Action fiduciary duty breached, seeks to block payment
NEW YORK — Philip Anschutz , the owner of Regal Entertainment, was sued along with several execs and directors of the giant theater chain for two hefty dividend payments — one paid last year, one due in June — that an institutional investor claims trashed the company’s balance sheet and lined Anschutz’s pockets.
The Texas Retirement System of Louisiana has filed suit in Delaware Chancery Court claiming Regal breached its fiduciary duty to shareholders and is seeking to block payment of the extraordinary $5-a-share cash dividend due June 2. The payout would net controlling shareholder Anschutz $368 million. A similar $5.05 payout last spring poured $373 million into the Denver billionaire’s coffers.
A Regal rep wasn’t immediately available to comment.
“The board is looting Regal and its subsidiaries to pay the individual board members hundreds of million of dollars in dividends, which have no legitimate business purpose and provide absolutely no benefit to the company,” the complaint alleges. It seeks compensatory damages to Regal, plus costs and expenses.
The suit says the year-ago payment swelled Regal’s debt and wrecked the exhib’s pristine post-Chapter 11 finances — and that the upcoming payout would make the situation even worse.
The first special dividend cost Regal $751 million, resulting in debt almost doubling from $680 million to $1.2 billion, the suit says. The second payout will cost the company another $710 million.
Wall Street has given the dividends mixed reviews. The payouts have helped lure new investors to the stock of a slow-growth company in a slow-growth industry with only modest upside potential. But they have swelled debt and possibly limited Regal’s ability to borrow cash and to make large strategic acquisitions.
As the suit points out, Moody’s and Standard & Poor’s both downgraded Regal’s debt rating from “stable” to “negative” after the latest payout was announced.
Regal says it thinks the debt is still at manageable level and sees the payout as evidence of the company’s confidence in its future cash flows.
Suit also alleges that none of the eight directors on Regal’s board qualifies as independent. “These directors suffer from conflict of interest and divided loyalties, or are simply beholden to Anschutz, which precludes them from exercising independent business judgment” in this matter, the suit says.
The suit seeks to establish precedent for self-dealing, outlining Anschutz’s history with Qwest Communications, which he founded and which has been the subject of securities fraud lawsuits, congressional and SEC investigations and a criminal prosecution.
Suit cites “lucrative pay-related transactions between Anschutz and Regal” — including a $3.4 million payment by Regal Cinemas to Anschutz affiliates for unspecified telecommunications services.