DealLawyers.com Blog

Debevoise recently published “Special Committees in Conflict Transactions: A Practical Guide,” which  provides practical guidance on the “when, why and how” of the appointment and operation of transactional special committees. Here’s an excerpt from the Guide’s discussion of the selection of advisors to a special committee:

The special committee will generally need legal and financial advisors to help it negotiate and evaluate a proposed transaction. While the company may identify a selection of potential independent advisors for the committee’s consideration (alongside any advisors that the committee may independently identify), the choice must be made by the committee in the exercise of its independent judgment.

Although it may be tempting to use advisors that have a preexisting relationship with the company because of the special committee members’ familiarity with those advisors, those advisors may have their own conflicts of interest or create the appearance of improper coordination between the company and the special committee.

The special committee should investigate any connections that its advisors—including individual deal team members—may have with the parties or other relevant individuals or entities to make sure they are not beholden to anybody else involved in the transaction. It is not required that advisors have no prior, current, or prospective relationships with transaction parties; instead, those relationships must be disclosed so that the special committee can form a view as to whether the relationships are sufficiently material to compromise independent judgment and advice.

The recent material business relationships of any advisors with the company and the acquirer must be disclosed to the company’s stockholders under SEC and FINRA regulations. Insufficient disclosure of advisor conflicts could subject the transaction to entire fairness review. In recent years, courts have focused increasingly on the importance of disclosing potential conflicts on the part of legal advisors.

Other topics addressed in the Guide include when to form a special committee, the selection of its members, what to include in the resolutions establishing the committee, and how the business of the special committee should be conducted and documented.

– John Jenkins