WASHINGTON (HedgeWorld.com)-The Pennsylvania Avenue Event Driven Fund, a hybrid entity created by Pennsylvania Avenue Advisors LLC to employ hedge fund strategies for mutual fund customers, sued UniSource Energy Corp., Tucson, Ariz., and its directors in an Arizona state court, alleging self-dealing and breach of fiduciary duty.
The plaintiffs want certification of the class of the holders of UniSource's common stock for a class action; a declaration that a contract between UniSource and Saguaro Utility Group LP, Phoenix, whereby Saguaro is to acquire UniSource, is illegal and unenforceable; and an injunction against defendants and their agents from taking any actions consummating that transaction.
The complaint alleges that public statements by UniSource during its negotiations with Saguaro understated its earnings in upcoming quarters in order to drive down the price and make the acquisition more palatable for Saguaro.
On July 30, 2003, UniSource issued a press release that downgraded its estimated earnings range for 2003 full year earnings from US$3.10 to $3.30 a share to US$2.90 to $3.20. "This grave projection sent the Company's shares down 10%," the complaint charges, to US$17.81.
In November 2003, the board of directors approved Saguaro's bid. In February 2004, the company issued a press release stating that its actual earnings for 2003 were US$3.33 per share of common stock, which was above the top of the original estimated range, before the July revision downward.
The complaint charges that the proposed sale is "an effort by defendants to aggrandize their own financial position and interest at the expense of and to the detriment of the Class members."
At a special meeting on March 29, 2004, the shareholders voted in favor of the contract. Plaintiff contends, though, that the vote was obtained through a defective proxy statement and a stale fairness opinion.
In a filing with the Securities and Exchange Commission, UniSource Energy said that it believes that the lawsuit is without merit and that it vigorously will defend it.
Pennsylvania Avenue is represented by Lerach Coughlin Stoia Geller Rudman & Robbins LLP, San Diego, a law firm created when what was formerly Milberg Weiss Bershad & Schulman LLP, which for 35 years had been a preeminent U.S. law firm in securities-fraud class actions, split into East Coast and West Coast successor firms, in May 2004. The East Coast firm kept the Milberg Weiss name. The West Coast firm, originally known as Lerach Coughlin Stoia & Robbins, merged with Geller Rudman PLLC, a boutique firm with similar specialties, in June.
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