HoldCo Asset Management Voices Concerns Over Comerica Board's Decision-Making Process

In a recent release, HoldCo Asset Management, a Florida-based investment firm, has presented a thorough critique of the Comerica Inc. Board of Directors. The firm, which manages approximately $2.6 billion in regulatory assets, has titled its presentation, "When The Bank Was Healthy But The Board Got Scared," highlighting a range of deficiencies in the board's handling of the merger process with Fifth Third Bank.

Key Findings of HoldCo's Presentation

HoldCo asserts that the board failed to conduct a comprehensive review process intended to maximize shareholder value. They argue that the newly added disclosures in Comerica's proxy statement, which have increased by 77% with around 2,200 additional words, only serve to validate their concerns. Specifically, HoldCo's co-founders, Vik Ghei and Misha Zaitzeff, pointed out that these disclosures reveal that the merger was rushed and aimed at preventing a potential proxy contest rather than genuinely enhancing shareholder value.

One notable piece of evidence presented is the timeline of the merger discussions. HoldCo emphasizes that merely 17 days passed between the initiation of discussions and the signing of the merger agreement—marking the fastest bank merger timeline since the 2008 financial crisis. This alarming speed raises questions about whether adequate due diligence was conducted.

Furthermore, HoldCo has accused Comerica’s Board of neglecting viable alternative proposals, notably one from 'Institution A,' which had a more manageable timeline that could have avoided confrontation with shareholders. Instead, the board opted for Fifth Third's offer, which was appealing for the CEO, particularly due to a lucrative compensation package that included a vice-chairman role.

Recommendations to Shareholders

HoldCo continues to advocate for shareholders to vote 'NO' on the merger, arguing that doing so carries limited risk. They clarify that a 'NO' vote would not automatically terminate the transaction, nor would it immediately allow either party to withdraw. The merger agreement stipulates that both Comerica and Fifth Third are obliged to exert reasonable efforts to renegotiate the deal, suggesting possibilities for improved valuation arising from shareholder rejection of the current terms.

In their analysis, HoldCo states that their previous projections indicate a potential fair value for Comerica in a sale could reach approximately $120 per share, significantly above the current offer. This valuation is based on standard three-year tangible book value metrics from similar recent bank transactions, updated to consider Fifth Third's current stock price.

The Role of Shareholder Activism

This scenario underscores the growing significance of shareholder activism in corporate governance. HoldCo expresses gratitude for their campaign's contribution to pushing the board to re-evaluate its strategies. An independent review from ISS has recognized that the original disclosures from Comerica were insufficient, validating the activists’ efforts in compelling the board to improve its communication with shareholders.

Ghei and Zaitzeff concluded that while they find ISS's endorsement of the merger misplaced, they appreciate the acknowledgment that additional disclosures were necessary. They argue that the conversation initiated by HoldCo was crucial in prompting the underperforming bank to consider alternatives in the sale process.

Conclusion

As the deadline for shareholder voting approaches, all eyes are on Comerica's board and the repercussions of its decision-making strategies. The stance taken by HoldCo Asset Management is a reminder of the critical role that shareholder voices play in shaping the direction of corporations and ensuring that management acts in the best interests of its stakeholders. In the face of proposed mergers and acquisitions, vigilant and informed shareholder participation will continue to be paramount in the evolving landscape of corporate governance.