Citigroup's Student Loan sued over Discover offer
Citigroup Inc.'s Student Loan Corp. was sued by a shareholder who contends he will be shortchanged in a planned $600 million acquisition by Discover Financial Services.
Student Loan, based in Stamford, Connecticut, said Sept. 17 it would be bought by Discover for $30 a share, a 40 percent premium over the previous day's close.
The bank, which owns 80 percent of Student Loan, "is in desperate need to raise cash and divest non-core banking assets in the short term," and the deal is "underpriced," Alan R. Kahn said in a complaint filed yesterday in Delaware Chancery Court in Wilmington.
More than a score of Citigroup businesses were identified for sale following the New York-based bank's $45 billion bailout in 2008.
The takeover will make Discover, based in Riverwoods, the third-largest U.S. provider of private student loans, behind leader SLM Corp. and Wells Fargo & Co.
Kahn said directors of Student Loan are violating their duties to get the best price, and asked a judge to stop the buyout and grant the case class-action, or group, status on behalf of all outside shareholders.
"We believe this lawsuit is without merit, and we intend to vigorously defend our position," Mark Rodgers, a Citigroup spokesman, said in an e-mailed message.
Student Loan fell 5 cents to $29.88 in New York Stock Exchange composite trading at 3:17 p.m. The shares have declined 36 percent this year.
The case is Kahn v. The Student Loan Corp., CA5832, Delaware Chancery Court (Wilmington).