An EXCO Resources investor filed a lawsuit in State Court against directors of EXCO Resources and its CEO in effort to stop the proposed sale of all outstanding XCO shares at an alleged inadequate consideration to Exco Resources CEO Douglas Miller.
According to the complaint the plaintiff alleges that EXCO Resources CEO Douglas Miller and EXCO Resources directors breach or will breach their fiduciary duties if they agree to sell EXCO Resources via an unfair process and at an unfair price to EXCO Resources CEO D. Miller.
On Monday, Nov. 1, 2010 EXCO Resources, Inc (NYSE: XCO) announced that its Chairman and Chief Executive Officer, Douglas H. Miller, has submitted to the Board of Directors a proposal to purchase all of the outstanding shares of stock of the Company not already owned by Mr. Miller for a cash purchase price of $20.50 per share. According to CEO Miller the offer is very compelling and represents a premium of 38% over Oct. 29's closing price of the EXCO Resources’ common shares. EXCO Resources, Inc. shares (EXCO) closed on Friday, October 29 at $14.83 per share and opened Monday’s trading in response to the announcement at $20.33.

Even though EXCO shares traded recently at roughly $15 and at only $19 per share in June, EXCO shares traded as early as April over $20.50 per share, in February at $20.85 per share and in January over $22 per share, and additionally at least one analyst set a price target for EXCO stock at $29.00 per share. But the plaintiff claims it was CEO Miller himself or through an agent that was stressing just months ago that the EXCO Resources stock was undervalued. The plaintiff refers to the July 2010 Investor Presentation by EXCO Resources. In this presentation the EXCO management said the midpoint of the firm’s net asset value per share estimates exceeds $31. This is more than 50% higher than the price tag of $20.50 that CEO Miller now says is ”very compelling”. Furthermore in the July 2010 EXCO Resources Investor Presentation EXCO management laid out a road map to a net asset value per share of $50 to $60 by 2014, based on $5 to $6 natural gas. Considering the estimates in the EXCO Resources July 2010 Investor Presentation, the recent April, February and January trading prices of XCO, and an analyst target price of $29 the current offer by Miller of $20.50 leaves the remaining XCO shareholders with practically no premium.

The plaintiff also claims that the offer undervalues EXCO Resources since EXCO Resources has been growing. EXCO Resources’ 12months total revenue went from $367.37million in 2006 to $585,84million in 2009 and EXCO Resources reported for the first two quarters 2010 $130.99million, respectively $118.34million in Total Revenue. EXCO Resources reported in the first quarter 2010 $115.57million quarterly Net Income and for the second quarter $564.31million.

In addition CEO Miller, who currently owns approx. 2.15% of EXCO's shares, admitted that he is already engaged in discussions with other significant shareholders that own approx. 27.5% of EXCO's shares to participate with him in an acquisition of EXCO. Thus the plaintiffs says the chances of a competing offer succeeding here are slim to non and asked the court to enjoin defendants from proceeding with the proposed transaction.