Oftentimes mergers and acquisitions can be smooth processes, provided that the management of both companies share similar views and their employees and stock-holders have been adequately involved in the process. One should not underestimate the potential problems that can be caused by a dissatisfied group of shareholders who could bring merger-halting business litigation. The proposed merger between Baton Rouge’s The Shaw Group and CB&I may be facing this exact problem.
According to accusations from The Denali Group, which owns shares in Shaw, the merger is flawed in a serious way: the value of Shaw is being drastically underpriced in the interest of closing the deal quickly. Behind this undervaluation, they say, are personal and political motivations that require significant scrutiny. This accusation is just another of the recent steps taken by the Denali Group to postpone the merger. According to The Shaw Group, Denali may not actually own any shares of Shaw stock. Regardless, Denali’s public outcry against the merger has already proven to be a nuisance to the merger process, and could potentially cause significantly more problems.
One of these problems are the lawsuits that the Shaw Group has been subjected to by shareholders, perhaps stemming from the Denali Group’s criticism, which may hold up the merger process entirely if found to address legitimate concerns. These types of lawsuits are potential problems that businesses need to consider if they are thinking of merging with another company.
Even if the companies’ management agrees on a path and price for the merger, shareholders may not vote for it. Without due diligence to both assure stockholders and foresee potential legal issue, these problems could stop a merger in its tracks. By recruiting the help of experience business lawyers, as well as taking practical steps to ensure that stockholders are well informed and kept reasonably involved in the process, these problems could potentially be avoided in the first place.
Source: The Advocate, “Investment group contesting N.Y. Shaw merger,” Timothy Boone, Oct. 20, 2012