DEFA14A: HarborOne Faces Shareholder Lawsuits Over Merger Disclosure

HarborOne Bancorp issues supplemental disclosures to its merger proxy statement following multiple shareholder demand letters and lawsuits alleging material omissions.

Summary

• HarborOne Bancorp, Inc. and Eastern Bankshares, Inc. are proceeding with their previously announced merger agreement from April 24, 2025, which involves HarborOne merging into Eastern, followed by HarborOne Bank merging into Eastern Bank.
• HarborOne has received 11 demand letters from purported shareholders between June 23 and July 31, 2025, alleging material omissions in the proxy statement/prospectus.
• Two lawsuits, William Johnson v. HarborOne Bancorp, Inc., et al. (filed July 28, 2025) and Paul Parshall v. HarborOne Bancorp, Inc., et al. (filed July 29, 2025), have been filed in New York state court, alleging material omissions, negligent misrepresentation, concealment, and negligence, seeking an injunction against the merger, rescission, and legal costs.
• HarborOne denies the allegations, believes the cases are without merit, and intends to vigorously defend against them, stating that no supplemental disclosures are required and the requested disclosures are immaterial.
• Despite denying the claims, HarborOne and Eastern are providing supplemental disclosures to the proxy statement/prospectus to moot disclosure claims, avoid nuisance, cost, and distraction, and prevent delays to the special shareholder meeting or merger closing.
• The supplemental disclosures include updated details on merger negotiations, specifically Eastern's proposals on March 7, 2025 (0.75 exchange ratio, $12.17 valuation) and April 7, 2025 (0.765 exchange ratio, $11.12 valuation), both assuming 40% cost savings of HarborOne's non-interest expenses.
• The disclosures also update the financial advisor's (Raymond James) opinion, including revised selected companies analysis, discounted cash flow analysis (value range $7.10-$9.98 per share vs. merger consideration value of $11.87), and selected transactions analysis.
• The supplemental disclosures will not affect the merger consideration to be paid in connection with the Proposed Transaction or the timing of the special meeting of HarborOne's shareholders, which is scheduled for August 20, 2025.

Sentiment

Score: 3

Explanation: The filing indicates significant legal challenges to a pending merger, including multiple shareholder lawsuits seeking an injunction or rescission. While the company denies the claims and is taking steps to mitigate impact, the existence of such litigation introduces substantial uncertainty, potential costs, and reputational risk, outweighing the positive of proceeding with the merger.

Positives

• HarborOne and Eastern are making supplemental disclosures to avoid delays and costs, indicating a commitment to closing the merger.
• The supplemental disclosures will not affect the merger consideration or the timing of the special meeting, maintaining the original terms and schedule.
• HarborOne intends to vigorously defend against the lawsuits, indicating confidence in its position and the adequacy of its disclosures.

Negatives

• HarborOne is facing 11 demand letters and two active lawsuits from shareholders alleging material omissions and other legal violations related to the merger proxy statement.
• The lawsuits seek significant remedies, including an injunction to prevent the merger and rescission of the merger, which could significantly disrupt or terminate the transaction.
• The company cannot predict the outcome or estimate the possible loss from the Merger Litigations, introducing financial and operational uncertainty.
• The necessity of issuing supplemental disclosures, even if denied as legally necessary, suggests a perceived vulnerability in the initial proxy statement's completeness.

Risks

• The outcome of the Merger Litigations is uncertain, and additional lawsuits or demand letters may be filed, potentially increasing legal costs and complexity.
• The lawsuits could potentially delay or enjoin the consummation of the merger, impacting the strategic objectives of both companies.
• The legal proceedings could incur significant costs, including attorneys' and experts' fees, regardless of the outcome.
• The anticipated benefits of the Proposed Transaction may not be realized when expected or at all, including as a result of integration challenges or adverse economic factors.
• The Proposed Transaction may be more expensive to complete than anticipated due to unexpected factors or events.
• Revenues following the Proposed Transaction may be lower than expected.
• Diversion of management's attention from ongoing business operations and opportunities due to the merger process and legal defense.
• Potential adverse reactions or changes to business or employee relationships, including those resulting from the announcement or completion of the Proposed Transaction.
• Dilution caused by Eastern's issuance of additional shares of its capital stock in connection with the Proposed Transaction.

Future Outlook

The filing primarily addresses legal challenges to a pending merger. It reiterates the company's intention to complete the merger and states that the supplemental disclosures will not affect the merger consideration or the timing of the special shareholder meeting. It also includes standard forward-looking statements regarding the risks and uncertainties associated with the merger, including potential delays, integration challenges, and the realization of anticipated benefits.

Management Comments

• HarborOne believes that the Johnson and Parshall cases are without merit, that no supplemental disclosures are required under applicable law, and that the requested additional disclosures are immaterial.
• HarborOne and its directors intend to vigorously defend against each Merger Litigation and any subsequently filed similar actions.
• Eastern and HarborOne deny all allegations in the Merger Litigations and the Demand Letters and believe that no additional disclosure is required in the proxy statement/prospectus.
• However, in order to moot the disclosure claims, avoid nuisance, cost and distraction, and with the goal of precluding any effort to delay the special meeting of HarborOne shareholders or the closing of the Proposed Transaction, Eastern and HarborOne hereby make additional disclosures.
• This decision to make the Supplemental Disclosures will not affect the merger consideration to be paid in connection with the Proposed Transaction or the timing of the special meeting of HarborOne's shareholders.

Industry Context

This filing reflects the ongoing consolidation trend within the banking sector, particularly among regional and community banks. Mergers and acquisitions are common strategies for growth, efficiency gains, and market expansion. However, such transactions often face scrutiny from shareholders, leading to litigation, especially concerning valuation and disclosure adequacy, as seen in this case. The detailed financial metrics and valuation methodologies (DCF, selected companies/transactions) are standard practices in financial advisory for bank M&A.

Comparison to Industry Standards

• The 'Selected Companies Analysis' provides a peer group of 18 financial institutions (e.g., ConnectOne Bancorp, Flushing Financial Corporation, Univest Financial Corporation) with various financial and valuation metrics, allowing for comparison of HarborOne's financial health and valuation multiples against similar-sized banks.
• The 'Selected Transactions Analysis' lists 8 recent bank M&A transactions (e.g., CNB Financial Corp. / ESSA Bancorp, Independent Bank Corp. / Enterprise Bancorp, Eastern Bankshares Inc. / Cambridge Bancorp) with their respective transaction multiples (Price/TBV, Price/Core LTM EPS, etc.), providing benchmarks for the valuation of the HarborOne-Eastern merger.
• Raymond James' discounted cash flow analysis, which yielded a value range of $7.10 to $9.98 per share for HarborOne, compared to the merger consideration value of $11.87 per share, suggests that the merger consideration is above the DCF valuation range, which could be seen as favorable to HarborOne shareholders based on this specific valuation method.

Management Changes

Corporate Governance

Legal Proceedings

• 11 demand letters received from purported HarborOne shareholders between June 23, 2025, and July 31, 2025, alleging material information omissions in the proxy statement/prospectus in violation of federal securities laws and state law disclosure requirements.
• William Johnson v. HarborOne Bancorp, Inc., et al., No. 654471/2025 (N.Y. Sup. Ct., N.Y. Cnty.), filed July 28, 2025, by a purported individual shareholder against the Company and certain board members.
• Paul Parshall v. HarborOne Bancorp, Inc., et al., No. 654489/2025 (N.Y. Sup. Ct., N.Y. Cnty.), filed July 29, 2025, by a purported individual shareholder against the same defendants.
• The lawsuits generally allege material information omissions in the proxy statement/prospectus and assert claims for negligent misrepresentation, concealment, and negligence under New York common law.
• Relief sought includes an injunction enjoining consummation of the merger, rescission of the merger, and costs of the actions (including attorneys' and experts' fees).
• HarborOne believes the cases are without merit, no supplemental disclosures are required, and the requested disclosures are immaterial, and intends to vigorously defend.
• It is possible that additional demand letters or merger litigations may be filed between August 6, 2025, and the consummation of the Proposed Transaction.

Stakeholder Impact

• Shareholders: Facing uncertainty due to lawsuits that could delay or prevent the merger; receiving supplemental disclosures to aid in their voting decision for the August 20, 2025 special meeting. The merger consideration value of $11.87 per share is above the discounted cash flow valuation range of $7.10 to $9.98 per share.
• Employees: Potential impact from the integration of the two companies and the bank merger, including changes to business or employee relationships.
• Management: Attention diverted from ongoing business operations due to the merger process and legal defense.

Next Steps

• HarborOne shareholders' special meeting is scheduled for August 20, 2025, to vote on the merger.
• HarborOne and its directors intend to vigorously defend against the Merger Litigations.
• Following the Merger, HarborOne Bank will merge with and into Eastern Bank at a time to be determined by Eastern.

Key Dates

Recommendation

The filing details significant legal challenges to the proposed merger, including shareholder lawsuits seeking an injunction or rescission. While management denies the claims and is issuing supplemental disclosures to mitigate risks, the uncertainty surrounding the litigation and its potential to delay or derail the transaction warrants caution. The merger consideration appears favorable compared to the discounted cash flow analysis, but the legal overhang creates a speculative element. Investors should hold to monitor the outcome of the shareholder vote and the legal proceedings, as these will be critical determinants of the stock's near-term performance.

Keywords

HarborOne Bancorp, Eastern Bankshares, Merger, Acquisition, Bank Merger, SEC Filing, Proxy Statement, Shareholder Lawsuit, Disclosure, Financial Services, Banking, HONE, Legal Proceedings, Corporate Governance, Financial Analysis, Valuation