September 1, 2016

Rural/Metro: $2.5M SEC Sanction for Fairness Opinion Disclosures

In the latest chapter of the Rural/Metro saga, the SEC announced yesterday that RBC had consented to a $2.5 million settlement in order to resolve allegations of deficiencies in the bank’s fairness opinion presentation to Rural/Metro’s board, and in the description of that opinion in the company’s proxy materials.

The SEC said that its investigation found that RBC’s presentation contained materially false and misleading statements which made the buyer’s bid look more attractive, and caused that information to be included in the proxy statement filed in connection with the deal.  Here are some of the issues cited by the SEC:

– The SEC found that RBC’s presentation described one of its valuations as being based on Wall Street analysts’ “consensus projections” of Rural/Metro’s 2010 adjusted EBITDA, a pretax earnings figure. In fact, the valuation did not reflect analysts’ research or a “consensus” view, but was Rural/Metro’s actual 2010 adjusted EBITDA of $69.8 million.

– Rural/Metro’s proxy statement included a summary of RBC’s valuation analysis, which falsely stated that RBC used “Wall Street research analyst consensus projections” for 2010 “consensus” adjusted EBITDA. The SEC order found that in addition to being false, the proxy statement was misleading because shareholders would be led to believe the analysis reflected the “consensus” calculation of $76.8 million.

– The SEC also found that RBC caused the proxy statement to include a misleading disclosure that suggested RBC had relied on another valuation analysis in its fairness presentation to Rural/Metro’s board when, in fact, RBC did not rely on the analysis for valuation purpose.

John Jenkins