Two Meritor Inc. shareholders have filed separate lawsuits in federal court against Meritor, seeking an injunction to halt Cummins Inc.’s multi-billion-dollar acquisition of the company.
This past week, shareholder Jeffrey D. Justice, II, sued Meritor in U.S. District Court in Philadelphia, alleging that the company ran afoul of federal law by failing to disclose in regulatory filings financial information underpinning a third-party assessment of the fairness of the acquisition price.
The lawsuit seeks, among other things, an injunction to halt the $3.7 billion deal announced in February for Columbus’ largest employer to acquire an automotive parts manufacturer that used to be a major employer in the city, formerly known as Arvin/Meritor and Arvin Industries.
In March, Meritor shareholder Ryan O’Dell filed a separate, but nearly identical lawsuit against the company in U.S. District Court in New York.
Meritor CEO Chris Villavarayan and the company’s board of directors are listed as defendants in both lawsuits. However, neither lawsuit names Cummins as a defendant nor alleges any wrongdoing by the Columbus-based company.
In documentation filed earlier this week with the U.S. Securities and Exchange Commission, Meritor notified investors that a shareholder vote on the proposed acquisition will be held May 26.
“Defendants have asked Meritor’s stockholders to support the proposed transaction based upon the materially incomplete and misleading representations and information contained in the (SEC filing),” according to O’Dell’s lawsuit, which was filed March 22.
In February, Cummins announced that it had reached an agreement to acquire Meritor in a deal that officials said at the time would accelerate efforts in technologies that curb emissions from commercial vehicles and industrial applications.
Meritor, for its part, is no stranger to Columbus, operating under the name ArvinMeritor Inc. from 2000 to 2011. ArvinMeritor formed on July 7, 2000, after the merger of Meritor Automotive Inc. and Columbus-based Arvin Industries Inc., a former Fortune 500 company that at one point employed an estimated 3,000 people here and 850 in Franklin.
ArvinMeritor changed its name to Meritor Inc. in 2011 after shedding many of its former Arvin properties in southern Indiana and elsewhere.
Under the terms of the deal, Cummins agreed to acquire Meritor for $36.50 in cash per share, a 48% premium on Meritor’s closing price on Feb. 18. The deal is expected to close this year and is being bankrolled through a combination of cash and debt.
The two lawsuits largely involve a preliminary proxy statement that Meritor filed with the SEC on March 21 in which the company invited shareholders to a “special meeting” to “consider and vote upon a proposal to approve” the company’s merger agreement with Cummins.
“The Meritor board of directors unanimously recommends that our shareholders vote ‘FOR’ the proposal to approve the merger agreement,” according to a copy of the statement.
The plaintiffs in the two lawsuits allege that the proxy statement failed to disclose financial information about Meritor that may help inform shareholders on how they wish to vote on the proposed merger, the lawsuits state. The two shareholders claim that the alleged omissions from the statement constitute a violation of the Securities Exchange Act of 1934.
More specifically, the lawsuits allege that the regulatory filing did not disclose information about a financial analysis conducted by J.P. Morgan Securities LLC. That includes, among other things, financial projections and “the line items underlying the projections,” the lawsuits state.
Meritor hired J.P. Morgan to give a “fairness opinion” on the proposed merger, which is a report that analyzes the fairness of the acquisition price, according to SEC filings. In its analysis, J.P. Morgan found that the proposed merger was “fair, from a financial point of view,” according to SEC filings.
According to a copy of the proxy statement in question, Meritor lists annual revenue projections for the company for each year from 2022 to 2025, with estimated revenues increasing from about $4.2 billion this year to $4.95 billion in 2025.
The projections were prepared by Meritor’s management this past December, according to the proxy statement. Much of J.P. Morgan’s analysis came from “certain publicly available business and financial information,” the statement says.
“The disclosure of projected financial information is material because it provides stockholders with a basis to project the future financial performance of a company and allows stockholders to better understand the financial analyses performed by the company’s financial advisor in support of its fairness opinion,” according to Justice’s lawsuit, which was filed this past Monday. “…A reasonable investor will view a full and accurate disclosure as significantly altering the total mix of information made available in the in the proxy and in other information reasonably available to stockholders. The proxy is an essential link in causing plaintiff to approve the proposed merger.”
Justice has requested a trial by jury and seeks an injunction to halt the merger, a declaration that Meritor violated federal law, an order directing Meritor to issue a new proxy statement, among other things.
The lawsuit filed in New York seeks a trial by jury, an injunction to halt the merger or the close of the transaction until the defendants disclose the information identified in the complaint, damages, plus attorneys’ fees and court costs.
Claims made in filing a lawsuit represent only one side of the case and may be contested in later court action.
