March 6, 2017

Disclosure: SEC & Courts Want More Details On Bankers’ Fees

Last month, I blogged about the SEC’s recent enforcement action against CVR Energy.  That proceeding focused on the level of detail provided by CVR Energy about the circumstances under which a success fee could become payable to its financial advisor.  This Dechert memo reviews the CVR Energy proceeding & recent Delaware case law – and notes a trend toward insisting on more details about investment banker fees and conflicts.

Here’s an excerpt summarizing the memo’s highlights:

– CVR Energy allegedly violated the tender offer rules by failing to properly disclose all material terms of its arrangements with investment banks advising CVR in connection with a hostile tender offer. Potential conflicts of interest that arose from the fee structure were not disclosed to CVR shareholders, including that the financial advisors could receive sizable “success” fees even if the hostile bidder prevailed despite the rejection of the offer by the CVR board.

– This enforcement action follows recent guidance by the SEC Staff that general disclosure that financial advisors are entitled to “customary fees” is usually insufficient and that disclosure should typically include a discussion of the fee structure, including the types of fees and circumstances that will trigger payment of the fees.

– These developments are consistent with a general trend in Delaware case law to require more specific disclosure of financial advisor fees, conflicts and other arrangements in M&A transactions.

John Jenkins