NRG Energy Defeats Investor Suit Over Share Restructure

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By Yin Wilczek

Power producer NRG Energy Inc. beat back a lawsuit alleging it improperly caused a company it controls, NRG Yield Inc., to restructure its stock to the detriment of minority shareholders.

Princeton, N.J.-based NRG created the yieldco to generate cash from energy generation and infrastructure projects. In May 2015, the yieldco issued two new classes of stock that had only one-hundredth of a vote per share, which it distributed to shareholders through a stock split.

The lawsuit, filed by IRA Trust FBO Bobbie Ahmed on behalf of the yieldco’s shareholders, alleged the stock restructuring was undertaken to retain NRG’s control of the yieldco. The complaint also alleged that the yieldco’s board breached its fiduciary duty by approving the reclassification.

The Delaware Chancery Court Dec. 11 dismissed the shareholder’s complaint in a ruling that clarifies how state courts will handle shareholder suits over transactions involving controlling stockholders.

The court found that the reclassification of the yieldco’s stock was a conflicted transaction because it was a means for NRG to “retain voting control of Yield well into the future.” However, the court said the yieldco’s decision was entitled to deference from the court because it protected its minority stockholders by having the transaction reviewed by a special committee, and approved by a majority of non-interested shareholders.

The reclassification is subject to deference under the business judgment rule, “which plaintiff has made no effort to overcome,” Chancellor Andre G. Bouchard wrote.

Share Structure

After its initial public offering in 2013, the yieldco had two classes of stock—Class A and Class B, both of which gave holders one vote per share. At the time, NRG held about 65 percent of the yieldco’s voting power through ownership of all of its Class B shares. By 2015, NRG’s control was diluted to about 55 percent as a result of more Class A shares issued to acquire assets for the yieldco.

NRG management, concerned that it would lose control of the yieldco, presented several recapitalization proposals to the yieldco’s board, including the issuance of stock without voting power. After negotiations, the yieldco’s special committee approved the proposal to issue the new Class C and D stocks.

The case is IRA Trust FBO Bobbie Ahmed v. Crane , 2017 BL 441323, Del. Ch., No. 12742-CB, 12/11/17 .

To contact the reporter on this story: Yin Wilczek in Washington at

To contact the editor responsible for this story: Susan Jenkins at

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