Being sold short is never a pleasant feeling. It looks like shareholders of GenOn Energy, Inc. (NYSE:GEN) don’t appreciate such treatment as well, as a brewing storm of litigation is on the company’s doorstep.
GEN recently announced it was to be acquired by NRG Energy, Inc. in a $1.7 billion merger that should close in Q1 of 2013. Shareholders seem to have something to say about the matter.
Law and shareholder rights firms are conducting investigations into supposed violations of shareholder protection laws. The way the Board shopped the company is looked into as well. GEN is being sued by Mr. Jared Fensin, a shareholder who strives to represent all GEN investors as a group. Mr. Fensin’s legal representatives claim that stock owners are being shortchanged severely by the merger.
This could mean some dark times are ahead of GEN. If they proceed with the merger, shareholder anger may boil over, with barbed phrases describing the merger as “grossly inadequate” already hovering in complaints filed with a Delaware court. On the other hand, if GEN chooses not to go through with the deal, they would have to pay NRG a $60 million fee for the waiver.
GEN may be looking decent financially in their latest 10-Q but the stock has been slowly slipping down over the last 12 months. The same filing also states that due to the ever stricter government regulations they plan to mothball and close down 9 generation units working primarily on coal, with a combined power output of over 2000 MW, translating roughly in 10% of the company’s output.
Shareholders won’t be the only ones who have a bone to pick with GEN. One of the consequences of the merger will be that GEN will have to lay off a yet unknown number of employees.
The company has been performing in a volatile manner compared against Wall Street guru predictions, with surprise percentages reaching triple digits, both negative and positive. It may be too early to tell how the rising wave of investor anger will pan out and whether the merger can help GEN climb back up to its 2011 share price. When the dust settles, the headlines are bound to be interesting.
