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Into the breach (or not) with Atlas Energy…

Any time a proposed merger is announced, we expect that a handful of law firms will open an investigation that challenges how the deal came about or whether it’s in the best interest of the company’s shareholders. Thus, we weren’t surprised to read about lawsuits related to Chevron Corporation’s (CVX) $4.3 billion bid to acquire Atlas Energy, Inc. (ATLS).

The DEFM 14A (merger proxy) that Atlas filed yesterday included an update on the merger-related litigation, and it appears that plaintiffs’ counsel are leveling some pretty serious charges at the companies involved in the deal. These disclosures don’t appear in Atlas’s preliminary merger proxy (a PREM 14A filed Dec. 8, 2010) because the events transpired in the days and weeks after Dec. 8.

State cases filed in Pennsylvania and Delaware have now been certified as class actions, and there’s also a federal court case pending in Pennsylvania. Atlas’s merger proxy notes that all of the lawsuits “raise substantially the same claims.”

In late December, 2010, the Delaware court allowed its plaintiffs in the class action to amend their petition against defendants Atlas Energy, Chevron, Arkhan Corporation (an indirect wholly-owned subsidiary of Chevron) and the directors of Atlas Energy. The plaintiffs allege that the directors and officers of Atlas Energy breached their fiduciary duties to their shareholders, and that various people affiliated with Chevron, Arkhan, and affiliates of Atlas Energy aided and abetted those breaches.

Plaintiffs also claim:

“…that the proxy statement contains material misstatements and omissions,… [including]… that the proxy statement fails to disclose material information concerning the discussions and negotiations between Atlas Energy and Chevron as well as material information the Atlas Energy board of directors relied upon in recommending the merger, and that the proxy statement omits material information regarding the financial analyses performed by Jefferies and Deutsche Bank and the advisory fees received by those investment banks.”

The plaintiffs seek, among other things, declaratory and injunctive relief to enjoin the merger from taking place.

And, as we would also expect, Atlas Energy’s filing states the defendants’ belief that the allegations against them are “without merit,” and they intend “to defend themselves vigorously against the claims.” But the company acknowledges that:

“Predicting the outcome of these lawsuits is difficult. An adverse judgment for monetary damages could have a material adverse effect on the operations of the surviving corporation after the merger. A preliminary injunction could delay or jeopardize the completion of the merger, and an adverse judgment granting permanent injunctive relief could indefinitely enjoin completion of the merger.”

We don’t know which way Lady Justice will eventually decide, but if the allegations have any merit, they are indeed serious. We doubt – given the complexity of the issues – that a decision will be rendered any time soon. The only thing we’re sure of is that the litigation will be costly for all parties concerned.

Image source: bobosh_t via flickr