Allegheny Energy, Inc. Board Under Investigation Over Breach of Fiduciary Duty

An investigation on behalf of current investors in Allegheny Energy, Inc. (Public, NYSE:AYE), who purchased AYE shares before February 11, 2010, over potential breaches of fiduciary duty and other violations of state law in connection with an alleged unfair takeover price was announced.

The investigations by law firms focus on potential breaches of fiduciary duty and other violations of state law by the Board of Directors of Allegheny Energy, Inc. arising out of their attempt to sell Allegheny Energy, Inc. to FirstEnergy.

On February 11, 2010 Allegheny Energy, Inc. (NYSE:AYE) and FirstEnergy (NYSE:FE) announced that both companies’ boards of directors have unanimously approved a definitive agreement in which the companies would combine in a stock-for-stock transaction. Under the terms of the agreement, Allegheny Energy, Inc shareholders would receive 0.667 shares of FirstEnergy common stock (FE) in exchange for each share of Allegheny (AYE) they own. Based on the closing stock prices for both companies on February 10, 2010, Allegheny shareholders would receive a value of $27.65 per share. According to Allegheny Energy, Inc the price per share represents a premium of 31.6 percent to the closing stock price of Allegheny on February 10, 2010, and a 22.3 percent premium to the average stock price of Allegheny over the last 60 days ending February 10, 2010.

But according to one investigation by a law firm “the transaction appears to be unfair” to current investors of Allegheny Energy, Inc. (Public, NYSE:AYE) because the “offer to purchase Allegheny Energy, Inc. (AYE) at a value of $27.65 per share appears opportunistically timed to take advantage of the current economic downturn” and is “grossly unfair, inadequate, and substantially below the fair or inherent value of AYE”.

Shares of Allegheny Energy, Inc. (AYE) traded after the announcement at $23.40 per share, and at $21.59 per share days before the news. AYE shares were down from its 52weekHigh of $32.75 per share, $45.33 per share in August 2008, $54.75 per share in May ’08, and almost $65 per share in 2007. Allegheny Energy, Inc. reported in 2007 Total Revenue of $3.30702billion with Net Income of $421.21million, in 2088 Total Revenue of $3.3859billion with a Net Income of $395.40million, and in 2009 $3.4268billion with a Net Income of $392.8million.

The investigation “concerns whether the Allegheny Energy Board of Directors breach their fiduciary duties to Allegheny Energy, Inc. (AYE) shareholders by agreeing to sell Allegheny Energy, Inc. at an unfair price thereby harming Allegheny Energy, Inc. and its shareholders”, “whether the directors of Allegheny Energy may have breached their fiduciary duties by not acting in Allegheny Energy, Inc. (NYSE:AYE) shareholders' best interests”, and “the Company may not have adequately shopped itself around before entering into this transaction and, pursuant to this proposed transaction, FirstEnergy may be underpaying for Allegheny Energy, Inc. (AYE), thus unlawfully harming AYE shareholders”.

Allegheny Energy, Inc., Greensburg, PA, is an integrated energy business that owns and operates electric generation facilities and delivers electric services to customers in Pennsylvania, West Virginia, Maryland and Virginia. Allegheny operates in two business segments: the Delivery and Services segment, which includes Allegheny’s electric transmission and distribution (T&D) operations, and the Generation and Marketing segment, which includes Allegheny’s power generation operations.