New Orleans Pension Sues over Railroad Deal
November 9, 2009
The recent acquisition of Fort Worth, Texas-based railroad Burlington Northern Santa Fe Corp. (BNSF) by Berkshire Hathaway Inc. has caused the Employees’ Retirement System of the City of New Orleans (NOMERS) to take legal action.
The Louisiana city’s pension fund filed a lawsuit last Wednesday in the Texas District Court, alleging that Burlington Northern failed to live up to its contractual duties because of attempts to “coerce Burlington Northern shareholders into agreeing to a sale of Berkshire under terms which do not maximize shareholder value.”
The complaint continued, “The Board is required to seek out the absolute best transaction for its shareholders…[its] negotiations with Berkshire and their refusal to conduct any market check on the price before agreeing to an exclusivity agreement…failed to consider the shareholders’ interests.”
On Nov. 3, Berkshire Hathaway, which is owned by Warren Buffet, announced that it would obtain the remaining 77.4% of BNSF’s shares that it did not own. The acquisition was valued at $44 billion, a press release said.
Jerome Davis, New Orleans Board of Trustees chairman, told IMW that the lawsuit is an attempt for shareholders to look to see if it is indeed the right move.
“I think as institutional investors, it’s our duty to look at deals that are being made in the corporations that we own,” Davis said in a phone conversation. “Essentially, we are asking that the deal do not go through until we can be assured it is the best deal possible.”
Meanwhile, a statement released to IMW today by David Scott of Scott & Scott, the pension fund’s lead counsel, reaffirmed Davis’ claims that Burlington Northern “was required to employ a fair process to respond to Berkshire Hathaway's offer.”
“The goal here is to level the playing field,” the statement said. “That means removing the impediments to fair negotiation Burlington Northern's executives and Berkshire Hathaway unilaterally erected in their own interests.”
“Unfortunately it has become almost a universal occurrence for certain law firms to file lawsuits of this type around any corporate M&A activity,” John Ambler, Burlington’s VP of corporate relations, said in an email today. “Beyond that, it's not appropriate to comment since this is a matter of pending litigation.”
As of press time, Berkshire failed to respond to request for additional information.
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