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Investors sue to halt ISP buyout

Shareholders claim Digex's merger with telco Intermedia Communications lacks sufficient provisions to protect investor interests.

Internet service provider Digex (DIGX) and Florida-based telecommunications provider Intermedia Communications (ICIX) have been hit with two shareholder lawsuits seeking to halt their upcoming merger, according to a Securities and Exchange Commission filing today.

Investors claim the merger lacks sufficient provisions to protect shareholders in the Maryland-based ISP.

"The complaints allege that the company directors violated their fiduciary duties to the public agreeing to vote in favor of the merger," according to the filing. "Intermedia knowingly aided and abetted such violation by offering to retain company management in their present positions and consenting to stock option grants to certain executive officers."

The lawsuits were filed June 20, approximately 15 days after the companies announced their merger plans. Digex investors TAAM Associates, along with David and Chaile Steinberg, filed their suits in state court in Delaware.

In addition to a halt to the merger, the shareholder groups are seeking unspecified damages.

Intermedia announced in early June it would buy Digex for $150 million by purchasing all outstanding Digex stock for $13 per share.

Attorneys for the investors and Digex declined to comment on the merits of the cases.

These shareholder suits are among the latest to result from mergers.

U.S. Robotics, which recently completed its $8 billion stock swap merger with 3Com, also faced the wrath of its investors when it announced the deal.

U.S. Robotics shareholders filed their complaints--initially in four separate lawsuits--in Delaware courts a day after the acquisition was announced. They also wanted a preliminary injunction against the companies to stop the merger. However, the parties settled and the deal went through.