Sovereign Bancorp and Relational Investors: The Role of the Activist Hedge Fund

Posted: 4 Oct 2009

See all articles by David F. Larcker

David F. Larcker

Stanford University - Graduate School of Business

Brian Tayan

Stanford University - Graduate School of Business

Date Written: April 12, 2007

Abstract

In 2005, Relational Investors, a registered investment advisor, launched a proxy contest to gain two seats on the board of directors of Sovereign Bancorp. Relational accused Sovereign of operational mismanagement and poor corporate governance, representing a breach in fiduciary responsibility by the company's board of directors. Relational claimed that a board reconstitution was in the best interest of investors. Subsequently, Sovereign entered into a controversial three-way deal with Banco Santander Central Hispano of Spain, which thwarted Relational's efforts by diluting its ownership position and by giving Santander board seats and veto power over the removal of Sovereign's CEO. The case discusses the tactics used by Relational Investors to attempt to derail the Santander deal and the tactics used by Sovereign Bancorp to defend it.

Keywords: activists, Corporate Governance

JEL Classification: G3

Suggested Citation

Larcker, David F. and Tayan, Brian, Sovereign Bancorp and Relational Investors: The Role of the Activist Hedge Fund (April 12, 2007). Rock Center for Corporate Governance at Stanford University Teaching Case No. CG -06. Available at SSRN: https://ssrn.com/abstract=1481866

David F. Larcker (Contact Author)

Stanford University - Graduate School of Business ( email )

Graduate School of Business
518 Memorial Way
Stanford, CA 94305-5015
United States
650-725-6159 (Phone)

Brian Tayan

Stanford University - Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

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