A shareholder from Maine has filed a class action complaint against the board of directors of Central Vermont Public Service for breach of fiduciary duty.
Howard Davis alleges that the board failed to secure the best possible price for stockholders when it agreed to a merger with Montreal-based Gaz Metro. He claims that the board did not engage in an “adequate sales process.”
The lawsuit was filed in U.S. District Court in Rutland the day after CVPS, Vermont’s largest electric utility, announced that it would sell the company to Gaz Metro and become merged with its subsidiary, Green Mountain Power, Vermont’s second largest electric company.
The lawsuit is an attempt to stop the consummation of the merger through an injunctive relief order. Davis alleges that the defendants violated their “fiduciary duties of loyalty, good faith, due care, and full and fair disclosure.”
Davis’ attorney, A. Jeffry Taylor of Abatiell Associates in Rutland, declined to comment on the case.
In response, CVPS Director of Public Affairs Steve Costello said: “We are confident that the CVPS board conducted a professional, comprehensive process leading up to the sale agreement, which provides a 45 percent premium on the stock, and complied with all of their duties. We are confident that the court will agree.”
Fortis promised stockholders a strike price of $35.10 on May 30; Gaz Metro made an unsolicited, hostile takeover bid for CVPS with a stock price offer that increased the shares by 15 cents in mid-June. The deal between CVPS and Gaz Metro was sealed on July 12.
Davis alleges that the defendants, the board of directors of CVPS, “engaged in self-dealing and obtained for themselves personal benefits, including personal financial benefits, not shared equally by plaintiff or the public shareholders of Central Vermont common stock.”
The lawsuit also claims that the defendants failed to disclose to shareholders “all material information upon which they are able to make an informed decision about whether to vote their share in favor of the proposed transaction.”
Davis claims in the lawsuit that the board failed to undertake “an adequate sales process” prior to agreeing to the originally struck deal with Newfoundland-based Fortis, Inc. As part of the merger, CVPS is obliged to pay a $19.5 million break-up fee because the board decided to accept the offer from Gaz Metro.
Davis argues that the $19.5 million, or $1.50 per share, will be deducted from the profits to shareholders. According to CVPS CEO Larry Reilly, CVPS was required to issue a check for the break-up fee the day the deal was struck with Gaz Metro. He said at the press conference when the agreement was announced on Tuesday that Gaz Metro would reimburse CVPS for the break-up payment.
“The increase in consideration by Gaz could have been significantly higher had the Board not hastily agreed to the inadequate offer by Fortis such that Central Vermont was required to pay $19.5 million in order to terminate the Proposed Fortis Transaction,” the lawsuit states.
Davis also seeks to find out whether board directors erected barriers to discourage other alternatives to the merger and whether Gaz Metro and Central Vermont are “aiding and abetting the wrongful acts of the Individual Defendants.”
