Recently, Harvard held a “Roundtable on Activist Interventions” – here are the course materials, freely posted. In particular, here is a piece from McKinsey entitled “Preparing for bigger, bolder shareholder activists” – and the transcript of an interview with McKinsey’s Larry Kanarek on the same topic…
Monthly Archives: April 2014
Delaware Supreme Court Justice Jack B. Jacobs has notified Gov. Jack Markell via a letter that he plans to step down from the bench in July. Jacobs wrote in his March 31 letter, a copy of which was obtained by Delaware Law Weekly, that he will step down July 4, one full year before his term is set to expire. He has served on the Supreme Court for 11 years and was also a Delaware Court of Chancery vice chancellor for 18 years. “No one can or should occupy these positions of trust for too long, however, and in my case, the time has now come to move on to the next phase of my life,” Jacobs said in the letter.
Ahead of our webcast today – “Rural/Metro and Claims for Aiding & Abetting Breaches of Fiduciary Duty” – I thought it would be good to report about how the case was discussed at last week’s M&A conference at Tulane. Here is a WSJ article with a recap:
A recent court ruling that put M&A bankers on high alert was the talk of the town as deal makers gathered in New Orleans this week–and it wasn’t all good talk. Lawyers and bankers spoke warily, and at times critically, of a decision that has landed RBC Capital Markets LLC on the hook for potentially millions of dollars in damages to shareholders of a company it advised on a 2011 buyout. Vice Chancellor J. Travis Laster found earlier this month that RBC’s desire to win fees both advising Rural/Metro Corp. and lending to its buyer, Warburg Pincus LLC, colored its advice to the board and shortchanged investors. RBC has defended its advice to the board and has said it is weighing its options.
The decision echoed loudly in New Orleans, where a few hundred lawyers, bankers, judges and advisers gathered this week at the Tulane Corporate Law Institute. One New York-based lawyer was distributing buttons with “Rural/Metro” encircled in a red “Ghostbusters” sign. On the sidelines, some advisers said quietly they hoped RBC would appeal. In particular, people pointed to the robustness of the auction–26 bidders were contacted; only Warburg submitted a final bid–and Mr. Laster’s decision to exclude from his analysis the fact that Rural/Metro filed for bankruptcy protection after Warburg bought it. “While no one would advocate bad behavior, the decision includes a number of novel applications of law that RBC can raise on appeal and that could result in a reversal,” said Kevin Miller of Alston & Bird LLP. Judges rarely find that boards failed to run a fair sales process. Rarer still is Mr. Laster’s ruling that a bank contributed to–in legal parlance “aided and abetted”–that failure. Because of a quirk of Delaware’s corporate law, directors themselves are typically immune from damages, while advisers can be targeted for millions of dollars.
Particularly troubling to some at Tulane was Mr. Laster’s description of banks in M&A deals as “gatekeepers” that have a duty to make sure boards are running good auctions. In his opinion, Mr. Laster fired a warning shot across the bow of other banks: Stay in bounds, or expect to get sued. “The threat of liability helps incentivize gatekeepers to provide sound advice, monitor clients, and deter client wrongs,” he wrote. “That’s a very striking point,” Paul Choi of Sidley Austin LLP said. “I’ve never read something like that in a Chancery Court opinion.”
Still, some said RBC’s actions as laid out by Mr. Laster were egregious. Last-minute changes to the bank’s fairness opinion had the effect of making Warburg’s offer look more fair, Mr. Laster found. One banker, when the bottom valuation range implied by a so-called discounted cash flow analysis fell above Warburg’s offer, wrote a colleague: “I thought we were going to try to reduce DCF?” “If they’re true, those are bad facts,” said one New-York based M&A lawyer.
They may be costly ones, too. Mr. Laster has not yet ruled on damages, but his opinion and subsequent court filings suggest Warburg may have underpaid by more than $200 million–an amount RBC could owe Rural/Metro’s former shareholders. RBC is likely to argue that the directors and Moelis & Co., which also gave a fairness opinion, are partly responsible, which could reduce RBC’s share of the payout.
And here’s a DealBook article about a Tulane panel on activists…
Tune in tomorrow for the webcast – “Rural/Metro and Claims for Aiding & Abetting Breaches of Fiduciary Duty” – to hear Kevin Miller of Alston & Bird; Brad Davey of Potter Anderson; Stephen Bigler of Richards Layton, Stephen Kotran of Sullivan & Cromwell and Bill Lafferty of Morris Nichols as they discuss a case expected to have a dramatic impact on the viability of claims for aiding and abetting breaches of fiduciary duty in connection with M&A transactions. Please print these course materials in advance…