The Employees Retirement System of the City of New Orleans (NOERS) has sued Warren Buffett’s Berkshire Hathaway and Burlington Northern Santa Fe (BNSF) alleging Berkshire’s planned acquisition of BNSF discriminated other investors.
Under the terms of the proposed acquisition agreement announced on November 3, Berkshire will purchase the remaining shares of BNSF that it does not currently own for US$100 a share. Berkshire already owns over 23% of BNSF.
Law firm Scott & Scott - who represents NOERS in the suit - said the agreement was finalized over the past 10 days, and BNSF board of directors "made no effort" to find a higher bidder for the company.
According to the complaint in the District Court of Dallas County, BNSF and the members of its board of directors, as well as Berkshire, were all charged with breaching their fiduciary duties to the BNSF's shareholders.
Scott & Scott attorney, David Scott, says: "To comply with their fiduciary duties, the board was required to employ a fair process to respond to Berkshire's offer.
"The board dropped the ball here, agreeing to draconian deal lock-up provisions well before permitting independent bankers to conduct a meaningful market check."
He adds: "For its part, Berkshire, by virtue of its large holdings in BNSF stock, and the board access and influence that provides, owed fiduciary duties to the other BNSF shareholders not to use its position of control to their detriment."
No other pension fund is involved as plaintiff in the lawsuit. However, the complaint was filed as a class action on behalf of all BNSF investors, therefore other pension funds holding the stock could have a share in any benefit obtained.
Scott also says: "The goal here is to level the playing field. That means removing the impediments to fair negotiation BNSF's executives and Berkshire's unilaterally erected in their own interests. If Warren Buffett still wants to buy BNSF, and we think he does, let him negotiate subject to a fair process and arrive at a fair price."
BNSF spokesman John Ambler says: "Unfortunately it has become almost a universal occurrence for certain law firms to file lawsuits of this type around any corporate M&A activity. Beyond that, it's not appropriate to comment since this is a matter of pending litigation."
Berkshire Hathaway could not immediately be reached for comment.
