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The battle between Sovereign Bancorp and Relational Investors LLC has grown nastier as the Philadelphia bank sued its largest shareholder and Relational publicly called Sovereign’s top executives “long-term liabilities.” San Diego-based Relational Investors has been pressuring Sovereign for months to improve the bank’s share price rather than expand via acquisitions, and the battle intensified after Sovereign unveiled a three-way deal last month. Sovereign has agreed to sell a 19.8 percent stake to Spain’s Banco Santander Central Hispano SA for $2.4 billion and use the proceeds to buy Independence Community Bank Corp. of Brooklyn, N.Y., for $3.6 billion. Sovereign will not allow its shareholders to vote on the deal, though Relational and Franklin Resources Inc. have asked the New York Stock Exchange to force a vote because they say Santander will receive effective control of the bank. On Thursday, Sovereign filed a lawsuit in the Court of Common Pleas of Berks County, Pa., against Relational, which holds 7.3 percent of the bank’s stock, and denied the investment firm’s demand to be given access to the bank’s books and records. The bank wants the court to rule against the investment firm’s request. “It is clear to us that Relational’s true purpose in making this demand is not to gain access to the records themselves, but to attack the integrity and injure the credibility and reputation of Sovereign and its banking subsidiary for their own purposes,” said Sovereign in a press release. The suit came a day after Relational took out a large advertisement in The Wall Street Journal, New York Times, Washington Post and the Reading Eagle of Pennsylvania denouncing Sovereign chairman and chief executive Jay Sidhu and six of his directors. The ad places the words “Long-Term Liabilities” above photos of the seven directors and says they are “creating more value for themselves than for Sovereign shareholders.” Contending that Sovereign shares underperformed the bank’s peers by 16 percent in 2004, the ad says the directors receive an average pay of $317,000 a year, which it says is more than any other bank in the country. It also says loans to directors have soared from $4.7 million to $94.1 million in six years. Reuters reported Thursday that Sidhu wrote his employees a letter calling Relational’s “massive public relations campaign” made allegations that are “false, irresponsible and misleading.” Sidhu wrote the campaign is “designed to intimidate us, create a wedge between the board and management, and … create shareholder and public pressure on us.” Copyright �2005 TDD, LLC. All rights reserved.

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