DealLawyers.com Blog

From Travis Laster of Abrams & Laster: In a case decided last week – Ortsman v. Green – Vice Chancellor Stephen Lamb granted a motion to expedite, finding that the complaint stated colorable claims with respect to (i) the investment banker’s involvement in the transaction and (ii) certain disclosure claims, including disclosures relating to investment banker compensation. [Because the opinion refers by number to key paragraphs in the complaint, we have posted both the complaint and opinion in our “M&A Litigation” Portal.]

VC Lamb first held that the complaint stated a colorable claim sufficient to merit expedition with respect to the role of UBS in acting as the financial advisor to Adesa and leading the sale process. After commencing the sale process, “UBS advised Adesa that it wished to be able to offer debt financing to potential acquirers.” The plaintiffs alleged that this conflict affected the sale process “when UBS advised the Adesa board not to pursue an indication of interest from a strategic buyer that UBS believed would not be interested in a leveraged transaction and, thus, would not be a source for it of fees from debt financing.”

In the Toys-R-Us decision a few years ago, Vice Chancellor Strine criticized the practice of a sell-side banker asking to participate in financing on the buy side. Notwithstanding this criticism, we see such requests with relative frequency, and it regularly creates counseling problems. VC Lamb’s grant of expedition in Adesa is proof-positive of the types of litigation risks that this practice creates.

Second, Vice Chancellor Lamb held in Adesa that the complaint stated a series of colorable disclosure claims sufficient to merit expedition. Most notable was a claim related to investment banker compensation. After UBS assumed its dual role, Adesa hired Credit Suisse to provide a fairness opinion. The proxy disclosed only that Credit Suisse received “a customary fee” for its services. The Vice Chancellor noted that “a reader of the proxy statement is not told how much Credit Suisse was paid, whether it would have received the same payment even if it was unable to render a fairness opinion at $27.85, or how much Credit Suisse has earned in recent periods from Kelso or other members of the buyer group.” The Vice Chancellor ultimately found that the 8 issues identified in paragraph 50(viii) of the complaint raised colorable disclosure claims and merited expedited discovery. At a minimum, practitioners will want to review investment banker compensation disclosures in light of this decision.