June 7, 2007

Investment Banks’ Brave Conflicted World

Back in late March, the NY Times Dealbook had this gem: “The big investment banks are everywhere these days, underwriting public offerings, advising buyers and providing deal financing — often on behalf of the same company. This ubiquity has created some concern when a bank needs to be found to handle a “go shop” provision in a takeover agreement, which essentially creates a window during which the target tries to drum up better offers. The dilemma: Does the desire for a completely independent bank trump the desire for a bank with sufficient resources and relevant experience?

Vice Chancellor Leo E. Strine Jr., who often presides over big deal-related cases at Delaware’s Court of Chancery, offered his opinion on this hot-button issue. In a panel discussion Thursday at Tulane Law School’s Corporate Law Institute, Vice Chancellor Strine suggested that a conflict-free bank is not always the best choice.

“I question bringing in a Mickey-Mouse-size bank to respresent a go-shop,” he said on the panel. “I still err on the side of repeat players” — meaning banks that may already have an interest in a company or a deal — who “know the tricks of the game.”

A pure adviser, he suggested, can sometimes end up being a “purely ignorant adviser.” This line of discussion brought out what is likely to be one of the most memorable quotes of the event. It was spoken by panelist Robert Kindler, vice chairman of investment banking at Morgan Stanley. Referring to the universe of big banks such as his own, he said: “We are totally conflicted — get used to it.”