TAMPA — TECO Energy, its board of directors and the organization’s new Canadian parent company face a shareholder’s suit that claims the offer of $27.55 per share wasn’t a fair price for the Tampa utility.
A lawsuit was filed last week in Hillsborough County Circuit Court claiming the TECO directors breached their fiduciary duty to shareholders by failing to maximize the overall $10.4 billion sale price, and that Nova Scotia-based energy company Emera aided and abetted in the breaches.
It is expected that additional lawsuits could follow — several national law firms have published “alerts” that they are investigating the TECO deal. Multiple cases would likely be consolidated.
The two companies announced Sept. 4 that Emera would acquire TECO for $27.55 per share. That valued the shares at $6.5 billion; the deal included $3.9 billion of TECO debt.
Previously, in response to rumors that TECO was on the block, company officials acknowledged July 15 that they were “exploring strategic alternatives” and had hired Morgan Stanley & Co. to advise the company.
The $27.55 price per common share represented a 31 percent premium from the closing price the day the deal was announced and a 48 percent premium from when rumors of a potential sale surfaced in July.
But the plaintiffs, led by Philadelphia shareholder Rhoda Kanter, say the terms of the merger “greatly favor Emera and are designed to unreasonably dissuade potential suitors from making competitive offers by including various buyer-friendly deal protection devices. ... Having failed to maximize the sale price for the company, the individual defendants (TECO directors) have breached the fiduciary duties they owe to the company’s public shareholders because the company has been improperly valued and shareholders will not likely receive adequate or fair value for their TECO common stock in the merger.”
The complaint notes that TECO had released a glowing first-quarter earnings report in April.
“The primary complaint is that the share price that’s being offered and has been agreed to is not high enough and doesn’t fairly reimburse the shareholders,” said Chris Barker, the attorney who filed the case in Tampa. “It’s a situation where we’re going to have to object to the deal and make the case to the court that a higher price is called for.”
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The complaint states it is “no wonder” the directors approved the offer, “as many of them can expect a big payday when the merger is consummated.”
Stock held by board member and TECO’s chief executive, John Ramil, is worth $20.7 million under terms of the deal. Board member Tom Rankin’s shares would be worth $20.2 million; and board Chairman Sherrill Hudson’s, $17.3 million.
A TECO spokeswoman said the company would not comment on the pending litigation. The day the deal was struck, Ramil said the company had fielded additional offers but declined to provide details.
Jianping Qi, a finance professor at the University of South Florida, said he was “surprised” shareholders would sue. Although he said he was not familiar with details of the TECO-Emera deal, he said buyout offers typically come with a per-share offer about 30 percent above the existing stock price.
“In this case it’s rather unusual,” he said. “Perhaps they have some other concerns. I’m surprised the shareholders would sue to stop it.”
TECO shares closed Tuesday at $26.63.
TECO Energy was incorporated in 1981 as part of a restructuring in which it became the parent company of Tampa Electric Co., which has been providing electricity in Hillsborough County since 1899. TECO Energy also oversees Peoples Gas System in Florida and New Mexico Gas Co.
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The company said this week it had unloaded its TECO Coal mining operation in Appalachia. Bloomberg News reported that TECO virtually gave away the mines to Booth Energy Group’s Cambrian Coal Corp.; the company said it may receive $60 million should coal prices reach “certain levels” over the next five years.
Representatives of both TECO Energy and Emera said the TECO name, its downtown Tampa headquarters and the utility’s broad philanthropic work would continue in the Tampa area.
TECO has about 2,500 employees in Tampa.