While not accusing anyone of outright dishonesty, one of several attorneys pursuing a class action on behalf of The Shaw Group’s shareholders against the pending sale to CB&I suspects some “backroom dealing” led up to the agreement.
“We have significant concerns that company insiders are using the merger transaction to benefit themselves in ways that the rest of the shareholders are not benefiting from,” says David Wissbroecker of San Diego-based law firm Robbins Geller Rudman & Dowd.
Plaintiffs argue Shaw’s top executives are looking to cash out quickly, and that the stated price of $46 per share in cash and stock doesn’t fully account for the company’s higher revenue projections over the next few years. While Wissbroecker is unable to offer an alternate estimate of the company’s value, he says litigation affords the opportunity to gather the needed information.
It wouldn’t be good idea for a company to completely open its books to anybody and everybody all the time, he notes. “[But] in the context of this transaction, that’s when the kimono needs to open, and it’s not,” he says. “Part of the problem in dealing with a case like this is, there is no possible way for us or our clients to have any insight into what’s going on in a corporate boardroom.”
Wissbroecker says Shaw’s top executives can’t unload their vested stock without tanking the company’s value, and can’t quickly monetize their other holdings without a change in control of the company. So their motivations aren’t necessarily aligned with those of a shareholder who sees Shaw as a long-term investment.
“Jim [Bernhard, Shaw’s founder and CEO] is a pretty wealthy guy,” Wissbroecker says. “If he had a chance to get $1 million today as opposed to three or four years from now, that’s probably not going to give him much incentive. But if he has a chance to get $36 million or $46 million tomorrow, instead of five years from now, that does mean something, even to a wealthy guy.”
Plaintiffs argue the deal protection measures built into the transaction effectively shut out other bidders that might have offered a better price. Wissbroeker says the recent divesture of certain Shaw assets, while perhaps making Shaw a more appropriate merger partner for CB&I, also made the company less attractive to other potential suitors.
“They’re kind of giving away the crown jewels of the company before the transaction closes,” he says, noting, for example, the decision to sell Shaw’s stake in Westinghouse, described at the time as a way to reduce debt.
“We continue to believe that the transaction with CB&I is in the best interest of and creates significant value for its shareholders as well as its employees and customers,” says Shaw spokeswoman Gentry Brann. “In fact, the transaction offers a 72% premium over Shaw’s stock price on July 27, 2012. The company believes these lawsuits are without merit and intends to vigorously defend itself.”
CB&I President/CEO Philip Asherman says Shaw is a leader in the industries it serves, adding the acquisition will “create a combined organization that will be unique in its ability to respond to the growing demand for energy infrastructure throughout the world.”
East Baton Rouge District Court Judge Wilson Fields is expected to name the lead counsel for the class action on Friday.
