By PETER HUSSMANN
A Wisconsin man has filed a class action lawsuit against Iowa Telecom, its CEO, Alan Wells, and each of the company's board of directors claiming they breached their "fiduciary duty" to shareholders by agreeing to be acquired by Windstream Corporation at a price that undervalues the Newton, Iowa based company's actual worth.
Iowa Telecom shareholder Joseph Haen filed the suit in federal court in Des Moines last week saying the transaction facilitated by Iowa Telecom's board of directors "is not in the best interests" of shareholders and that the board of directors "violated their fiduciary duties in approving the proposed transaction."
In arguing that the $1.1 billion cash and debt assumption transaction undervalues Iowa Telecom's actual worth for shareholders, Haen notes the rural telecommunications provider "has performed extremely well throughout the recession."
"In the third quarter of 2009 alone, the company generated $68.3 million in revenue and sales, a substantial increase from the third quarter of 2008 figure of $62.9 million," the lawsuit states.
The petition goes on to note that Iowa Telecom's senior management, as recently as October 29, 2009, "touted its potential growth prospects in light of its business model and recent acquisitions."
"We are extremely pleased with our strong results for the quarter, which reflect the benefits of our strategy of growth through acquisition," the petition quotes CEO Wells from a press release pertaining to Iowa Telecom's quarterly earnings.
According to the terms of the acquisition agreement, Iowa Telecom shareholders will receive 0.804 shares of Windstream stock and $7.90 in cash for each share of Iowa Telecom held. Based on Windstream's closing price on the day before the Nov. 24 acquisition announcement, shareholders will receive $16.04 per Iowa Telecom share, a price the plaintiff argues is "considerably lower" than the company's 52-week high of $16.41 and all-time high of $23.52.
Haen, in his petition, also argues that even though the stock price has fallen due to the recession, since March 2009 its value has increased more than 38 percent.
"Clearly, Iowa Telecom's value as an ongoing business is greater than the consideration to be paid in the proposed transaction," the lawsuit states. "As such, the proposed transaction is inadequate to Iowa Telecom's shareholders and represents a significant discount to the company's actual and intrinsic value. (T)he directors have no valid or pressing reason to sell the company at the low value contemplated in the proposed transaction."
The lawsuit goes on to state that the acquisition "appears to be the product of an unfair sales process" that allows CEO Wells the benefit of gaining a seat on the Windstream Corporation's board of directors. The suit goes on to note the transaction is unfair to shareholders because:
- There are no appraisal rights for shareholders.
- Iowa Telecom must pay Windstream a $25 million termination fee if the deal fails to go through.
- The agreement prohibits Iowa Telecom from soliciting other proposals.
- Windstream is given 72 hours to match any competing offer, if one is made.
- A "force-the-vote" provision is included in the agreement that requires shareholders to vote on the matter even if a superior proposal is made and Iowa Telecom's board changes its recommendation.
The class action lawsuit is asking the court to stop Iowa Telecom from completing the transaction "unless and until the company adopts and implements a fair transaction that does not irreparably harm the company's shareholders," damages and attorney fees.
Haen is being represented by the Washington, D.C.-based law firm of Finkelstein Thompson through the Des Moines law office of Wandro & Baer.
