Merger a Slam Dunk for Boards, Investors Say

(CN) - A merger between Baltic Trading and Genco Shipping & Trading is a slam-dunk for directors serving on both companies' boards, stockholders say in a class action lawsuit.

Baltic, founded by Genco in 2009, was organized under the laws of the Republic of the Marshall Islands but maintains its headquarters in New York.

The company operates a fleet of drybulk ships that transport loads of iron ore, coal, grain and steel products.

A merger agreement between Baltic and Genco was announced April 8, 2015. Under the agreement, Baltic stockholders would collectively own 15.5 percent of the surviving company and Genco stockholders 84.5 percent. Both companies' board of directors - some directors serve interchangeably between the two companies - voted unanimously in favor of the merger, which benefits corporate directors at Baltic stockholder expense, according to the 23-page complaint filed in New York County court.

Lead plaintiff Edward Braunstein says Genco is pressing to acquire the remaining publicly held Baltic shares on "unfair terms" and without "regard to the best interests" of stockholders.

He sued Baltic and its chairman, Peter Georgiopoulos, and Baltic directors Basil Mavroleon, Harry Perrin and Edward Terino. Georgiopoulos is also Genco's founder and chairman. Mavroleon and Perrin also serve as Genco directors.

"Indeed, the consideration to be paid to the class members is unconscionable, unfair and grossly inadequate consideration because, among other things, the intrinsic value of the stock of Baltic is materially in excess of the consideration offered, and the consideration offered is not the result of arm's-length negotiations but was fixed arbitrarily by Genco to 'cap' the market price of Baltic stock, as part of a plan for defendants to obtain complete ownership of Baltic assets and business at the lowest possible price," the complaint states.

The merger agreement is girded by protection devices that include non-solicitation and matching rights provisions and a $3.2 million termination fee, all of which lock up the deal by blocking competing bids.

Genco is also in a position to control Baltic's board of directors and matters submitted for vote to stockholders because it has control of some 65 percent of the combined voting power of Baltic's outstanding shares of stock, according to the complaint.

Under those circumstances, Baltic can't be expected to make decisions that benefit anyone but Genco, Braunstein says.

"The proposed transaction serves no legitimate business purpose of Baltic but rather is an attempt by defendants to enable Genco to benefit unfairly from the transaction at the expense of Baltic's public shareholders," the complaint states.

Braunstein is suing for breach of fiduciary duty, and aiding and abetting. He seeks a temporary and permanent injunction preventing the deal from going forward, or rescission if it has already been consummated; disclosure of all transaction information; and an injunction preventing "material transactions or changes to Baltic's business and assets unless the individual defendants have complied with their duties of good faith and loyalty and do not constitute unfair dealing."

The plaintiff also seeks attorneys' fees and costs, including costs for expert witnesses.

The plaintiff is represented by Joshua Lifshitz of Lifshitz & Miller, in Garden City, N.Y.

Subscribe to Closing Arguments

Sign up for new weekly newsletter Closing Arguments to get the latest about ongoing trials, major litigation and hot cases and rulings in courthouses around the U.S. and the world.

Email *

Submit