Santander, Sovereign deal hit by doubts

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Grupo Santander’s plans to expand in the US through a takeover of Sovereign Bancorp faced mounting uncertainty on Friday as directors of the Philadelphia bank considered ousting Jay Sidhu, the long-standing chief executive.

Last year, Santander struck a deal with Mr Sidhu to buy a nearly 20 per cent stake in Sovereign, with an option to take over the whole company in 2008 and 2009.

The deal helped finance Sovereign’s move into the New York City region with the $3.6bn acquisition of Independence Community Bancorp, and made Sovereign the cornerstone of Santander’s ambitions to grow in the US.

But in the past few months, several Sovereign board members have grown unhappy with the company’s share price. That dissatisfaction is expected to be voiced at a board meeting next week, with the dismissal of Mr Sidhu one possible outcome, according to people familiar with the matter.

The removal of Mr Sidhu from the helm of Sovereign, which he has run for the past 16 years, building the bank aggressively through acquisitions and surviving one bruising proxy fight, could loosen the bank’s tight alliance with Santander.

Sovereign shares rose 11.6 per cent to close at $24.10, as investors speculated that Mr Sidhu’s departure could put the company in play, opening the field to other bidders than the Spanish bank.

A Santander spokesman on Friday confirmed that there would be a board meeting, and that the company would name Gonzalo de las Heras, the head of its New York office, as an additional Sovereign board member. “The appropriate decisions will be made at the proper time,” he added.

Ralph Whitworth of Relational Investors, who last year led a proxy fight against Sovereign and now sits on the board, is one of the directors who called for next week’s board meeting.

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