A Delaware Chancery judge has given approval to what is being called an “unprecedented” derivative suit settlement. The accord is over Freeport-McMoRan Copper & Gold Inc.’s acquisition of two energy exploration firms. It will pay shareholders much of the agreement’s estimated $150 million value through a special dividend. During a hearing, Vice Chancellor John W. Noble also awarded Plaintiffs’ counsel $32.7 million in attorneys’ fees and expenses from the total amount of the settlement. The settlement also changes to certain Freeport polices that include enhancements to the powers of independent directors and ratification procedures for related-party transactions for at least three years.
It should be noted that the settlement is structured in an unusual way. Freeport shareholders will receive consideration through a special dividend that the board agreed to approve as part of the settlement. The lawsuit was a derivative action. Normally in a derivative action, any damages or benefit would go directly to the company. In this case, that’s not happening.
The settlement resolves what started in December 2012 when a number of lawsuits were filed as a result of Freeport’s announcement the same month of a $6.9 billion cash-and-stock bid for Houston-based Plains Exploration & Production Co., and a $2.1 billion cash deal to acquire New Orleans-based McMoRan Exploration Co., a company it spun off in 1994. Shareholders alleged in these suits that the company’s directors breached their fiduciary duties by handing out “sweetheart” deals that benefited their own interests, and that Freeport’s bosses were so fixated on the acquisitions that it gave little regard to public shareholders and wound up paying a steep premium for McMoRan. Freeport has argued its board complied with Delaware law, creating a special committee of independent directors empowered to negotiate and recommend — or reject — the deals.
There were numerous mediation sessions before the settlement was announced in January. Also part of the settlement is an agreement by Freeport’s financial adviser for the acquisitions, a unit of Credit Suisse Group AG, to pay a total of $16 million, which includes what amounts to $6 million worth of free work, to resolve shareholders’ claims against it.
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