TC Energy Corp., formerly TransCanada Corp., is planning to appeal a ruling by a Delaware court in which it was held liable for aiding and abetting breaches of fiduciary duty by two previous top executives of Columbia Pipeline Group Inc., which it acquired in 2016.
The 196-page post-trial opinion was filed last Friday (June 30) by the Court of Chancery in the State of Delaware. The court has preliminarily awarded former Columbia shareholders economic damages of $1.00/share and disclosure damages of 50 cents/share.
The award would apply to about 400 million Columbia shares that were outstanding at the time of the acquisition (No. 2018-0484-JTL). Lead plaintiffs in the lawsuit, filed in July 2018, are the Police & Fire Retirement System of the City of Detroit and the Public Employees’ Retirement System of Mississippi.
According to the court’s post-opinion filing, then-Columbia CEO Robert Skaggs Jr. and CFO Stephen Smith breached their fiduciary duties to shareholders with material omissions filed in a proxy statement concerning the sale to TransCanada. The lawsuit also contends that TransCanada executives at the time aided and abetted the breaches and the disclosure violations.
Skaggs and Smith each held the same roles at Columbia’s parent company before it was spun off by NiSource Inc. in 2015. According to the court filing, Skaggs and Smith each “wanted to retire early. Both thought 2016 was the ideal year to retire, and both wanted to cash out through a merger that would trigger their change-in-control benefits. Both supported the spinoff and joined Columbia expecting to get it sold.”
Once Columbia was a standalone company, buyers began to circle, including TransCanada. Negotiations were led by current TC CEO François Poirier, who at the time was senior vice president for TransCanada’s Strategy and Corporate Development.
The filing includes voluminous details of the legal wrangling. As TransCanada executives pressed forward, “Skaggs and Smith undercut Columbia’s bargaining leverage through solicitous responses and a lack of pushback,” the court filing stated.
“Poirier grew so confident about management’s desire to sell that TransCanada’s first offer came in at $24/share, $1.00 below its indicative range,” according to the filing.
TransCanada then upped its price to $25.25/share, which made “matters worse, because it showed Skaggs and Smith that TransCanada had been trying to take advantage of them.” Columbia’s board rejected the offer and for one day, the deal was dead. TransCanada then reengaged and asked to counter, the filing noted.
In the end, TransCanada paid $25.50/share for Columbia, an 11% premium based on its closing stock price on the New York Stock Exchange of $23.00 as of March 16, 2016. It also was a 32% premium to the volume-weighted average price from the previous 30 days.
However, once details emerged showing Columbia executives held off other potential buyers during the sales process, the plaintiffs sought damages of more than $3 billion. Before the Delaware trial, Columbia’s former executives settled with plaintiffs for $79 million. TC had disputed the allegations at trial.
“The decision finds that an acquiring party who repeatedly exploited breaches of duty by target officers, including opportunistically reneging on a deal at a higher price, can be held liable for aiding and abetting the selling parties’ breaches of fiduciary duty,” according to the court opinion.
A TC spokesperson said the company “strongly disagrees with the court’s ruling and is evaluating its options for appeal once final judgment is entered. The same Delaware Chancery Court had previously confirmed, after trial in an appraisal rights action filed in 2016, that the $25.50/share that TC Energy paid Columbia shareholders was fair value.”
Liability for the Delaware award would be allocated between Columbia’s former executives and TC in a subsequent proceeding before the court to determine “proportionate responsibility” and to account for the prior $79 million settlement.
TC “will not be responsible for the full amount of the award, but its proportionate share will not be known until the allocation hearing is completed and a decision rendered, likely later in 2023,” the spokesperson said.
“TC Energy is disappointed with this decision and disputes many of the findings of fact and law. TC Energy intends to appeal once the final allocation is determined and anticipates an appeal will take upwards of one year.”
Bernstein Litowitz Berger & Grossman (BLB&G), which represented plaintiffs, responded differently.
“This is an excellent result for Columbia investors,” BLB&G partner Jeroen van Kwawegen said. “This significant decision reaffirms for potential acquirers and their advisers in the merger and acquisition market that they cannot knowingly participate in breaches of fiduciary duty by senior executives of target companies; this remains good law and good policy benefiting stockholders of all publicly traded companies and the broader investment community.”
