Brookfield Business Partners went from saviour to predator with its discounted offer to take Teekay Offshore private, shareholders allege in a lawsuit seeking to block the move.
Funds attached to JDP Capital Management, Noster Capital and Aquamarine Fund filed a suit in Manhattan federal court Friday, accusing Toronto-based Brookfield of trying to squeeze out shareholders after recapitalising the company in 2017 while the offshore player's board sat idly by.
"In exchange for its capital, Brookfield negotiated for and received significant financial returns," the complaint reads. "However, the unfettered ability to acquire the entire business for an unfair price only 20 months after its equity investment was not among these benefits."
Together, the trio of plaintiffs, who wrote a letter expressing discomfort with the offer in May, own more than 3 million shares and their lawsuit seeks class action status. They name Teekay Offshore's general and limited partners as defendants, along with the company's entire board individually and Brookfield Asset Management and Brookfield Business Partners.
In April, Brookfield bought Teekay Corp out of its Teekay Offshore shares, bringing its total ownership to 77.1% after having taken a 60% position in the company in July 2017.
Three weeks later, on 20 May, Brookfield announced a $1.05 per share offer in an effort to get to 80% ownership and triggering a call right on the remaining shares.
JDP, Noster and Aquamarine admitted that Teekay Offshore's financials "dramatically improved" after Brookfield's 2017 buy-in, providing much-needed liquidity and helping it shed debt.
But they alleged Brookfield also fundamentally changed Teekay Offshore's value proposition for investors, taking it from a high dividend payer to one that reinvested cash flows. They say Brookfield did not communicate that to the market, depressing Teekay Offshore's share price.
Then, months later in the spring of 2018, the trio say Teekay issues hundreds of millions in unsecured notes, paying itself back nearly four years' worth of dividends for its initial investment.
"In other words," the complaint read, "Brookfield went from a saviour in the summer of 2017 to a plunderer less than a year later."
A year later, Teekay Corp would sell its remaining stake in Teekay Offshore to guarantee term loans and to refinance bonds. Then came the $1.05 per share take-private offer.
The shareholders' lawyers at Bernstein Litowitz Berger & Grossmann and Harris St Laurent said the liquidation value of Teekay Offshore is likely more than $2.60. They claimed that the company's shares have never traded as low as $1.05 and that the offer is a 20% discount to its rounded 30-day volume weighted average price.
Further, they alleged that the board should have taken measures like a poison pill to ward off Brookfield getting to 80% and that director William Trasier, a member of the Conflicts Committee evaluating the $1.05 per share offer, is not truly independent as he sat on the board of Brookfield affiliate Westinghouse Electric.
Neither Teekay Offshore nor Brookfield immediately responded to comment.
