Suit filed against ABB-Baldor deal; law firms announce investigations

A lawsuit has been filed by a Little Rock-based firm challenging the planned buyout of Baldor Electric by ABB, and no less than 11 law firms around the country have said they are investigating the $4.2 billion deal.

Zurich, Switzerland-based ABB announced Nov. 29 the move to acquire Fort Smith-based Baldor in an all-cash deal expected to close in the first quarter of 2011. The Baldor board unanimously agreed to the deal, and ABB said it will keep the corporate operation in Fort Smith.

Less than 12 hours after the announcement, the New York-based law firm of Bernstein Liebhard LLP announced it would investigate whether the Baldor board of directors “breached its fiduciary duty to its shareholders in agreeing to sell Baldor to ABB Ltd.”

That investigative announcement was followed by similar announcements from law firms based in Dallas, San Diego, Bensalem, Penn., Wayne, Penn., and several other firms based in New York.

The San Diego firm of Robbins Umeda noted: “Specifically, our investigation concerns whether members of the Company’s Board breached their fiduciary duties to Baldor shareholders by failing to adequately shop the Company before entering into the transaction with ABB.”

The ABB offer was for $63.50 per share, a more than 40% premium on the Nov. 29 closing price of $45.11 and more than 157% above the 52-week low price of $24.67. The deal also includes ABB assuming $1.1 billion in Baldor debt.

Baldor Chairman and CEO John McFarland said in a Tuesday press conference that the deal represents “a very fair price for shareholders.” Because Baldor is one of the few publicly held companies to offer stock options to all employees, McFarland said the deal has or will soon make millionaires of many Baldor employees at all company levels.

Also, the Baldor Electric Co. Employees Profit Sharing and Savings Plan owned 3,578,983 shares (as of March 17). The value of the employee profit sharing plan jumped from $161.447 million on Nov. 29 to $226.585 million on Nov. 30 — a 40.34% gain.

Obviously, not everyone agrees the deal represents a fair price. Especially not John Cottrell, who hired the Little Rock firm of Emerson Poynter to file a suit Wednesday afternoon in Sebastian County Circuit Court. The filing is a shareholder “class action complaint based upon self dealing and breach of fiduciary duty.” The suit alleges that the $63.50 price does not reflect the future higher value of the company.

“Despite the Company’s favorable financial conditions, as reported by the Company in 2010, Baldor has nevertheless entered into the Proposed Transaction to sell the Company at a price that appears not to reflect the Company’s favorable prospects,” noted the Cottrell action filed by Scott Poynter.

The suit includes two counts, one for breach of fiduciary duty and the second for aiding and abetting breaches of fiduciary duty. The suit seeks to stop the merger and to cover attorneys fees.

According to an attorney familiar with the process of legally stopping mergers that involved non-U.S. companies, the process could take up to nine months simply to reach the point of hearing a motion to dismiss. The process could be shortened if the suit is moved to a federal court.

When asked about the growing number of law firms threatening an investigation of the deal, McFarland was nonplussed.

“I don’t know how any law firm who has not seen our future projections could know what the future earnings are at Baldor,” McFarland told The City Wire. “These law firms show up on every deal like this. They seldom win. I don’t anticipate any issues related to these firms.”