PORTLAND (AP) – Banknorth Group Inc.’s largest shareholder wants Banknorth to explore other options before completing its merger with a Canadian banking company.

Private Capital Management, an investment firm based in Florida, said in a filing with the Securities and Exchange Commission that it wants to make sure shareholders are getting the best price they can in the deal.

Canada’s TD Bank Financial Group is buying a controlling 51 percent stake in Banknorth Group for $3.8 billion. The deal needs regulatory and shareholder approval and is expected to be completed in February.

Private Capital Management, which owns 8.8 percent of Banknorth’s stock shares, wants Banknorth management and directors to “reassess the options and opportunities available to the company.”

Those options include auctioning off the company or seeking bids from potential buyers other than TD Bank, Private Capital Management said in the filing.

The firm’s objection could pose a threat to the proposed merger. As the largest shareholder, Private Capital Management could work to persuade other shareholders to fight the merger and force Banknorth to kill the deal, renegotiate the terms, seek another buyer or continue as an independent bank.

The filing is the first public sign of unhappiness with the deal. Jim Ackor, a bank analyst with RBC Capital Markets in Portland, said the filing at this point represents only a rumble of discontent, but “it’s potentially very loud grumbling.”

The complex stock and cash deal works out to about $40 a share – a premium of about 16 percent over Banknorth’s market price.

– some stockholders have grumbled about the structure of the acquisition.

The primary reason is that, unlike many transactions of this size, TD Bank isn’t buying all the outstanding shares of Banknorth at once. It will only purchase 51 percent of the stock initially, although it can buy more in the future.

But that means that 49 percent of the stockholders won’t necessarily ever receive $40 a share – and if they do, it could be several years before it happens.

Also, all-cash deals are generally preferred to cash and stock purchases because there’s no guarantee stock prices will hold firm until after the sale is completed.

William J. Ryan, Banknorth president and chief executive officer, and Bruce Sherman, the chairman of Private Capital, have talked about the deal several times in the last few weeks, said Banknorth spokesman Jeff Nathanson. They met face-to-face at a financial conference in New York earlier this month, he said, and spoke by phone Thursday, when Sherman called to tell Ryan of the SEC filing.

“He has raised some concerns, but from our perspective, the deal as structured maximizes shareholder value, both long- and short-term,” Nathanson said.

A spokesman for Private Capital said the firm had no comment and referred callers to the SEC filing.

Banknorth Group’s banking subsidiaries include Peoples Heritage in Maine, Bank of New Hampshire, Banknorth Massachusetts, Banknorth Vermont, Banknorth Connecticut and Evergreen Bank in upstate New York.

AP-ES-09-25-04 1402EDT

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