Frontier Oil Corporation Investor Files Lawsuit Against Takeover By Holly Corp

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Company Name(s): 
Frontier Oil
Case Name: 
Frontier Oil Deal Case 02/25/2011
Case Status: 
Lawsuit Filed
Case Status: 
Settlement Proposed
Affected Securities
Lawsuit Overview
Type of Lawsuit: 
Mergers and Acquisition
Date Filed: 
Class Period End: 

JUNE 2011 - Eight of 12 lawsuits have reached settlement agreements regarding Holly Corp. and Frontier Oil Inc.'s $7 billion merger.

FEBRUARY 2011 - An investor in shares of Frontier Oil Corporation filed a lawsuit in State Court in effort to block the proposed takeover of Frontier Oil Corporation by Holly Corporation. The plaintiff claims the Frontier Oil is selling itself too cheaply via an unfair process to Holly Corp.

According to the complaint the plaintiff alleges that the defendants breached their fiduciary duties by certain officers and directors at Frontier Oil Corporation arising out of their attempt to merge Frontier Oil Corp. with Holly Corporation.

On Tuesday, Feb. 22, 2011, Frontier Oil Corporation (NYSE: FTO) and Holly Corporation (NYSE: HOC) had announced that the Boards of Directors of both companies have unanimously approved a merger agreement under which the companies will combine in an all-stock merger of equals transaction. Under the terms of the proposed agreement, Frontier Oil Corporation shareholders will receive 0.4811 Holly Corp. shares for each share of Frontier Oil Corp (FTO) common stock. Upon closing of the transaction, Holly Corp. shareholders are expected to own approximately 51 percent and Frontier Oil Corporation shareholders are expected to own approximately 49 percent of the combined company.
Based on a closing price of $56.12 of Holly Corporation (NYSE: HOC) shares on last Friday the proposed takeover asks investors in Frontier Oil Corporation to hand over their shares at a value of $26.99.

But the plaintiff alleges that the offered price is unfair and undervalues Frontier Oil Corp. Rather than providing a premium, the offered price represents a 4% discount from Fortier Oil’s closing stock price on Feb. 18 of $28.12, the last trading day before the proposed transaction was announced. In fact, FTO traded on Feb 17 at $28.94, thus also above the current offer. Additionally analysts have set a price target as high as $33.00 per share for Frontier Oil stock. Shares of Frontier Oil Corporation (NYSE: FTO) traded in 2007 as high as $48.49 per share, during 2008 as high as $37.73 per share. The plaintiff claims that while Holly Corp is paying a 4% discount for Frontier Oil, companies acquiring U.S. refiners in the past 10 years have paid a 17% premium on average.

Furthermore, so the plaintiff, the board members agreed to deliver Frontier Oil Corp to Holly Corp in order to secure material benefits for themselves as a result of the proposed takeover, which will provide tens of millions of dollars in gains to the board of directors and certain members of the Frontier Oil’s management.