22 Feb 2021 Cases

Compass Lexecon Clients Obtain Total Defense Victory in Massive Regency Unitholder Litigation

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Court Relies on Compass Lexecon Expert Kevin Dages in Rejecting Plaintiffs’ $1.6 Billion Damage Claim in its Entirety

On February 15, 2021, Chancellor Bouchard of the Delaware Chancery Court issued a 127-page memorandum opinion in favor of Compass Lexecon’s clients Regency GP LP and Regency GP LLC in an investor suit brought by a class of unitholders of Regency Energy Partners LP (“Regency”) arising from a unit-for-unit merger in which Energy Transfer Partners L.P. (“ETP”) acquired Regency for approximately $10 billion (the “Merger”). At the time of the Merger, Regency and ETP were both controlled by Energy Transfer Equity, L.P. (“ETE”). Plaintiff alleged that defendants breached the partnership agreement’s requirements that the Merger be fair and reasonable to Regency’s unitholders and the agreement’s covenant of good faith and fair dealing. In particular, Plaintiff alleged that ETE and ETP took advantage of a temporary decline in oil and gas prices to use their control over Regency GP to transfer Regency’s valuable assets and growth opportunities to ETP at a price that was unfair to Regency’s unitholders.

Plaintiff sought over $1.6 billion in damages based on the opinion of its valuation expert that the stand-alone value of Regency’s common units based on a discounted cash flow analysis using a dividend discount model (“DDM”) exceeded the price of the ETP units received in exchange for Regency units on the Merger date. Relying extensively on the opinions and analyses of Compass Lexecon expert Kevin Dages, the Court found that Plaintiff failed to prove damages. In particular, the Court found that “Dages’ analyses showed that every apples-to-apples comparison (market-to-market or DDM-to-DDM) demonstrated that members of the Class suffered no damages and that the only way [Plaintiff’s expert] could attest to the existence of damages was by making an apples-to-oranges comparison of a DDM-valuation of Regency’s units to the market price of ETP’s units,” a valuation methodology the Court concluded was “unreliable.”

Compass Lexecon was retained by Michael C. Holmes, John C. Wander, Craig E. Zieminski, Jeffrey Crough, and Meredith Jeanes Lyons of Vinson & Elkins LLP and Rolin P. Bissell and Tammy L. Mercer of Young Conaway Stargatt & Taylor, LLP. Mr. Dages was supported by a Compass Lexecon team that included Jennifer Milliron, David Strahlberg, and Andrew Lin.

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