Mariner Energy Faces Investor Lawsuit in Delaware Over Apache Takeover Bid

Mariner Energy Inc., the oil and gas explorer being bought by Apache Corp. for more than $2 billion in cash and stock, was sued by a shareholder contending the deal undervalues the company.

The sale comes at a fraction of Mariner’s true value, the Southeastern Pennsylvania Transportation Authority said yesterday in a complaint filed in Delaware Chancery Court. Philadelphia-based SEPTA is the nation’s fifth-largest public transportation system.

“The merger represents a staggeringly good deal for Apache and conversely a staggeringly bad deal for Mariner’s shareholders,” lawyers for SEPTA said in the complaint. “Mariner’s stockholders will receive a token cash payment and shares in Apache, a much larger company with a wholly different asset portfolio than Mariner’s.”

Apache, the second-largest independent U.S. oil producer, has spent about $10 billion on acquisitions in the past decade. Under the buyout, Mariner shareholders will get 0.17043 shares of Apache and $7.80 in cash for each of their shares. Apache will assume $1.2 billion in debt.

A Mariner spokesman, Patrick Cassidy, said the company doesn’t comment on pending litigation.

The deal gives Apache access to Mariner’s 2 billion barrels of oil equivalent in potential reserves, Simmons & Co. analyst Bill Herbert said in an April 15 note to investors. The deal will also add to Apache’s holdings in shallow Gulf of Mexico waters and in the Permian Basin of West Texas.

5% Stake

Apache’s deal will cast Mariner investors in a position as “heavily diluted minority stockholders” with about a 5 percent stake in Apache, SEPTA said in the complaint. The deal represents a “wholesale deviation” from Mariner’s long-term strategy of exploration and development of U.S.-based assets, according the complaint.

“Mariner’s stockholders, who had invested in a pure-play U.S. oil and gas exploration and production company with probably the premium position in the Gulf of Mexico of any smaller company, will be subjected to the many risks associated with Apache’s far flung asset portfolio,” SEPTA said in the complaint.

SEPTA is seeking a court order barring the transaction plus unspecified damages.

Mariner fell 3 cents to $25.74 at 4:15 p.m. in New York Stock Exchange composite trading after falling as much as 32 cents, or 1.2 percent, earlier. Apache rose 18 cents to $108.24. Both companies are based in Houston.

The case is SEPTA v. Josey, CA5427, Delaware Chancery Court (Wilmington).

To contact the reporters on this story: Sophia Pearson in Wilmington, Delaware, at spearson3@bloomberg.net; Phil Milford in Wilmington at pmilford@bloomberg.net.

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