NEW YORK -- Newgate Management Associates thinks John Nuveen Co. owes it about $840,000 and it's in the process of going to court to get it.
The case revolves around Nuveen's decision to merge two of its closed-end municipal bond funds whose shares traded on the New York Stock Exchange -- Nuveen Insured Premium Income Municipal Fund and Nuveen Insured Premium Income Municipal Fund II.
The merger announcement was made July 25 and the terms of the agreement set by Nuveen were that shares of Income Municipal would be converted into shares of Income Municipal II at a price based on the last trade of Income Municipal shares Sept. 9. As it turned out, that price was $12.875 a share.
Newgate, which held about 400,000 shares of Income Municipal for itself and its investors, felt that the merger price should have been $14.97 a share, or closer to the value of the securities held by the fund.
"If the state court decides in favor of Newgate, it could open the door for similar cases," said Donald Cassidy, an analyst at Lipper Analytical Services Inc. "Newgate feels like it's being short-changed, and the question for the court is what is the fund's fair value."
The merger price was set by the fund's board and the determination was that "fair value" was the fund's market price, said Jim Wesolowski, Nuveen's general counsel.
"I want Nuveen to do the right thing and pay us fair value," said George Foot, a partner of Newgate, a New York firm with $400 million in assets. "It's another example of how fund-management companies are disconnected from their genuine fiduciary obligations to shareholders."
Chicago-based Nuveen thinks Newgate is wrong, and it is up to a Minnesota court to decide who is right since both funds are incorporated in Minnesota.
According to Minnesota statutes, a shareholder who disagrees with the merger terms can require the company to take the issue to court, and that's what Nuveen is in the process of doing, Wesolowski said.
The law is part of the Minnesota Business Corporation Act.
"The state court will decide what is 'fair value,' " Wesolowski said. "We don't have to pay them until the court decides."
If the court rules in Newgate's favor, Nuveen will have to pay "fair value," plus 5 percent interest for the holding period between Sept. 9 and when the court decides, Wesolowski said.
Pub Date: 12/26/96