OBT’s Ownership of BFC
The Otto Bremer Trust was established in 1944 by St. Paul businessman Otto Bremer and funded with shares from the common stock of the Otto Bremer Company. The purpose of the Trust was to support charitable causes in Minnesota, Montana, North Dakota, and Wisconsin. At its inception, the Trust owned 100 percent of what is today Bremer Financial Corporation.
Learn more about our history.
The 1969 Tax Reform Act had implications that required private foundations to operate differently with new requirements. One of these rules was a 5 percent payout based on the fair market value of Bremer Financial Corporation, the Otto Bremer Trust’s primary asset, and an ownership limitation of no more than 20 percent of voting shares. In 1989, the organization was restructured to comply with these new tax laws, including creating an ownership structure that allowed the dividends from BFC to fund OBT’s philanthropic distributions. After the reorganization, this is how the shares and shareholders were organized:
1,200,000 Class A voting shares
240,000 owned by OBT (20% of the class)
960,000 owned by BFC’s directors, ESOP and retirement plans (80% of class)
10,800,000 Class B non-voting shares
10,800,000 owned by OBT (100% of the class)
12,000,000 total shares (Class A plus Class B shares)
11,040,000 owned by OBT (92.00% of the total shares outstanding)
960,000 owned by BFC’s directors and ESOP and retirement plans (8.00% of the total)
Class A and Class B shares are the same in terms of economic ownership, but the Class B shares are non-voting except in certain situations, such as a sale of the bank or other extraordinary transactions.
At the time the 1989 reorganization was approved by the BFC board, there was a clear understanding by both the Trustees of OBT and bank management that the bank could be sold at any time—immediately, in the near term or at some point in the future—as circumstances demanded.
The Trustees continued to serve as directors of BFC, and with the expansion of the BFC board in in response to the Sarbanes-Oxley Act in 2002, the Trustees became minority members of the board.
In 2019, with the bank’s assets crossing the $10 billion mark, it was apparent to the Trustees that BFC needed to grow to remain competitive in the market.
To that end, various options were explored, including a potential merger of equals and the unsolicited interest of a buyer for BFC. Both events led to the necessity for an independent valuation of BFC’s fair market value. The results of that valuation indicated a significant increase in the value of the bank, which would require double the payout for OBT, therefore doubling the dividends from BFC to meet OBT’s 5 percent obligation.
The BFC board held discussions about its various options, deciding not to pursue a merger of equals. The Trustees believed a sale of the bank was necessary to meet the obligations of the increased valuation, but the non-OBT BFC board members disagreed and denied the Trustees’ right to sell its shares of stock. These same BFC board members passed resolutions to stop any further exploration of a sale and instructed management to not answer any inquiries from potentially interested buyers. The BFC board also voted to remove the OBT Trustees.
The Trustees do not believe it was prudent or even realistic to expect BFC to generate sufficient dividends to meet the disbursement needs going forward. They are required to explore strategic options for BFC in order to comply with their fiduciary responsibilities and to act in accordance with Otto Bremer’s directions as expressed in the Trust Instrument.
OBT was put in an untenable position, which led the Trustees to sell 725,000 shares of its Class B non-voting stock to several interested parties in October 2019. BFC refused to recognize OBT’s absolute right to sell its Class B shares. This led to litigation between several parties involved in the transactions.
- The investors that acquired OBT’s Class B shares sued BFC for its refusal to recognize them as new shareholders.
- BFC and a group of employees sued OBT over the Trustees’ right to sell shares.
- Minnesota Attorney General filed a petition seeking to remove the Trustees.
All lawsuits are in various stages of litigation. In April 2022, trustee Brian Lipschultz was removed by the court. The other two trustees, Charlotte Johnson and Daniel Reardon, remain.
OBT’s Trustees will work cooperatively with BFC to find a way to separate BFC and OBT through a sale of the bank that will release the bank from the heavy dividend demand required to meet the increased valuation while increasing the value of OBT, subsequently providing double the amount of funds to use for charitable purposes throughout the four-state region.
The Otto Bremer Trust was established in 1944 by St. Paul businessman Otto Bremer and funded with shares from the common stock of the Otto Bremer Company. The purpose of the Trust was to support charitable causes in Minnesota, Montana, North Dakota, and Wisconsin. At its inception, the Trust owned 100 percent of what is today Bremer Financial Corporation.
Learn more about our history.
The 1969 Tax Reform Act had implications that required private foundations to operate differently with new requirements. One of these rules was a 5 percent payout based on the fair market value of Bremer Financial Corporation, the Otto Bremer Trust’s primary asset, and an ownership limitation of no more than 20 percent of voting shares. In 1989, the organization was restructured to comply with these new tax laws, including creating an ownership structure that allowed the dividends from BFC to fund OBT’s philanthropic distributions. After the reorganization, this is how the shares and shareholders were organized:
1,200,000 Class A voting shares
240,000 owned by OBT (20% of the class)
960,000 owned by BFC’s directors, ESOP and retirement plans (80% of class)
10,800,000 Class B non-voting shares
10,800,000 owned by OBT (100% of the class)
12,000,000 total shares (Class A plus Class B shares)
11,040,000 owned by OBT (92.00% of the total shares outstanding)
960,000 owned by BFC’s directors and ESOP and retirement plans (8.00% of the total)
Class A and Class B shares are the same in terms of economic ownership, but the Class B shares are non-voting except in certain situations, such as a sale of the bank or other extraordinary transactions.
At the time the 1989 reorganization was approved by the BFC board, there was a clear understanding by both the Trustees of OBT and bank management that the bank could be sold at any time—immediately, in the near term or at some point in the future—as circumstances demanded.
The Trustees continued to serve as directors of BFC, and with the expansion of the BFC board in in response to the Sarbanes-Oxley Act in 2002, the Trustees became minority members of the board.
In 2019, with the bank’s assets crossing the $10 billion mark, it was apparent to the Trustees that BFC needed to grow to remain competitive in the market.
To that end, various options were explored, including a potential merger of equals and the unsolicited interest of a buyer for BFC. Both events led to the necessity for an independent valuation of BFC’s fair market value. The results of that valuation indicated a significant increase in the value of the bank, which would require double the payout for OBT, therefore doubling the dividends from BFC to meet OBT’s 5 percent obligation.
The BFC board held discussions about its various options, deciding not to pursue a merger of equals. The Trustees believed a sale of the bank was necessary to meet the obligations of the increased valuation, but the non-OBT BFC board members disagreed and denied the Trustees’ right to sell its shares of stock. These same BFC board members passed resolutions to stop any further exploration of a sale and instructed management to not answer any inquiries from potentially interested buyers. The BFC board also voted to remove the OBT Trustees.
The Trustees do not believe it was prudent or even realistic to expect BFC to generate sufficient dividends to meet the disbursement needs going forward. They are required to explore strategic options for BFC in order to comply with their fiduciary responsibilities and to act in accordance with Otto Bremer’s directions as expressed in the Trust Instrument.
OBT was put in an untenable position, which led the Trustees to sell 725,000 shares of its Class B non-voting stock to several interested parties in October 2019. BFC refused to recognize OBT’s absolute right to sell its Class B shares. This led to litigation between several parties involved in the transactions.
- The investors that acquired OBT’s Class B shares sued BFC for its refusal to recognize them as new shareholders.
- BFC and a group of employees sued OBT over the Trustees’ right to sell shares.
- Minnesota Attorney General filed a petition seeking to remove the Trustees.
All lawsuits are in various stages of litigation. In April 2022, trustee Brian Lipschultz was removed by the court. The other two trustees, Charlotte Johnson and Daniel Reardon, remain.
OBT’s Trustees will work cooperatively with BFC to find a way to separate BFC and OBT through a sale of the bank that will release the bank from the heavy dividend demand required to meet the increased valuation while increasing the value of OBT, subsequently providing double the amount of funds to use for charitable purposes throughout the four-state region.