Second class-action lawsuit filed against Iowa Telecom buyout

By PETER HUSSMANN

A second class-action lawsuit was filed against Iowa Telecom in federal district court in Des Moines on Wednesday claiming its board of directors breached their fiduciary responsibilities to shareholders by agreeing to be acquired by Arkansas-based Windstream Corporation at a price below the real value of the company.

The case, brought by a New York City-based law firm on behalf of New Jersey shareholder Sanjay Israni, claims shareholders are being short-changed in the $1.1 billion deal and are asking the court to rescind the merger if completed and force Iowa Telecom's board of directors to seek "fair value" for shareholders.

In addition to breaching their fiduciary duty to shareholders, the suit claims Iowa Telecom's board of directors have the "responsibility to act independently so that the interests of the company's public stockholders will be protected" and to "ensure that no conflicts of interest exist between the individual defendants' own interests and the fiduciary obligations to maximize stockholder value."

"Here, Defendant (Wells) is clearly conflicted," the suit states. "As a result of his change in control agreement, he stands to receive $3.5 million in change and control payments after the proposed merger is consummated."

The suit also contends the board of directors did not take into account the possible negative ramifications to the Newton community should the transaction go forward.

"There is no guarantee that the headquarters in Newton, Iowa will remain open for business," the lawsuit states. "And in Windstream's Nov. 24, 2009 press release, the Employee Q&A indicated that the employees should consult their supervisors about continuing on major projects. This, too, indicates that there is the potential for a significant loss of jobs in the Newton area thus affecting hundreds of jobs, local businesses and the local economy."

"Only through the exercise of this court's equitable powers can plaintiff and the other members of the class be fully protected from the immediate and irreparable injury which defendant's actions threaten to inflict," the petition states.

Last Friday, a similar class-action lawsuit was filed in federal district court against Iowa Telecom and its board of directors on behalf of a Wisconsin shareholder.