A group of Clayton Williams Energy Inc. shareholders sued the company March 22 in an attempt to block the pending acquisition by Noble Energy Inc., saying the $3.2 billion deal undervalued the rapidly rising shares of Clayton Williams.
In a class action submitted to the U.S. District Court for the District of Delaware on March 22, shareholders led by Alan Sobel said a "misleading" Form S-4 filed March 21 undervalued the company's stock ahead of the $3.2 billion acquisition by failing to "provide shareholders with all material information necessary for them to assess the fairness of the merger consideration." They are seeking an injunction to block the April 24 shareholder vote on the deal.
According to the SEC filing, the value of the transaction based on Noble Energy's Jan. 13 closing stock price was approximately $139 per Clayton Williams share, but the complaint cited Clayton Williams' rapid stock price increase from $29.53 to $103.98 over the six months preceding the Jan. 16 merger announcement. The cash and stock value of the deal was $2.7 billion at Jan. 13 prices, plus $500 million in debt that would be assumed by the purchaser.
The plaintiffs may have a hard time getting a better valuation, S&P Global Ratings analyst Michael Tsai said in an interview. "Certainly, at the time the shares were priced, oil was headed up and people were thinking a rebalance was coming, and if you look at it today, it's a much different atmosphere," Tsai said. "Crude stocks in the U.S. are at record numbers. ... We're in an environment that, if they are able to block this vote, it's unclear they would get anything better than what they have today."
Noble Energy declined to comment, and Clayton Williams did not return emails and calls seeking comment.
After reaching $147 in early February, Clayton Williams shares closed at $128.02 on March 24.
"In particular, the S-4 fails to disclose ... a fair summary of the financial analyses" performed by Goldman Sachs, which recommended that the deal go forward, according to the complaint. If the shareholder vote occurs April 24 and the transaction is approved, the shareholders suing Clayton Williams would seek to recover damages resulting from alleged Securities Exchange Act violations. (U.S. District Court for the District of Delaware docket 1:17-cv-00312-UNA)
The deal announcement came at a time of "rapidly accelerating activity" for the oil and gas producer Noble Energy, which started the year with four rigs operating in the Southern Delaware Basin — three on its acreage and one on a Clayton Williams position. Clayton Williams is a producer operating mainly in Texas, Louisiana and New Mexico.
"This transaction brings all the key elements we value: excellent rock quality, a large contiguous acreage position adjacent to our own, and robust midstream opportunities, reinforcing the Delaware Basin as a long-term value and growth driver for Noble Energy," David Stover, Noble Energy's chairman, president and CEO, said in announcing the deal.
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