7th Circuit confirms rejection of Vectren shareholders’ action against merger


A panel of 7e Circuit Court of Appeals upheld a district court ruling that dismissed a shareholder lawsuit over the acquisition of one of Indiana’s major utility companies with a utility holding company out of state in 2018.

CenterPoint Energy, Inc., based in Texas. acquired all shares of Vectren Corporation for $ 72 per share and assumed the debt of the Indiana utility giant. But several Vectren shareholders have sued for alleged violations of the Securities Exchange Act of 1934, arguing that Vectren’s proxy statement did not provide for cash flow projections from 2018 to 2027, in violation of Securities and Exchange Commission rules. .

In September 2019, US District Judge Richard L. Young dismissed the shareholders’ lawsuit, comparing the case to the elementary school math requirements of “showing your work.” Young wrote in his dismissal that the shareholders had not sufficiently alleged that the omissions “actually caused the injury for which they are claiming damages.”

The 7e Agreed circuit, to affirm the district court in a decision Monday.

The court briefly parted with Young’s ruling in one regard, disagreeing with its finding that the shareholder affidavit of financial expert Mr. Travis Keath was irrelevant in determining whether the plaintiffs had made a complaint. Rather, she concluded that there was nothing improper about the applicants’ inclusion or reliance on the Keath affidavit to oppose the dismissal.

“Although the Keath affidavit generally supports the complainants’ position that shareholders would have liked to have had more information rather than less, this does not help complainants to explain why a shareholder was or likely was misled. by omitting the two additional measures in light of all other information provided to shareholders in the proxy statement, ”wrote circuit judge David Hamilton for the Federal Court of Appeal.

With regard to the main problems alleged by the shareholders, the 7e Circuit asserted that the omitted business line projections and the unleveraged cash flow projections were intangible in law in light of all other information disclosed in the proxy statement.

Specifically, he took note of the shareholder argument that industry projections were important because they were a key part of Merrill Lynch’s discounted cash flow analysis.

“Two compelling facts make the point,” Hamilton wrote. “First, CenterPoint proposed to acquire Vectren as a whole: not in individual business segments. Second, the plaintiffs also owned shares of Vectren as a whole: not individual business segments. The proposed merger did not give shareholders the opportunity to sell separate stakes in separate lines of business.

“The complainants have therefore not alleged a substantial likelihood that a reasonable shareholder would have viewed the business segment projections as significantly altering all of the information available on voting for or against the proposed merger.”

The 7th Circuit also found that shareholders failed to provide a plausible explanation as to why Vectren’s omission of unleveraged cash flow projections made the proxy statement materially misleading in light of all the information available to them. disposition.

“Furthermore, the applicants, unlike the applicant in (Campbell v. Transgenomic, Inc., 916 F.3d 1121 (8th Cir. 2019), do not actually allege that the consolidated projections undervalued Vectren or that the company was worth more than the $ 72 per share paid in the merger. As convincing as Campbell is about his facts, it is irrelevant here, ”he wrote.

On the issue of the shareholder’s failure to allege the existence of a causal link with the loss and its heavy reliance on the Supreme Court’s decision in Mills v. Electric carLite Co., 396 US 375, 384–85 (1970) to show that they made adequate claims on the 7the Circuit concluded that the complainants’ assertion that Merrill Lynch used an incorrect discount rate did not cross the line from “possible to plausible”.

Further, he found that the allegations at most amounted to speculation that had the omitted parameters been disclosed, they could have determined that their shares were worth more than $ 72.

“Here, the plaintiffs do not even allege the existence of a viable superior supply, which makes their claims of economic loss even weaker than those of (Beck vs. Dobrowski, 559 F.3d 680 (7th Cir. 2009)) ”, he writes. “Because the plaintiffs did not allege economic loss, the district court correctly determined that they did not plead causation of the loss.”

The case is Michael Kuebler vs. Vectren Corporation, 19-2973.

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