Washington Group International's (NYSE:WNG) merger plans have been drawing some criticism from shareholders. Today one the company's largest shareholders, David Einhorn, said in a regulatory filing today that he would vote against the plans. The 10 percent shareholder believes that the proposed $2.3 billion transaction is a bad deal for shareholders and insists that few other large shareholders support the idea.

David Einhorn's lengthy letter to the board of directors opposed not only the undervalued bid but also the sale process itself. During the sale process, the company relied on the fairness opinion of Goldman Sachs instead of conducting an auction process despite the fact that the company received several unsolicited bids earlier. More, based on the proxy statements, it is clear that the board relied on an overly conservative forecast the failed to properly value the company's future growth prospects. Various contracts and income opportunities that were not fully appreciated could add substantial value to a buyout price that Einhorn estimates as high as $117 per share!

David Einhorn also argued that the company may be better off as a standalone enterprise. Washington Group is over-capitalized at the moment and URS, the acquirer, plans to take advantage of the fact to get a relatively cheap transaction. Einhorn argues that this cash could be returned to shareholders in the form of a special dividend or share buyback if the company decided against the proposed transaction. If the company were recapitalized at the same proportions as the buyout, shareholders could obtain $27.50 per share in cash and keep the company instead of selling out for $43.80!

In the end, the proposed transaction is clearly bad news for shareholders. Given that a 10 percent shareholder now publicly opposed the merger while insisting that others feel the same way, there is a possibility that the merger could be rejected. If this happens, we could see higher bids in an auction process or significant actions taken to unlock shareholder value through a recapitalization. Either way, this is great news for investors and definitely makes WNG a stock worth watching!

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