As AT&T's stock continues to slip in the wake of its merger announcement with cable giant Tele-Communications Incorporated, TCI chairman John Malone has seen his potential booty shrink by more than $100 million.
Investors may not be shedding any tears for Malone, who will receive a premium price for his shares relative to other investors. One shareholder, however, has gone so far as to file a lawsuit against Malone, eight other TCI board members, and AT&T for agreeing to a two-tiered payout.
AT&T said in a surprise announcement Wednesday that it would acquire TCI in an all-stock deal valued at $48 billion. Under the arrangement, AT&T would pay 0.7757 of an AT&T share for every share of TCI Group's series A stock, valued at $51 a share based on AT&T's closing price before the merger announcement.
Malone, who holds nearly 20.8 million shares of the series B stock, was looking at paper wealth of $1.16 billion, according to TCI's proxy and based on AT&T's closing price before the deal was made public. But in the days since the merger was announced, the telco giant's stock has fallen by 13.2 percent, closing today at 56.75, down 1.625 over yesterday. The new price reduces Malone's return by $150.8 million.
The disparity between the Group A returns and those of Group B led investor Hernando Nieto to file a lawsuit in Delaware's Chancery Court over allegations that Malone and the TCI directors breached their fiduciary duties, said Lee Squitieri, an attorney with Abbey, Gardy, Squitieri, a New York-based firm.
"If you treat shareholders in similar positions unequally, then that is breach of fiduciary duty," Squitieri said, noting that a class-action suit will be sought by the shareholders on the short end of the deal.
Although no presentation will be made during the next TCI shareholder meeting, at which a vote on the merger will be cast, a court may be asked to issue a preliminary injunction to uphold the merger.
LaRae Marsik, a TCI spokeswoman, said the company has not yet seen a copy of the complaint and declined to comment.
As for AT&T's sliding stock price and the affect the downturn will have on the value of the deal, Marsik declined to comment on that matter as well. She added, however, that TCI has "extreme confidence" in the valuation given to the agreement for both its shareholders and employees.