bank officials earlier this month said they would raise the funds through retained earnings and “other capital-markets alternatives” and wouldn’t convert its $7.6 billion in Troubled Asset Relief Program preferred stock.

The case is In re National City Corp. Shareholders Litigation, CA4123, Delaware Chancery Court (Wilmington).