(CN) – Former stockholders of the Columbia Pipeline Group Inc. claim in a class action that company executives orchestrated a scheme to separate from its subsidiary NiSource, Inc. then quickly sold the company to TransCanada Corporation to cash in on lucrative change-in-control benefits before they retired.
The lead plaintiff, the Public Employees’ Retirement System of Mississippi, filed suit in Delaware Chancery Court against TransCanada and former members of Columbia Pipeline’s board of directors, including former president and CEO Robert C. Skaggs, Jr.
The class claims Skaggs, former CFO Stephen P. Smith and former executive vice-president, non-party Glen Kettering, devised a “disloyal plan” to spin Columbia Pipeline off from its parent energy company, NiSource, to get multimillion dollar “golden parachute payments” upon retirement which were only payable in the event of a change-in-control.
According to the suit, multiple buyers expressed interest in acquiring NiSource’s midstream business but the inquiries created a “serious conflict of interest” for Skaggs, Smith and Kettering who were near retirement and determined to receive their benefits.
“A sale of only NiSource’s midstream assets, however, would not have qualified as a change-in-control transaction for purposes of triggering their golden parachutes and, moreover, would have seriously undermined any hope of a future change-in-control transaction,” the suit states.
The lawsuit alleges that Skaggs, Smith and Kettering, who all worked for NiSource for decades, spun-off NiSource’s midstream assets into stand-alone and publicly traded Columbia Pipeline in July 2015, took over the executive officer positions of the company, only to engineer its sale to TransCanada in July 2016 for $25.50 per share in cash to trigger the compensation.
The lawsuit says TransCanada “knowingly and willingly” participated in the plan to spin-off and then sell Columbia Pipeline. Smith, the suit says, had a prior relationship with TransCanada’s principal negotiator and knew that TransCanada would facilitate the termination of Columbia Pipeline’s executives once the acquisition closed, allowing them access to the change-in-control payments.
The lawsuit adds that since the acquisition, new information revealed investors were misinformed when they voted in favour of the acquisition. For example, other potential buyers were excluded by tax law from pursuing an acquisition of Columbia for two years after the spin-off. Meanwhile, Columbia Pipeline negotiated stand-still agreements with all potential buyers but allegedly allowed TransCanada to breach it. Smith also allegedly had conversations with an insider at TransCanada, saying that Columbia Pipeline “eliminated all the competition.”
Skaggs received $23.4 million in change-in-control compensation, Smith received $9.5 million and Kettering received $7.2 million through a process that was unfair to investors, the class claims.
“They pursued a sale without affording any good faith consideration to whether it was the right time to sell or whether Columbia Pipeline stockholders would be better served by Columbia Pipeline remaining a standalone enterprise,” the suit says.
The class is represented by Ned Weinberger and Thomas Curry of Labaton Sucharow LLP in Wilmington, Del., and of counsel Eric Belfi and Ira A. Schochet in New York.