Rural’s shareholders sued the company’s directors for breaching their fiduciary duties and also asserted aiding and abetting claims against the Financial Advisor and Secondary Advisor. Ultimately, in March 2011, the Rural board approved a sale to Warburg. Several firms submitted indications of interest, including Warburg, which had withdrawn from the EMS bidding process. The Financial Advisor scheduled first round bids for Rural in January 2011, which was timed to coincide with EMS’s sale process. The Committee also retained another firm as its secondary advisor (the “Secondary Advisor”). In late December 2010, the Committee interviewed three potential candidates to serve as financial advisor and ultimately retained the Financial Advisor as its primary advisor. Then, in early December 2010, after EMS announced that it was exploring strategic alternatives, the Rural board issued a new charge to the Committee to explore potential strategic alternatives generally however, the board did not authorize the Committee to pursue a sale. In August 2010, the Rural board appointed a three-member Committee of non-management directors to oversee Rural’s strategy regarding an acquisition of AMR. (“AMR”), which was a subsidiary of Emergency Medical Services Corp.
Almost one year earlier, in May 2010, Rural was considering potential acquisition targets, including its primary competitor, American Medical Response, Inc. Rural/Metro arose out of the March 2011 sale of Rural to a financial buyer, Warburg Pincus. Equally important, the decision underscores the limited value of employing a second financial advisor unless that advisor is paid on a non-contingent basis, does not seek to provide staple financing, and performs its own independent financial analysis. In that (albeit limited) sense, the decision offers something of a silver lining to financial advisors in M&A transactions. In that regard, the Court stated: “Our holding is a narrow one that should not be read expansively to suggest that any failure on the part of a financial advisor to prevent directors from breaching their duty of care gives rise to” an aiding and abetting claim. Instead, the Court found that the relationship between an advisor and the company or board primarily is contractual in nature and the contract, not a theoretical gatekeeping function, defines the scope of the advisor’s duties in the absence of undisclosed conflicts on the part of the advisor. Significantly, however, the Court disagreed with Vice Chancellor Laster’s characterization of financial advisors as “gatekeepers” whose role is virtually on par with the board’s to appropriately determine the company’s value and chart an effective sales process. The Court’s decision reaffirms the importance of financial advisor independence and the courts’ exacting scrutiny of M&A advisors’ conflicts of interest.
In the lower court, Vice Chancellor Laster found a seller’s financial advisor (the “Financial Advisor”) liable in the amount of $76 million for aiding and abetting the Rural/Metro Corporation board’s breaches of fiduciary duty in connection with the company’s sale to private equity firm Warburg Pincus LLC. Stockholders Litigation ( previously discussed here). On November 30, 2015, the Delaware Supreme Court issued a 107-page opinion affirming the Court of Chancery’s post-trial decisions in In re Rural/Metro Corp.
0 kommentar(er)
