May 12, 2006

Notables from the Tulane Conference

As I noted a while back, the Tulane M&A Conference decided to continue its long-standing tradition despite Hurricane Katrina – the May issue of “Corporate Control Alert” includes an article dissecting part of the Tulane Conference, including:

– Delaware Vice Chancellor Leo Strine downplayed fears that his ruling last year in a case involving the LBO of Toys “R” Us Inc. was meant to discourage stapled financing…”

– “Many lawyers interpreted [Strine’s critical comments in the Toys decision] as a broad comment on the practice of stapled financing generally and discouraged investment banks from offering it when advising a target, or recommended that banks not give the target a fairness opinion when they provide the staple.

– VC Strine said that such a reading “misconstrued” his opinion. Apparently his concern was that the seller’s board initially refused to allow its financial advisor to offer financing to bidders and then changed its mind “for absolutely no purpose. This was not adroit. I could see situations where it would be really good for a seller to offer financing.”

– Apparently VC Strine also add that targets didn’t benefit from having a second bank give a fairness opinion where the primary adviser is offering a staple. “running the auction is in many ways the most important part of the process…” Were he a board member of a company selling itself in an auction, he would be of the belief that, “If [a bank is] going to run the process, they’re going to back it up by giving a fairness opinion.”

– Furthermore, VC Strine expressed the view that to get [a second] opinion, a target must either pay a lot of money to a first-tier firm or get an opinion from a less-distinguished one, which, the judge said “doesn’t give me a lot of comfort. What’s going to impress us about whether you got a good deal is the quality of the market check.” The second opinion is “banker protection,” he said, and does little to benefit target shareholders.