Bremer administrator Lipschultz saw “once in a lifetime” chance to sell Bremer banking company
In connection with the sale of Bremer Financial Corp., the three directors of the Otto Bremer Trust were divided on the way forward as they faced hostility from the bank’s executives and board of directors the administrator who led the sales said Monday at a court hearing.
This trustee, Brian Lipschultz, recognized the difficulty of making a sale almost from the start, as his testimony and related documents have shown.
But in fiery and sometimes profane emails, texts and notes throughout 2019, Lipschultz pursued a “once in a lifetime” chance to sever the bond between banking and trust and send the two over. different paths.
“I felt it would be easier if the management and board of BFC agreed with us that it was becoming more and more difficult to run a strictly regional bank,” Lipschultz said at the time. of his testimony on a structure for a potential deal.
For about five months in 2019, the bank and the trust fought each other in private. By the end of the year, they were in court, and their legal clash eventually led the state attorney general’s office, which oversees charitable trusts, to step in. About a year ago, the state asked Ramsey County District Judge Robert Awsumb to remove the three directors of the Otto Bremer Trust for mismanagement.
In the pre-Awsumb case that began last month in St. Paul’s, state prosecutors focused on accusations of abused employees and misdirected funds to the charitable trust. The other Trustees, Charlotte Johnson and Daniel Reardon, testified on these matters.
As the hearing entered its third week on Monday, they called Lipschultz to the stand to answer questions about Bremer Financial’s sales effort, which operates Bremer Bank, Minnesota’s fourth-largest bank with around $ 15 billion. dollars in assets.
He said the conflict began when senior executives at Bremer Financial informed the three directors in March 2019 that a bank had approached the company to discuss a “merger of equals.” Bremer Financial’s board learned of the opening at a meeting in April, he said.
Bremer Financial, which is not a direct party to the court hearing, disputed some of the trustees’ representations of the events. No executive of the banking company testified at the hearing.
Lipschultz reiterated the directors’ public representation that they were seeking a deal in part because the bank, which was not identified, offered a deal that valued Bremer Financial nearly twice as much as directors or other associates at Bremer considered previously.
Within weeks, Lipschultz said, the trustees hired an investment banker to explore alternatives that included an outright sale of Bremer Financial, in which the trust had a 92% stake – a one-of-a-kind arrangement in the US banking sector. In June, however, the three administrators disagreed over tactics.
In a June 18 text message to the trust’s investment banker, Lipschultz requested “quantifiable updates.” He then added that Johnson, one of the other directors, feared a conflict with the executives of Bremer Financial and its board.
“She’s against an outright sale and of course the rest of the board will probably rally around that point of view unless we have something so irrefutably superior as an alternative,” Lipschultz said. in the text. “I hope things are going in that direction.”
Three days later, Lipschultz and Reardon told Bremer Financial’s board that they were looking for buyers themselves. “This morning we open a unique door in a life for which there is no turning back,” Lipschultz wrote to the trust’s investment banker.
About six weeks later, the bank’s board officially voted against continuing any kind of deal. But the trustees continued to explore the options.
They pursued the first strategy, which Lipschultz dubbed “Smashmouth,” which was to find a single bank to buy the trust stake. And they launched a second, called “Raptor,” which involved selling small portions of its stake to other investors, mostly hedge funds, to take their side in the fight against the board of Bremer Financial.
In a text to the investment banker at the end of August 2019, Lipschultz wrote that they had to be “super careful” with the second strategy around Johnson. “When she realizes that this strategy involves throwing the current board into a primarily hostile takeover, she might throw her cookies,” he wrote.
When asked on Monday what he meant by ‘throw away his cookies,’ Lipschultz said, ‘I was afraid she was very upset.’
In mid-October 2019, he reported to the banker that Johnson had “approved” Raptor. The trust began selling some of its shares to outside investors a few days later. On October 28, they publicly announced that its stake in Bremer Financial was for sale, bringing the dispute to light.
They offered no other potential deals until the pandemic struck in early 2020, disrupting the banking sector and the economy as a whole. Awsumb ordered directors in November 2020 not to engage in any transactions pending the outcome of the state’s request to oust them.