Citigroup Inc. (C), the third-biggest U.S. bank, won court approval of a $13.5 million settlement of shareholder claims over the sale of its former Student Loan Corp. unit.
The accord, which provided an extra $2.50 a share to Student Loan investors, was “an excellent result,” Delaware Chancery Court Judge Travis Laster said before approving the settlement today at a hearing in Wilmington.
Investors sued Student Loan in September 2010, alleging they were getting shortchanged in the $600 million sale to Discover Financial Services. (DFS) Laster declined to block the deal last year, saying shareholders could seek damages later in a trial. The Student Loan unit was one of at least 21 Citigroup businesses put up for sale by Chief Executive Officer Vikram Pandit following the bank’s $45 billion bailout in 2008.
Citigroup is “pleased the settlement has received the court’s approval,” Shannon Bell, a spokeswoman for the New York-based bank, said in an e-mailed statement.
Student Loan, based in Stamford, Connecticut, agreed to the $30-a-share bid by Riverwoods, Illinois-based Discover in September 2010. The offer was 40 percent more than the trading price of the Citigroup unit’s shares at the time.
The takeover made Discover the third-largest U.S. provider of private student loans, behind SLM Corp. (SLM) and Wells Fargo & Co. (WFC) The sale to Discover also involved the acquisition of some loan portfolios by Citigroup and SLM, Laster said today.
Student Loan investors argued that directors didn’t shop around enough for the best price for the Citigroup unit and failed to make proper disclosures about the deal. Student Loan executives later disclosed more information about the fees paid to bankers advising them on the deal, Laster said.
Following the disclosures, Citigroup officials agreed to talks on whether Student Loan investors were entitled to more money for their shares, James Notis, a lawyer for the shareholders, told Laster today.
“Achieving an 8 percent bump here was a really excellent result” for investors, Notis said.
Laster approved $3.5 million in legal fees and expenses for investors’ lawyers. Citigroup agreed to pay those costs, Notis said.
Separately in New York, a federal judge questioned Citigroup’s $285 million settlement with the U.S. Securities and Exchange Commission because the accord didn’t require bank officials to admit wrongdoing in connection with their handling of $1 billion in collateralized debt obligations linked to risky mortgages.
U.S. District Judge Jed Rakoff, who in 2009 rejected a $33 million settlement between the SEC and Bank of America Corp., set a hearing on the matter for Nov. 9.
The Delaware case is Kahn v. Student Loan Corp. (STU), CA5832, Delaware Chancery Court (Wilmington).
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