Renewable energy company Pattern Energy has blasted a lawsuit seeking to block its acquisition by the Canada Pension Plan Investment Board (CPPIB), calling the legal challenge “frivolous” and a “PR stunt.”
In November, the CPPIB agreed to acquire Pattern Energy in an all-cash deal for $26.75 per share. The acquisition price represented a premium of 14.8% on the closing price of Pattern’s stock on Aug. 9, which was the last trading day before market rumors emerged about a potential acquisition of the company. On Tuesday, Pattern Energy shareholders approved the deal at a special meeting.
But Water Island Capital, a privately owned asset management firm that owns 4.08% of Pattern’s shares, said the acquisition price is insufficient, calling it “at best a negligible premium, and now a significant discount, to Pattern Energy’s standalone fair value.” Water Island sued to have the merger stopped, and unsuccessfully called on other Pattern Energy shareholders to vote against the merger. Neither Water Island nor the lead attorney on the case responded to requests for comment.
In an open letter to Pattern Energy shareholders, Water Island said that, since the November merger deal was signed, “we have witnessed a seismic shift in the valuation of renewable energy companies” due to a surge in environmental, social, and governance (ESG) stocks, which it said has rendered the acquisition price inadequate.
The lawsuit against the merger argues that the financials disclosed in the merger proxy statement are not complete because they show projections from 2019 to 2023 instead of the full set of Pattern’s projections, which it said extends out to 2027. Additionally, it claims the disclosures do not reveal the underlying earnings before taxes and after-tax equity cash flow. The complaint alleges that the omission of the extended projections renders the financial projection included in the proxy “materially incomplete and misleading.”
In response to Water Island’s allegations, Pattern Energy said in a press release that “we believe the lawsuit brought by Water Island is frivolous, entirely without merit, and is being done as a PR stunt.” The company also said it believes the acquisition deal, “which provides significant, immediate, and certain value, represents the best path forward for Pattern Energy stockholders.”
The company’s board of directors also said that those who claim the acquisition price is too low are being speculative and are downplaying key factors. The board said that if the company continued as a standalone, it would need to raise “substantial equity” to execute its growth plan, which it said would be difficult because the company historically trades at a material discount to its peers. It also said that because of volatility in the sector, “a short-term spike in prices should not be viewed as a reliable basis for predicting long-term value.”
The board also said that, before agreeing to the deal, it formed a special committee that considered multiple alternatives to the standalone plan. It said the committee retained independent legal and financial advisers, engaged in contact with or received indications of interest from 10 separate parties, and received a fairness opinion with respect to the transaction. Additionally, financial advisers on behalf of the committee contacted 16 other potential bidders as part of the “go-shop” period under the merger agreement.
“Each party that was contacted either did not respond or notified Pattern Energy that, after further review, it would not be interested in pursuing a potential transaction with Pattern Energy,” the board said.