HOUSTON (CN) - Shareholders claim directors are selling natural gas dealer Targa Resources to its general partner in a deal "tainted by conflicts of interest," and that share prices have been cut in half since the $6.3 billion deal was proposed last year.
Lead plaintiff John F. Lindeman filed the federal class action on Tuesday. Targa Resources Partners LP owns 12 natural gas plants in West Texas, several along Louisiana's Gulf Coast and another in North Dakota.
Lindeman claims the six co-defendant directors violated securities laws in a Dec. 3, 2015 SEC filing, in which they recommended unitholders approve the sale to Targa Resources Corp. and Targa Resources GP LLC in a stock-for-stock deal valued at $16.35 per share.
The Jan. 19 lawsuit refers to Targa Resources Partners LP as "TRP" and Targa Resources Corp. as "Corp." This story adheres to those designations.
Lindeman says the deal was initially valued at $6.3 billion and TRP unitholders were to get Corp. stock worth $35.53 per unit, which he calls a "paltry 18 percent premium."
But between Nov. 3, when Targa Resources announced the merger, and Jan. 5 this year, Corp.'s share price dropped by 50 percent, Lindeman says. "As a result, the merger consideration now significantly undervalues the partnership," the complaint states. Lindeman says it's also marred by conflicts of interest: "The proposed transaction is the product of a single-bidder process throughout which defendant Joe Bob Perkins, occupying a dual role as CEO of both TRP and Corp, brokered a deal for Corp. to takeover TRP on the cheap, to the detriment of TRP unitholders."
Targa Resources acknowledges on its website that TRP exists to fund Corp. with the goal of enriching Corp.'s stock holders.
"Our primary business objective is to increase our dividends to our stockholders by assisting the partnership in executing its business strategy. Our cash flows are generated from the cash distributions we receive from the partnership," Corp. says in a company profile on the Targa Resources website.
Lindeman takes issue with that incestuous relationship.
"For its part, Corp. is a publicly traded company on the New York Stock Exchange with quarterly shareholder earnings pressuring the company's bottom line. Thus, Corp. had an interest in, and every ability to, effectuate a takeover of TRP on the cheap using its position of control on both sides of the transaction," the lawsuit states.
Under the deal, TRP owners will get 0.62 of Corp. stock for every TRP unit.
"Based on Corp's closing price of $26.38 per share on January 5, 2016, TRP unitholders can expect to receive only $16.35 per unit," the lawsuit states.
Lindeman says another conflict of interest that should derail the deal is that Corp. elects and approves TRP's board members.
TRP's board rejected offers from three other companies before announcing it would sell out to Corp., Lindeman says, citing the partnership's SEC filing. And he says TRP's filing leaves unitholders in the dark about the negotiations that led to the proposed merger.
He seeks class certification and an injunction to stop the board from consummating the deal until it provides background that was omitted from the statement it filed with the SEC.
"A special meeting of TRP unitholders to vote on the proposed transaction is scheduled for February 12, 2016, and thus, time is of the essence," the complaint states.
Lindeman is represented by Thomas Bilek in Houston.
Targa Resources did not immediately respond to a phone message seeking comment Thursday afternoon.
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