June 3, 2004
TO ANNOUNCE OR NOT ANNOUNCE
TO ANNOUNCE OR NOT ANNOUNCE (THE ENGAGEMENT OF AN INVESTMENT BANK) – THAT IS THE QUESTION…
Dear Deal Guys,
“Wilson or Larry. What is your experience with public companies pre-announcing that they are engaging a banker or are otherwise exploring strategic alternatives when they are really shopping the company? I spoke to my [GC buddy of mine at a public company] and they did this awhile ago, essentially saying we are on the block, but couched it in terms of exploring alternatives, presumably to avoid Revlon. I am used to companies exploring discretely and then announcing once they have signed a def merger agreement and hope they can get a broad fiduciary out and low break fee. I am just curious as to your take on it and experience.”
Curious in Arizona
Dear Curious in Arizona:
We have had a number of pubco clients announce the engagement of bankers (“to explore strategic alternatives”) when the reality of some of those situations was to test the “shopping” waters. Given the many avenues that pubco might take upon the engagement of a banker, the mere engagement of same (absent other statements about shopping the company) is, in our view, not sufficient to create any duties (among board members anyway) akin to those seen in Revlon, etc.
Some additional thoughts: While inking a deal as you have done in the past and then exiting is not uncommon, the “strategic alternatives” method will allow pubco to see what interest is out there while possibly avoiding (i) the initial suitor feeling like a stalking horse (which they should feel like given your broad exit avenue and the low break up fees!), (ii) possibly committing pubco to a particular path (both at a macro level (i.e,, by putting pubco in play) and at a micro level (i.e, identifying specific deal terms, especially if you have to disclose the purchase agreement)), and (iii) a lot of the complexities of getting out of the signed deal.
Yours truly,
The Deal Guys
We wouldn’t be surprised if others had different experiences and opinions on this topic, so we encourage you to email either of us with your two-cents worth.