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Shareholders Sue Over Mega-Pipeline Merger

(CN) - TransCanada's $13 billion acquisition of Columbia Pipeline Group undervalues the company and unfairly benefits its largest shareholder, JPMorgan Chase, a class claims.

Stephen Vann and Dennis Zuke filed a class action against Columbia Pipeline Group (CPG), TransCanada Pipelines, CPG CEO Robert C. Skaggs, Jr. and other CPG officers in Delaware Chancery Court on March 30.

Vann and Zuke are shareholders of CPG, which operates 15,000 miles of pipeline from New York to the Gulf of Mexico. It also runs one of the nation's largest underground natural gas storage systems.

TransCanada operates more than 42,000 miles of pipelines across North America, and is the continent's largest provider of gas storage.

Shareholders say CPG performed very well in 2015. But despite "its securing the largest project in the company's history, and its flawless execution of its deep inventory of expansion and modernization projects, the board decided to sell the company rather than pursue its excellent prospects as a standalone business," according to the lawsuit.

On March 17, 2016, CPG's board announced that it had accepted TransCanada's acquisition offer, which will pay shareholders $25.50 per share, a premium of 32 percent, for a total value of $13 billion, including debt, according to court records.

Skaggs presented the deal to shareholders as delivering "tremendous value," but the class action lawsuit says that process was infected with conflicts.

"The proposed acquisition is the product of a hopelessly flawed process that is designed to ensure the sale of CPG to TransCanada on terms preferential to defendants and other CPG insiders and to subvert the interests of plaintiff and the other public stockholders of the Company," the complaint states.

In particular, CPG's largest shareholder, JPMorgan Chase & Co., will receive over $1.1 billion from the sale of its illiquid CPG holdings and is actively working with TransCanada to find buyers for more than $7 billion in assets to help TransCanada raise money to complete the acquisition, the lawsuit claims.

CPG's officers allegedly will also receive special benefits for currently unvested stock options and retain their management positions after the deal closes.

"The $25.50 per share proposed consideration is significantly below the market high of $33.00 per CPG share on June 17, 2015. CPG most recently traded above the offer price at $25.82 on August 31, 2015. Further, the $25.50 per share proposed consideration is significantly below the target price of $29.00 set by an analyst at UBS on December 8, 2015," the 19-page complaint states.

Shareholders believe CPG has excellent prospects, despite the recent downturn in the energy market, but "the board agreed, for its own interests, to sell CPG on the cheap, ignoring its duty to maximize stockholder value." They seek a court order enjoining the proposed acquisition as a breach of defendants' fiduciary duties.

CPG shares closed at $25.08 on Friday.

Vann, Zuke and the proposed class are represented by R. Bruce McNew with Wilks, Lukoff & Bracegirdle in Wilmington, Del.

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