Central Vermont Public Service shareholder files federal lawsuit to block utility's sale to Montreal-based Gaz Métro, saying it undervalued its stock in accepting bid, will shortchange investors
July 15, 2011
– A Central Vermont Public Service Corp. shareholder is suing to block the utility's proposed sale, saying it undervalued its stock in accepting two purchase offers and will shortchange investors by going through with the second.
CVPS, which is Vermont's largest electric utility, says it acted appropriately.
On May 30, Canadian utility Fortis Inc. announced plans to buy CVPS for $35.10 per share. That led to a rival bid of $35.25 per share from Gaz Metro of Montreal, which owns Green Mountain Power Corp.
This week, CVPS announced it was backing out of the Fortis agreement in favor of the Gaz Metro proposal, a $472.4 million deal that would result in a merger of CVPS and Green Mountain Power.
Not so fast, says CVPS shareholder Howard Davis.
In a federal lawsuit filed Wednesday in U.S. District Court in Rutland, the Maine man says CVPS accepted an inadequate offer from Fortis, had to buy its way out of it and as a result got the second offer at a similarly inadequate price.
The suit says CVPS' board members "engaged in self-dealing and obtained for themselves personal benefits, including personal financial benefits" not shared by shareholders.
In a joint statement issued Friday, CVPS, Green Mountain Power and Gaz Metro defended the CVPS board.
"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," said the statement, provided by CVPS spokesman Steve Costello. "We are confident that the court will agree."
No information about Davis was included in the complaint, and his attorneys -- A. Jeffry Taylor of Rutland and Juan Monteverde of New York -- wouldn't say where in Maine he lives or give any other information or comment.
Davis, whose attorneys want the suit declared a class action on behalf of all CVPS shareholders, says CVPS' board failed to adequately gauge the market value of the company before agreeing to the Fortis deal and agreed to a too-low price, despite CVPS' strong performance and improved earnings in the previous year.
CVPS had to pay Fortis $19.5 million for a termination fee and expenses to get out of it -- a $1.50-per-share hit to shareholders, according to the suit.
Had CVPS not agreed to such a low price in the Fortis offer, it could've elicited a higher one from Gaz Metro, according to the suit.
The suit acknowledges that the Gaz Metro offer is superior but contends it could've been for more money.
In addition, Davis says, the Gaz Metro proposal includes the same "preclusive devices" that resulted in the $19.5 million payment to sever the Fortis deal, which will either discourage more bids for CVPS or require another substantial cash payment if CVPS backs out of the Gaz Metro deal.
The suit seeks to either block the Gaz Metro purchase of CVPS or to recover damages resulting from the individual defendants' alleged violations of their fiduciary duty. It names CVPS, Gaz Metro Limited Partnership and 10 individual board members as defendants.
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