A federal judge in Cincinnati is expected to begin hearings today on whether shareholders who oppose the merger of Marathon Oil Co. and U.S. Steel should be granted a preliminary injunction to forestall the marriage.
U.S. District Court Judge Carl B. Rubin will hear arguments in several shareholder lawsuits that have been consolidated into one hearing. The lawsuits--and others that are pending--are part of growing shareholder opposition to the merger. Shareholders are scheduled to vote on the merger question March 11 in Findlay, Ohio, where Marathon has its headquarters.
U.S. Steel, which acquired 51 percent--or 30 million--of Marathon's 58.6 million common shares Jan. 7, needs another 9.1 million shares voted in favor of the merger for it to proceed. Ohio law requires a positive vote by two-thirds of the company's shares outstanding for a merger.
While pro-merger forces appear to have an edge in the contest, opposition to the merger has surfaced, including some of the firm's largest shareholders. Those who oppose the merger argue that their Marathon shares are undervalued in the transaction.
"It's a high-priced tender offer and a low-cost merger," said Monte Gordon, vice president and director of research for Dreyfus Fund Inc. The Dreyfus Fund, which owns about 700,000 shares--or about 1.1 percent of Marathon's shares--is among those seek to block the merger.
U.S. Steel bid to take control of Marathon in a friendly tender offer designed to counter an earlier bid by Mobil Corp. for Marathon, a smaller firm that is rich in oil and gas reserves. Under the terms of that offer, U.S. Steel paid $125 a share for the 30 million shares it acquired in the first phase of the transaction and will pay for the remaining shares by swapping 12-year, 12.5 percent U.S. Steel notes with a face value of $100 for each share of stock.
It is the second phase that has prompted most of the opposition to the merger. Dissident shareholders claim that the value of the notes--an estimated $75 under current market conditions--is dirt cheap and less than they should receive.