July 25 (Bloomberg) -- GenOn Energy Inc. and NRG Energy Inc., the company acquiring it to create the largest U.S. independent power producer, were sued by a shareholder claiming the $1.7 billion all-stock deal undervalues the company.
Jared Fensin, a GenOn investor, sued the companies and GenOn executives arguing that the proposed transaction shortchanges shareholders and is structured in a way that discourages other offers, according to a complaint filed today in Delaware Chancery Court in Wilmington. Fensin seeks to represent all shareholders as a group.
Under the terms of the deal, GenOn shareholders will get .1216 shares of Princeton, New Jersey-based NRG’s stock for each of theirs, according to court filings. GenOn investors would get about $2.19 based on NRG’s closing share price of $18.05 on July 20, the last trading day before the deal was announced.
The takeover is “unfair and grossly inadequate” because “the intrinsic value of GenOn’s common stock is materially in excess of the amount offered,” Fensin’s lawyers said in court papers.
NRG stockholders would own about 71 percent of the combined company and GenOn shareholders would own the remaining 29 percent, according to court documents.
Lori Neuman, a spokeswoman for NRG, didn’t immediately return a call after regular business hours seeking comment on the lawsuit. Laurie Fickman, a spokeswoman for GenOn, declined to comment on it.
The deal should also be blocked because it contains provisions that “all but ensure the proposed transaction is successful and no competing offers will emerge,” lawyers for Fensin said in court filings.
GenOn, based in Houston, is barred from soliciting any competing offers because of a so-called “no-shop” provision, according to court documents. If an offer surfaces, NRG must be notified within a day and then has 4 days to negotiate and modify its offer.
NRG would get a $60 million fee, about 3.5 percent of the deal value, if GenOn accepts another bid, according to court filings.
The case is Fensin v. GenOn Energy Inc., CA7721, Delaware Chancery Court (Wilmington).
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