ICG shareholders call Arch merger a fiduciary breach

By Jessica M. Karmasek | May 10, 2011

WINFIELD -- The plaintiffs in a potential class-action lawsuit allege a coal company's board of directors has breached its fiduciary duties to its shareholders in merging with another coal company.

Damian Walker, on behalf of International Coal Group Inc. common stock shareholders, filed a lawsuit in Putnam Circuit Court against ICG, its board of directors and Arch Coal Inc. on Monday.

The plaintiffs take issue with the proposed sale of ICG to Arch for "inadequate consideration" of $14.60 per share.

On May 2, ICG and Arch issued a joint statement announcing they entered into a definitive agreement and plan of merger in connection with the proposed acquisition. Arch would acquire ICG, a Delaware corporation headquartered in Scott Depot, W.Va., in an all-cash transaction valued at $3.4 billion.

The offer price of $14.60 per share, the plaintiffs say, "materially undervalues the company and is unfair to its shareholders."

"In order to effectuate the Proposed Acquisition, the Defendants have structured the deal to provide the appearance of fairness while in reality tilting the sales process in favor of Arch," they wrote in their complaint.

In fact, they say, the merger agreement's "no solicitation of transaction" clause discourages ICG from considering alternative proposals from other bidders, and contains a $115 million termination fee that strongly discourages board members from rejecting the proposed acquisition.

In all, the plaintiffs allege the board has breached its fiduciary duties to the shareholders by failing to "adequately value" the company's shares in the proposed acquisition; utilizing "preclusive" corporate and deal protections to inhibit an alternate transaction; and failing to ensure that "adequate consideration" is exchanged for the company's shares.

The plaintiffs seek equitable relief "compelling the board to properly exercise its fiduciary duties" and to enjoin the close of the proposed acquisition, which is scheduled to close at the end of the second quarter of 2011.

Counsel for the plaintiffs include Joshua I. Barrett and Sean P. McGinley of DiTrapano Barrett & DiPiero PLLC in Charleston, W.Va.; Brian P. Murray, Gregory B. Linkh and Gregory A. Frank of Murray, Frank & Sailer LLP in New York; and Katharine M. Ryan and Richard A. Maniskas of Ryan and Maniskas, LLP of Wayne, Pa.

ICG is one of the leading producers of coal in Northern and Central Appalachia. It has 12 mining complexes located in West Virginia, Kentucky, Virginia and Maryland. It was founded in 2004 and was taken public in 2005.

Arch is one of the world's largest coal producers. According to its website, it contributes roughly 15 percent of America's coal supply. It has mining complexes in Wyoming, Utah, Colorado, West Virginia, Kentucky and Virginia.

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