EXPENSIVE CHANGE OF HEART: Memphis-based First Horizon National Corp., the parent company of First Tennessee Bank, is caught up in a lawsuit after backing out of a sale of its Atlanta bank branches. -- Photo By Andy Meek
Fifth Third Bank of Cincinnati wants a federal court to order Memphis-based First Horizon National Corp. not to touch Fifth Third's new signage and other property it recently installed at nine Atlanta-area bank branches.
That request is included in the lawsuit the Ohio-based banking company filed shortly before 10 a.m. Friday in U.S. District Court for the Southern District of Ohio. The suit was filed in response to First Horizon backing out of a sale of those Atlanta bank branches to Fifth Third on the same day the deal was supposed to be finalized.
Fifth Third wants the court to order First Horizon to go through with the sale. But it has additional requests, including that the Memphis-based financial services company be ordered not to alter the new signs that were installed in advance of the expected sale.
And that's an example of the potentially awkward juggling act that may face First Horizon over the next few days.
In advance of Friday's expected closing, Fifth Third already had replaced interior and exterior signage at all the branches in preparation for an official ownership switchover Monday. Fifth Third mailed out new ATM cards to First Horizon customers that were to have been activated for use starting Monday.
Training teams were mobilized to instruct First Horizon employees on new rules and regulations that are part of Fifth Third's operation. Groups of electricians and technicians were put together to begin changing out computers, telecommunications and other electronics, signage and various merchandise starting Friday.
The banks were supposed to have opened for business Monday for the first time as Fifth Third branches. It now remains to be seen how First Horizon will navigate the need to hang on to the banks it intended to already have sold by now.
"As a result of First Horizon's breach, Fifth Third will suffer other economic and consequential damages related to: the preparation for unveiling the Fifth Third brand, other costs incurred in preparation of the closing, the loss of good will in Atlanta, Georgia (where [Fifth Third] has no presence), and attorney's fees and costs," the suit says.
First Horizon officially backed out of the deal in a letter sent to Fifth Third late last week. The Memphis-based banking company has notified its Atlanta customers that there will be no changes to their accounts while matters related to the sale are worked out.
The bank still intends to sell the branches, but it's not yet clear if an agreement can be reached with Fifth Third, which was the intended buyer, or whether a new buyer will be sought.
No hearings in the Ohio suit had been scheduled as of early Monday. First Horizon has a phone hotline dedicated to helping customers sort out any confusion related to the recent events. Other than that, it wasn't immediately clear what action is being taken to reverse or mitigate Fifth Third's own preparations, since the banks now apparently will remain First Horizons for the time being.
Neither side is saying much at the moment about the cancelled sale or what its implications are.
"I can't say anything on the matter since the litigation has now begun," said First Horizon spokeswoman Kim Cherry. "But we are committed to serving our customers with the same group of employees that we have been."
More than one analyst covering First Horizon said the cancelled Atlanta deal won't have a big financial impact.
"The announcement will reduce First Horizon's expected 2008 cost savings by about $5 million," wrote Morningstar Inc. equity analyst Jaime Peters in an analyst note posted Friday. "We are leaving our fair value estimate for First Horizon unchanged, since the lost savings are immaterial at less than $0.04 per share pretax."
At an impasse
The lawsuit tells part of the story about how the sale - which was part of First Horizon's decision to jettison its branches outside Tennessee - ultimately fizzled at the 11th hour.
Fifth Third sent a non-binding "indication of interest" letter to First Horizon in early August about acquiring the company's Atlanta franchise, according to the lawsuit. The suit does not specify any amounts related to the transaction.
After Fifth Third performed its due diligence, the company decided the price it originally suggested paying was more than what the Atlanta franchise was worth, according to the suit. After withdrawing its first offer, Fifth Third sent a second letter containing an offer to First Horizon in early September.
That new offer included a "significantly lower price," the suit says.
First Horizon accepted the second offer and both parties executed a purchase and sale agreement in September. Over the last several days, however, that agreement began to come undone.
First Horizon apparently floated an estimated purchase price to Fifth Third earlier this month that was more than double the maximum price Fifth Third agreed on in its offer, according to the lawsuit. The transaction did not include the banks' loans, First Horizon said in defending its sale price.
When neither side could reach an agreement on that issue, First Horizon sent a letter to Fifth Third Thursday saying the sale would not go forward.