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Law360 (August 14, 2020, 4:10 PM EDT) -- A Noble Energy investor sued the company in New York federal court Friday, seeking to halt the independent energy business' proposed $5 billion all-stock deal with Chevron Corp. until more information is disclosed about the transaction.
Investor David Walsh asserts that Noble Energy's directors breached their fiduciary duty by filing an incomplete and misleading registration statement with the U.S. Securities and Exchange Commission to convince shareholders to approve the merger. Walsh seeks to postpone the vote, which is scheduled to take place in a few weeks, until shareholders are given the information necessary to cast an informed ballot.
"Unlike poker where a player must conceal his unexposed cards, the object of a registration statement is to put all one's cards on the table face-up," Walsh said in the complaint. "In this case only some of the cards were exposed — the others were concealed."
Last month, California-based Chevron, the second-largest U.S. integrated energy company, announced it will purchase Noble Energy in a deal valued at $5 billion or $10.38 for each Noble Energy share, according to the suit. Noble Energy's shareholders will receive 0.1191 Chevron shares for each Noble Energy share, and they will own a 3% stake in the resulting combined company.
Walsh asserts that the deal is "woefully inadequate" arguing the price per share is low-balled based on the company's performance over the past year. According to the suit, investors that purchased stock at its peak within the last year stand to incur a "pre-dividend loss of approximately 62%."
By basing the value of the company's stock "through the narrow lens" of what it was trading at in the days prior to the deal is "hardly a fair assessment of the intrinsic value of a stock" considering the country is still grappling with the COVID-19 pandemic, creating unprecedented volatility in the market "due to great uncertainty and radical economic change," the suit said.
Walsh says the registration statement lacked key details about financial projections that were used by an adviser to back its fairness opinion in support of the transaction and as well as information about discussions with other bidders, including whether they involved "Don't Ask, Don't Waive" provisions.
Such provisions create "the false impression that any company could have made a superior proposal," when in fact bidders can only make a better offer if they breach the agreement. Shareholders have a right to know if a DADW provision existed, Walsh said.
Also, the nine directors named in the suit "stand to be richly compensated" upon completion of the merger through "a vast array of particularly lucrative deal devices," including golden parachutes, severance packages, employment agreements and accelerated vesting of options, the suit claims.
One director, in particular, stands to receive $5 million from a $40 million fund created to award executives.
"Together, these deal devices have the potential to grant defendants tens of millions of dollars in compensation unique to them," Walsh said.
Representatives for Walsh, Noble Energy and Chevron didn't immediately respond to requests for comment Friday.
Walsh is represented by Juan E. Monteverde of Monteverde & Associates PC.
Counsel information for Noble Energy wasn't immediately available Friday.
The suit is Walsh v. Noble Energy Inc. et al., case number 1:20-cv-06451, in the U.S. District Court for the Southern District of New York.
--Editing by Orlando Lorenzo.
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