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Corporate Governance

: The Harvard Law School Corporate Governance Blog

Buyout and Deal Protections Enjoined due to Conflicted Advisor

By Harvard Law School Program on Corporate Governance

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Editor?s Note: Theodore Mirvis is a partner in the Litigation Department at Wachtell, Lipton, Rosen & Katz. This post is based on a Wachtell Lipton firm memorandum by Mr. Mirvis, Trevor S. Norwitz, Andrew J. Nussbaum, William Savitt and Ryan A. McLeod, and relates to the decision of the Delaware Court of Chancery in In re Del Monte Foods Co. S?holders Litig., which is available here.

Another memorandum on the case, by George Bason, Arthur F. Golden and Justine Lee, of Davis Polk & Wardwell LLP is available here.

The Delaware Court of Chancery yesterday enjoined both the shareholder vote on a premium LBO transaction and the buyers? ?deal protection? devices. In re Del Monte Foods Co. S?holders Litig., C.A. No. 6027-VCL (Del. Ch. Feb. 14, 2011). The Court held that the advice the target?s board received from its financial advisor was so conflicted as to give rise to a likelihood of a breach of fiduciary duty and indicated that the bidding buyout firm may face monetary damages as an ?aider and abettor? of the potential breach.

On a preliminary record, the Court found that after the Del Monte board called off a process of exploring a potential sale in early 2010, its investment bankers continued to meet with several of the bidders ? without the approval or knowledge of Del Monte ? ultimately yielding a new joint bid from two buyout firms late in 2010. While still representing the board and before the parties had reached agreement on price, Del Monte?s bankers sought and received permission to provide buy-side financing, which required the company to retain another investment advisor to render an unconflicted fairness opinion. Del Monte reached a high-premium deal with a ?go-shop? provision and deal protection devices including a termination fee and matching rights. The original bankers were then tasked with running Del Monte?s go-shop process (which yielded no further offers), although the Court noted they stood to earn a substantial fee from financing the pending acquisition.

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Full post as published by The Harvard Law School Corporate Governance Blog on February 16, 2011 (boomark / email).