(The following story by Jeff Ostrowski appeared on the Palm Beach Post website on May 17.)
BOCA RATON, Fla. — The executives who control the railway laid by Henry Flagler should have driven a harder bargain with a buyout firm, a shareholder lawsuit says.
A Nevada investor has filed suit in Palm Beach County Circuit Court against Florida East Coast Industries, accusing the railroad of accepting a cheap bid from Fortress Investment Group of New York.
The plaintiff is Satuloff Brothers Nevada Inc., which owns 16,000 shares of Jacksonville-based FEC (NYSE: FLA, $84.00), a stake worth $13.4 million. FEC was too quick to accept Fortress’ $3.5 billion offer and could have fetched a higher price by shopping the deal, Satuloff contends.
“The proposed price of $84 per share for FEC stock is an unfair and inadequate consideration to be paid to the class members,” the suit said. “Furthermore, it was arrived at by a fatally flawed, closed process by which the company is prohibited from soliciting competing bids, having discussion with, or sharing financial information with other potential bidders who might wish to submit a bid.”
Fortress’ bid for FEC was announced May 8. Satuloff’s suit was filed May 10. An FEC official didn’t return a call seeking comment.
Among the defendants are Fortress, FEC, FEC Chief Executive Adolfo Henriques and FEC’s directors, including Armando Codina and Jorge Perez, both major Miami-based developers. Henriques will make $12 million simply for staying with the company during the merger, the suit says.
Satuloff’s attorneys, Oliver Burt and Michael Pucillo, aren’t the only lawyers to target FEC. On Monday, Arkansas law firm Cauley Bowman Carney & Williams issued a news release urging FEC shareholders to contact its attorneys.
And Satuloff isn’t the only investor to question Fortress’ bid. The price also raised the suspicions of Thomas Herzfeld, manager of the Herzfeld Caribbean Basin Fund (Nasdaq: CUBA, $12.55), which owns 40,500 shares of FEC.
“I’m not interested in being a plaintiff in a lawsuit, but I felt the price was too low,” Herzfeld said Wednesday. “I thought that stock would go above $100 a share, especially once the embargo with Cuba is lifted.”
Herzfeld also criticized the $100 million break-up fee that FEC must pay if it accepts a higher bid.
“That’s not the kind of thing that would sit well with shareholders,” Herzfeld said.
FEC operates 351 miles of mainline track from Jacksonville to Miami, a railway that industrialist Henry Flagler laid in the 19th century.
FEC entered the commercial real estate business last year, when it paid $270 million for Codina Group.
FEC also owns land throughout the state, including 320 acres at the intersection of Interstate 95 and Florida’s Turnpike in St. Lucie County. FEC’s Flagler Development division is building Office Depot’s new headquarters in Boca Raton.
Fortress, for its part, bought Boca Raton-based RailAmerica this year.