Lawsuit alleges Temple-Inland helped cause Guaranty Bank failure, operated bank as 'captive finance arm' to benefit building materials division; lawsuit sends stock down 18%, as investors worry over IP hostile takeover bid

Kendall Sinclair

LOS ANGELES , August 23, 2011 (Industry Intelligence) – A liquidation trustee for a failed bank has sued Temple-Inland, Inc., alleging that the packaging and building products company helped cause the failure of Guaranty Bank, prompting stocks to fall and generating fear in investors counting on the International Paper Co. hostile takeover bid, reported Reuters on Aug. 23.

The lawsuit alleges the fraudulent looting of assets worth over US$1 billion, in addition to controlling the bank as a “captive finance arm” in order to assist demand for its building materials division.

Temple-Inland said the allegations were not true and plans to defend its position.

In a regulatory filing with the U.S. Securities and Exchange Commission, Temple-Inland said that it expected such a claim against the company but “that we do not believe that we have any liability related to the spin-off of Guaranty Financial Group.”

The bank filed for bankruptcy protection in 2009, Reuters reported.

Temple-Inland’s stock slid 18% on Aug. 23, following the allegations, contributing to an overall 33% drop this month. Shareholder value decreased by over $1 billion.

IP’s original offer of $30.60 per share was 33% above the $20.30/share value Temple-Inland was trading at on Aug. 23.

The slide spooked several shareholders who were expecting IP to increase its $3.3 billion hostile takeover bid. One investor said many were concerned IP would look into decreasing its bid, reported Reuters.

IP spokesman Thomas Ryan said the company would closely watch the lawsuit, yet it was premature to speculate what effect the lawsuit would have on the current offer, Reuters reported.

The primary source of this article is Reuters, London, England, on Aug. 23, 2011

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