by Andrew Walden

A Florida law firm is launching a class action stockholder lawsuit against the Hawaiian Electric-NextEra merger. 

Filed December 30, Brown vs Hawaiian Electric asserts that "the consideration offered to HEI shareholders is inadequate." 

According to the suit, HEI CEO and President Constance Lau, HEI CFO James Ajello, and HEI CAO Chet Richardson "will receive lump sum cash payments equal to approximately $8,000,000, $2,300,000, and $1,900,000 at the effective time of the merger if their employment with NEE is terminated."

The suit challenges "Preclusive Deal Mechanisms" included in the merger agreement, arguing:

...certain provisions ... unfairly favor the NEE Defendants by making an alternative transaction either prohibitively expensive or otherwise impossible. For example, the Merger Agreement contains a termination fee provision that requires HEI to pay up to $90,000,000.00 to the NEE Defendants if the Merger Agreement is terminated under certain circumstances. Under one scenario, HEI must pay up this fee if it consummates any Company Acquisition Agreement (as defined in the Merger Agreement) within twelve (12) months following the termination of the Merger Agreement.

The termination fee payable under this provision will make the Company that much more expensive to acquire for potential purchasers, while resulting in a corresponding decline in the amount of consideration payable to HEI shareholders.

The Merger Agreement also contains a "No Solicitation" provision that restricts HEI from considering alternative acquisition proposals by, inter alia, constraining REI's ability to solicit or communicate with potential acquirers. Specifically, the provision prohibits the Company from soliciting any alternative proposal after the defined time period, but permits the Board to consider a "bonafide written Company Takeover Proposal" if it constitutes or is reasonably calculated to lead to a "Superior Company Proposal' as defined in the Merger Agreement.

Moreover, the Agreement further reduces the possibility of a topping offer from an unsolicited purchaser. Here, Defendants agreed to provide the NEE Defendants information in order to match any other offer, thus providing the NEE Defendants access to the unsolicited bidder's financial information and giving the NEE Defendants the ability to top the superior offer. Thus a rival bidder is not likely to emerge with the cards stacked so much in favor of the NEE Defendants. Accordingly, the Company's true value is compromised by the consideration offered in the Proposed Acquisition, and the Proposed Acquisition is the product of the Board's breaches of fiduciary duty, aided and abetted by NEE....

Shareholder lawsuits are rarely successful in blocking mergers, but they often result in 'nuisance money' settlements.  There are now at least two class action suits filed against the HEI-NextEra merger.

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PDF: Lawsuit

Dec 15, 2014: Class-action lawsuit challenged Hawaiian Electric sale