Investors Turn Up Nose at $3.2B Oil Merger

WILMINGTON, Del. (CN) – Pointing to oil’s miraculous market turnaround, shareholders claim in a federal class action that the planned $3.2 billion acquisition of a Texas tycoon’s company falls short.

Filing suit in Delaware on March 22, lead plaintiff Alan Sobel notes that shares of Clayton Williams Energy have more than tripled over the past six months. The company’s stock went from $29.53 to $103.98 in the half-year prior to the January announcement that Noble Energy Inc. would acquire all of Clayton stock, plus $500 million in debt, according to the complaint.

The spike in stock value aligns with a surprising comeback for the industry. Forbes reported that the eponymous CEO of Clayton Williams Energy appeared poised for financial ruin when oil prices had plummeted to a decade low in early 2016.

Now that prices are trending upward, Sobel says the deal with Noble “appears … unfair and inadequate” to company’s shareholders.

“The intrinsic value of the company’s common stock is materially in excess of the amount offered for those securities in the proposed merger given the company’s recent financial performance and prospects for future growth and earnings,” the complaint alleges.

Worse, says Sobel, board members attempted to pull the wool over shareholders’ eyes by submitting a “materially incomplete and misleading” financial report to the Securities Exchange Commission.

With shareholders putting the the buyout offer to a vote on April 24, the company filed an Amended S-4 Registration Statement with the SEC that Sobel says contained several omissions.

Sobel argues that the monetary projections and other data crucial missing from the statement are crucial to shareholders making an informed decision on the fairness of the deal, including terms of confidentiality agreements between the two sides and a financial analysis on the buyout rendered by Goldman Sachs.

The incomplete S-4 statement constitutes a violation of the federal Securities Exchange Act, which prohibits both outright falsehoods and the practice of misleading shareholders by omitting certain facts, according to complaint.

Sobel wants the court to put a stop to the proposed transaction and to postpone the shareholder vote until Clayton Williams Energy execs pony up all the numbers relevant to the merger, including the Goldman Sachs valuation analysis. 

Individual defendants to the class action include the 84-year-old eponymous CEO of Clayton Williams Energy.

Williams looked poised to trade the oil rigs for politics in 1990 when he held a huge lead in the Texas gubernatorial race. His campaign went awry, however, when he jokingly compared bad weather to rape. “If it’s inevitable, just relax and enjoy it,” Williams had said.

Representatives from Clayton Williams Energy did not return a Friday afternoon phone call seeking comment.

The class is represented by James Banko of Faruqi & Faruqi.

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