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IN RE OLD BANC ONE SHAREHOLDERS SECURITIES LITIGATION

April 29, 2004.

IN RE OLD BANC ONE SHAREHOLDERS SECURITIES LITIGATION


The opinion of the court was delivered by: WAYNE ANDERSEN, District Judge

MEMORANDUM, OPINION AND ORDER

Before the Court is the motion of Defendants Bank One Corporation, John B. McCoy, Richard J. Lehmann, David J. Vitale, Verne G. Istock, Michael J. McMennamin, and William P. Boardman ("Defendants") for summary judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure. For the reasons stated below, the motion for summary judgment is granted in part and denied in part.

BACKGROUND

  The Old Bane One shareholders have brought this action against Defendant Bank One Corporation and six of its officers under Sections 12 and 15 of the Securities Act of 1933, 15 U.S.C. § 771. The claims filed by the Old Banc One shareholders arise out of the October 2, 1998 merger of Bane One Corporation ("Old Banc One") and First Chicago NBD ("First Chicago") into Bank One. Prior to, and at the time of, the merger, Old Banc One allegedly represented that "one of the major strengths of its operations was the tremendous growth reported at its credit card division, First USA Bank, N.A." ("First USA"). The Old Banc One shareholders allege that certain documents filed in connection with the merger contained false and misleading statements regarding the earnings of Old Banc One's credit card subsidiary, First USA. On September 30, 2002, this Court denied Lead Plaintiff Frank Villano's motion for class certification because we found that Villano did not adequately represent the class. Lead Plaintiff Villano filed a motion for reconsideration of our September 30, 2002 order, which we denied on October 30, 2002, Lead Plaintiff next filed an appeal to the Seventh Circuit, which was denied by the Seventh Circuit on December 18, 2002. Lead Plaintiff has subsequently proposed a new class representative, but has agreed to wait until resolution of the pending motion for summary judgment before pursuing appointment the new class representative and proposed certification of this action as a class action.

  In their motion for summary judgment, Defendants argue that the Old Banc One shareholders cannot succeed on their claims for two reasons: 1) they have not suffered any loss or injury as a result of the merger; and 2) none of the alleged misrepresentations could have been material to the Old Banc One shareholders.

  I. The Mergers

  In February 1998, First Chicago and Old Banc One began discussing the possibility of a strategic combination of the companies. Subsequent discussions regarding the strategic combination included negotiations of the exchange ratio for First Chicago stock. If the companies merged, with Bank One as the surviving company, the First Chicago shareholders would have to exchange shares that historically traded above the market price of Old Banc One stock. From 1996 forward, the price of First Chicago common stock and declared dividends of First Chicago consistently exceeded the stock price and dividends of Old Banc One. The Exchange Ratio agreed to by the companies, 1 share of First Chicago stock to 1.62 shares of Bank One stock, resulted in Old Banc One shareholders having a fully diluted ownership interest of approximately 59.9% in the combined company. Old Banc One and First Chicago entered into a formal agreement on April 10, 1998. Thereafter, on July 31, 1998, Old Banc One and First Chicago filed a joint Registration Statement pursuant to the Securities Act, 15 U.S.C. § 77f. On August 5, 1998, both companies mailed to their respective shareholders a Joint Proxy Statement and Prospectus (the "Prospectus"). The Prospectus sets forth the reasons why the companies' respective boards of directors recommended their shareholders vote in favor of the merger. It also included summaries of the fairness opinions rendered by four different investment banks regarding the Exchange Ratio, as well as pro forma consolidated financial statements for the combined companies.

  The Prospectus sent out as part of the merger, touted First USA, Old Banc One's credit card unit, as being one of Old Banc One's major assets. The Prospectus incorporated Old Banc One's 1997 Form 10-K, and 1998 First Quarter 10-Q, which reflected rapid quarterly growth by First USA.

  On September 15, 1998, the merger was approved by both the Old Banc One and First Chicago shareholders. Ninety-eight percent of the Old Banc One shareholders voted to approve the merger, as did ninety-three percent of the First Chicago shareholders. The merger became effective on October 2, 1998. At the close of trading on October 2, 1998, Bank One's common stock price was $41.938 per share.

  Prior to the merger, Bank One was a wholly-owned subsidiary of Old Banc One organized in 1998 under the laws of the State of Delaware to effect the merger, The merger was completed in two steps. In the first step on October 2, 1998, Old Banc One merged with and into Bank One, with Bank One being the surviving corporation. In connection with this step, each share of Old Banc One was automatically converted into one share of Bank One common stock. Old Banc One shareholders did not need to exchange their shares. The conversion took place "without any action on the part" of the Old Banc One shareholders.

  In the second step later that day, First Chicago merged with and into Bank One, with Bank One again being the surviving corporation. During the second step, each share of First Chicago was converted into the right to receive a number of shares of Bank One common stock equal to the Exchange Ratio of 1 to 1.62. Unlike the conversion for Old Banc One shareholders, whose stock simply changed names without a change in value, the value of the exchange for First Chicago shareholders was subject to fluctuation. Because the Exchange Ratio was fixed and because the market prices of Old Banc One (pre-first step) and Bank One (post-first step) were subject to fluctuation, the value of the shares of Bank One stock that holders of First Chicago stock were to receive could increase or decrease prior to the merger.

  On August 24 1999, Bank One issued a press release which said that preliminary estimates of 1999 earnings would be down 7-8% from current market estimates, based entirely on recent changes in the growth and margin prospects for First USA, the Corporation's credit card unit. On August 25, 1999, Bank One announced that First USA would stop assessing late fees at the payments' due date and provide customers with a day's grace period before imposing late fees and would provide certain credit card customers rate concessions. Subsequent to Bank One's announcement, on August 25, 1999, Bank One common stock prices fell twenty percent to close at $43 per share and trading was fifteen times higher than its daily average trading volume.

  II. The Allegations Of The Complaint

  The stock price drops led to a series of lawsuits being filed against Defendants. In this action, the Old Banc One shareholders allege that the Prospectus "recorded recognized and reported significantly more fee and interest revenue than that to which it was entitled," because it included improperly booked income and revenue by First USA. The Old Banc One shareholders allege that the undisclosed violations of credit practices that occurred prior to, and at the time of, the Merger, as well as the allegedly false and misleading financial ...


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