On the heels of Monday's announcement that Time Warner and America Online were planning a US$163 billion merger, five shareholder class action suits were filed in the Delaware Court of Chancery against the two companies and Time-Warner's board.
In the lead complaint, Harriet Cohen, a shareholder of Time Warner, the world's largest media company, said: "The merger and the consideration to be paid to class members is unconscionable and unfair and grossly inadequate."
Cohen claims the deal with America Online (AOL) , the No. 1 Internet services provider, fails to recognize the intrinsic value of Time Warner stock based on its recent operating results, market price and projected cash flow.
The lawsuit also says the directors breached their fiduciary duty to shareholders by failing to "maximize shareholder value." Cohen asserts the directors should have held an auction of the company, done a market check to determine the highest price the Time Warner stock could command, and negotiated for a sale-of-control premium.
The merged company is to be called AOL Time Warner. The proposal calls for Time Warner shareholders to exchange each of their shares for 1.5 shares of the new stock or a 45 percent stake, and AOL shareholders to exchange each of their shares for one share of the new stock, or a 55 percent stake.
Cohen wants the court to declare that the directors and the companies breached their fiduciary duty to shareholders and to award unspecified compensatory damages.
An attorney for Cohen told Reuters that while the lawsuit does not yet contain a demand to put the merger on hold, the complaint could be amended to add that request.
Copies of the other four shareholder suits were available on Monday evening.
Copyright 1999 Reuters Limited.
