(CN) - A class action claims Forestar Group's $146 million offer for Credo Petroleum, an oil company with mineral rights to North Dakota oil fields, undervalues the company and was allegedly forced upon Credo's board of directors by the company's largest shareholders.
Lead plaintiff Eunice Schatz sued Credo Petroleum Corp., seven of its corporate officers, and Forestar Group in the District of Colorado. According to the lawsuit, new drilling techniques have led to an oil boom in North Dakota, which recently became second only to Texas in nationwide oil production, surpassing Alaska. In the last three years, the state has tripled its oil production, according to the Bismarck Tribune.
Forestar is a real estate company with 594,000 acres of oil and gas mineral interests, primarily in Texas and other southern states. Earlier in June, the companies announced the merger deal which would see Forestar "acquire all of the outstanding shares of Credo's common stock for a mere $14.50 per share," the complaint states.
She claims that "the Proposed Acquisition significantly undervalues Credo. The Proposed Acquisition is expected to more than double Forestar's existing oil and gas production and proven reserves. Once the deal closes, Forestar will have significant ownership and operations in several strategic oil and gas formations, including North Dakota's Bakken and Three Forks formations."
The "unfair sales process," according to the complaint, is "being driven by Credo's largest stockholders, including defendant and Board Chairman [James] Huffman (holder with his immediate family of 7.4 percent of Credo's outstanding stock) and affiliates of defendant and Board member [John] Rigas, holders of 18.3 percent of the Company's outstanding stock. Rigas and Huffman sought out the Proposed Acquisition in order to secure liquidity for their illiquid holdings in the Company."
Rigas and Huffman both back the deal and their coupled with deal protection provisions basically make the acquisition a done deal, the class claims.
The class is represented by Jeffrey Berens of Dyer & Berens LLP in Denver, Randall J. Baron, A. Rick Atwood Jr., David T. Wissbroecker and Edward M. Gergosian of Robbins Geller Rudman & Dowd in San Diego, Willie C. Bricoe in Dallas and Patrick W. Powers of Powers Taylor also in Dallas.