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© Practising Law Institute

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© Practising Law Institute

5

Investment Banker Issues & Considerations (PowerPoint slides)

Kevin Miller

Alston & Bird LLP

Copyright 2017©

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291

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292

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© Practising Law Institute

Cop

yrig

ht 2

017©

Inve

stm

ent B

anke

r Iss

ues

& C

onsi

dera

tions

Doi

ng D

eals

201

7:Th

e A

rt o

f M&

A T

rans

actio

nal P

ract

ice

Wed

nesd

ay, M

arch

8, 2

017

Kev

in M

iller

Als

ton

& B

ird L

LPN

ew Y

ork,

NY

293

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yrig

ht 2

017©

Inve

stm

ent B

anke

r Iss

ues

& C

onsi

dera

tions

Iden

tifyi

ng a

nd A

ddre

ssin

g M

ater

ial I

nves

tmen

t Ban

ker R

elat

ions

hips

Fina

ncia

l Ana

lyse

s U

nder

lyin

g Fa

irnes

s O

pini

ons

–W

hat’s

on

the

Foot

ball

Fiel

d?

Aid

ing

and

Abe

tting

Cla

ims

–Im

plic

atio

ns o

f Tru

lia a

nd A

ttenb

orou

gh (a

ka

Zale

)

2

294

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yrig

ht 2

017©

Inve

stm

ent B

anke

r Iss

ues

& C

onsi

dera

tions

Iden

tifyi

ng a

nd A

ddre

ssin

g M

ater

ial I

nves

tmen

t Ban

ker

Rel

atio

nshi

ps

295

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Cop

yrig

ht 2

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Dis

clos

ure

of M

ater

ial F

inan

cial

Adv

isor

Rel

atio

nshi

ps

The

Focu

s on

Dis

clos

ure

Dis

clos

ure

of m

ater

ial r

elat

ions

hips

and

act

ual a

nd p

oten

tial c

onfli

cts

of in

tere

st h

as re

ceiv

ed

incr

ease

d at

tent

ion

give

n th

e nu

mbe

r of b

reac

h of

fidu

ciar

y du

ty c

laim

s an

d ai

ding

and

abe

tting

br

each

of f

iduc

iary

dut

y cl

aim

s ba

sed

in w

hole

or i

n pa

rt on

alle

ged

inad

equa

te d

iscl

osur

e of

m

ater

ial r

elat

ions

hips

and

con

flict

s to

the

boar

d.

Boa

rds

need

to c

onsi

der t

he im

plic

atio

ns o

f mat

eria

l rel

atio

nshi

ps b

etw

een

pros

pect

ive

finan

cial

ad

viso

rs a

nd p

oten

tial c

ount

erpa

rties

and

oth

er in

tere

sted

par

ties

(whi

ch m

ay in

clud

e m

anag

emen

t):

“But

wha

t is

criti

cal i

s th

at b

anks

hav

e a

sens

ible

and

def

ensi

ble

disc

losu

re p

olic

y th

at tr

acks

an

d he

lps

surfa

ce p

oten

tial m

ater

ial c

onfli

cts

.… It

is a

lso

vita

l tha

t the

re n

ot b

e a

parti

al

appr

oach

to c

onfli

ct d

iscl

osur

e, w

hich

leav

es o

pen

the

poss

ibilit

y fo

r “oh

by

the

way

” mom

ents

th

at w

ere

fore

seea

ble.

Dis

clos

ure

is c

omfo

rting

to c

lient

s an

d th

e co

urts

, as

it su

gges

ts a

fo

rthrig

ht a

ttem

pt to

gra

pple

with

sel

f-int

eres

t in

prin

cipl

ed, e

thic

al w

ay. .

. . I

f con

flict

s w

ere

surfa

ced,

con

tain

ed, a

nd a

ddre

ssed

, and

a s

trong

han

d w

as g

iven

to th

e im

parti

al m

embe

rs o

f th

e bo

ard,

the

plai

ntiff

s’ a

bilit

y to

sug

gest

that

thos

e co

nflic

ts in

fect

ed th

e w

hy [c

erta

in

deci

sion

s w

ere

mad

e] is

impa

ired.

It w

ill th

eref

ore

be m

ore

diffi

cult

for t

he p

lain

tiffs

to g

et th

e de

al e

njoi

ned

or to

pre

ss a

dam

ages

cas

e.”

Strin

e, L

eo E

., “D

ocum

entin

g th

e D

eal:

How

Q

ualit

y C

ontro

l and

Can

dor C

an Im

prov

e B

oard

room

Dec

isio

n-M

akin

g an

d R

educ

e th

e Li

tigat

ion

Targ

et Z

one,

” Bus

ines

s La

wye

r, V

ol. 7

0 N

o. 3

(Sum

mer

201

5).

4

296

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Dis

clos

ure

of M

ater

ial F

inan

cial

Adv

isor

Rel

atio

nshi

ps (c

ont’d

)

But

Chi

ef J

ustic

e St

rine

has

also

not

ed th

at:

“Ban

ks w

ith th

e le

ast n

umbe

r of p

oten

tial c

onfli

cts

(i.e.

, bou

tique

ban

ks) a

re n

ot

nece

ssar

ily th

e be

st a

dvis

ors

for a

targ

et c

ompa

ny...

" ht

tp://

ww

w.p

aulh

astin

gs.c

om/p

ublic

atio

ndet

ail.a

spx?

publ

icat

ionI

d=21

91.

“[T]h

ere

is a

diff

eren

ce b

etw

een

the

typi

cal c

onfli

cts

that

invo

lve

a ba

nk o

r law

yer

wor

king

sem

i-reg

ular

ly o

n en

gage

men

ts fo

r key

pla

yers

, suc

h as

priv

ate

equi

ty fi

rms,

an

d m

ore

unus

ual,

mor

e m

ater

ial c

onfli

cts.

” S

trine

, Leo

E.,

“Doc

umen

ting

the

Dea

l: H

ow Q

ualit

y C

ontro

l and

Can

dor C

an Im

prov

e B

oard

room

Dec

isio

n-M

akin

g an

d R

educ

e th

e Li

tigat

ion

Targ

et Z

one,

” Bus

ines

s La

wye

r, V

ol. 7

0 N

o. 3

(Sum

mer

201

5).

And

oth

ers

have

obs

erve

d th

at:

“The

Del

awar

e co

urts

are

und

oubt

edly

cog

niza

nt a

nd re

spec

tful o

f the

fact

that

the

mos

t effe

ctiv

e ad

viso

ry s

ervi

ces

are

ofte

n re

nder

ed b

y ba

nker

s w

ith re

latio

nshi

ps th

at

run

broa

dly

and

deep

ly in

the

rele

vant

indu

stry

. In

gene

ral,

the

cour

ts a

re n

ot s

eeki

ng

to d

icta

te th

e ch

oice

of a

dvis

er, b

ut ra

ther

are

pro

mot

ing

trans

pare

ncy

and

supe

rvis

ion.

” http

://bl

ogs.

law

.har

vard

.edu

/cor

pgov

/201

2/05

/31/

dela

war

e-de

cisi

ons-

data

-poi

nts-

not-d

octri

ne/.

5

297

Page 9

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yrig

ht 2

017©

Dis

clos

ure

of M

ater

ial F

inan

cial

Adv

isor

Rel

atio

nshi

ps (c

ont’d

)

Exam

ples

of W

hat M

ay N

eed

to b

e D

iscl

osed

Mat

eria

l inv

estm

ent b

anki

ng re

latio

nshi

ps –

aggr

egat

e fe

es o

r rev

enue

s re

ceiv

ed

for p

rovi

ding

mat

eria

l inv

estm

ent b

anki

ng a

dvic

e an

d se

rvic

es (M

&A

adv

isor

y,

capi

tal m

arke

ts, f

inan

cing

) to

mos

t lik

ely

buye

rs d

urin

g pa

st tw

o ye

ars

Mat

eria

l fin

anci

al in

tere

sts

–i.e

., m

ater

ial a

mou

nts

of e

quity

, deb

t and

oth

er

secu

ritie

s an

d fin

anci

al in

stru

men

ts h

eld

by th

e fin

anci

al a

dvis

or a

nd s

enio

r dea

l te

am m

embe

rs in

the

mos

t lik

ely

buye

rs

Loan

s to

or p

artic

ipat

ions

in c

redi

t fac

ilitie

s of

mos

t lik

ely

buye

rs

Inte

rest

in s

eeki

ng o

ther

role

s in

tran

sact

ion,

suc

h as

fina

ncin

g po

tent

ial b

uyer

s

Rec

ent t

arge

ted

pitc

hes

to p

oten

tial b

uyer

s co

ncer

ning

a p

oten

tial t

rans

actio

n in

volv

ing

the

clie

nt (e

.g.,

Zale

)

Mat

eria

l rel

atio

nshi

ps b

etw

een

seni

or m

embe

rs o

f the

inve

stm

ent b

anki

ng te

am

(incl

udin

g as

a re

cent

em

ploy

ee a

t oth

er in

vest

men

t ban

ks) a

nd m

ost l

ikel

y bu

yers

6

298

Page 10

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yrig

ht 2

017©

Mec

hani

cs o

f Dis

clos

ure

Whe

n an

d ho

w to

dis

clos

e re

latio

nshi

ps/a

ctua

l and

pot

entia

l con

flict

s of

inte

rest

:

Out

set o

f eng

agem

ent (

e.g.

, sin

gle

bidd

er p

roce

ss)

Onc

e lim

ited

num

ber o

f lik

ely

buye

rs id

entif

ied

At o

utse

t if m

ost l

ikel

y bu

yers

bel

ieve

d to

be

know

n

Prio

r to

seco

nd ro

und

of b

ids

(e.g

., if

broa

d au

ctio

n)

How

to d

iscl

ose

to th

e bo

ard:

Ver

bally

Evi

dent

iary

con

cern

s if

reco

llect

ions

diff

er

Writ

ing

Cre

ates

con

tem

pora

neou

s w

ritte

n re

cord

Whe

re to

dis

clos

e:

Mem

o to

Boa

rd o

f Dire

ctor

s/B

oard

boo

k

Eng

agem

ent l

ette

rs

7

Dis

clos

ure

of M

ater

ial F

inan

cial

Adv

isor

Rel

atio

nshi

ps (c

ont’d

)

299

Page 11

© Practising Law Institute

Cop

yrig

ht 2

017©

Boa

rd D

iscl

osur

e M

emor

anda

“Boa

rd D

iscl

osur

e M

emor

anda

” are

typi

cally

pro

vide

d at

a re

lativ

ely

early

sta

ge in

th

e sa

les

proc

ess,

so

that

the

boar

d ca

n m

ake

an in

form

ed d

ecis

ion

with

resp

ect t

o w

heth

er th

e fin

anci

al a

dvis

or w

ill be

abl

e to

pro

vide

the

boar

d w

ith th

e ob

ject

ive

finan

cial

and

stra

tegi

c ad

vice

that

the

boar

d ne

eds.

The

form

s of

Boa

rd D

iscl

osur

e M

emor

anda

typi

cally

focu

s on

the

rang

e of

ag

greg

ate

fees

rece

ived

dur

ing

the

past

two

year

s fo

r pro

vidi

ng in

vest

men

t ban

king

ad

vice

and

ser

vice

s (e

.g.,

M&

A a

dvis

ory,

cap

ital m

arke

ts a

nd fi

nanc

ing)

to th

e m

ost-l

ikel

y bu

yers

and

any

mat

eria

l fin

anci

al in

tere

sts

the

finan

cial

adv

isor

has

in

thos

e m

ost-l

ikel

y bu

yers

.

Boa

rd D

iscl

osur

e M

emor

anda

als

o ty

pica

lly d

iscl

ose

whe

ther

any

of t

he s

enio

r in

vest

men

t ban

king

pro

fess

iona

ls a

ssig

ned

by th

e fin

anci

al a

dvis

or to

per

form

the

sells

ide

advi

sory

eng

agem

ent h

ave

mat

eria

l rel

atio

nshi

ps w

ith o

r fin

anci

al in

tere

sts

in th

e m

ost-l

ikel

y bu

yers

.

To th

e ex

tent

fact

s an

d ci

rcum

stan

ces

war

rant

, the

form

s of

Boa

rd D

iscl

osur

e M

emor

anda

bei

ng u

sed

by fi

nanc

ial a

dvis

ors

can

be m

odifi

ed to

pro

vide

add

ition

al

info

rmat

ion

requ

este

d by

the

boar

d or

as

othe

rwis

e m

ay b

e ap

prop

riate

. 8

Dis

clos

ure

of M

ater

ial F

inan

cial

Adv

isor

Rel

atio

nshi

ps (c

ont’d

)

300

Page 12

© Practising Law Institute

Cop

yrig

ht 2

017©

Enga

gem

ent L

ette

r Pro

visi

ons

As

an a

ltern

ativ

e to

the

Boa

rd D

iscl

osur

e M

emor

andu

m a

ppro

ach,

an

artic

le in

The

B

usin

ess

Law

yerr

ecom

men

ded

that

com

pani

es e

ngag

ing

finan

cial

adv

isor

s ob

tain

de

taile

d re

pres

enta

tions

, war

rant

ies,

cov

enan

ts a

nd re

med

y pr

ovis

ions

in fi

nanc

ial

advi

sor e

ngag

emen

t let

ters

with

resp

ect t

o th

e di

sclo

sure

of t

he fi

nanc

ial a

dvis

or’s

m

ater

ial r

elat

ions

hips

with

pot

entia

l buy

ers.

Klin

ger-

Wile

nsky

, Eric

S. a

nd E

mer

itz,

Nat

han

P.,

“Fin

anci

al A

dvis

or E

ngag

emen

t Let

ters

: Pos

t-Rur

al/M

etro

Tho

ught

s an

d O

bser

vatio

ns. B

usin

ess

Law

yer,”

Vol

. 71

No.

1 (W

inte

r 201

5/20

16).

9

Dis

clos

ure

of M

ater

ial F

inan

cial

Adv

isor

Rel

atio

nshi

ps (c

ont’d

)

301

Page 13

© Practising Law Institute

Cop

yrig

ht 2

017©

Dis

clos

ure

of M

ater

ial F

inan

cial

Adv

isor

Rel

atio

nshi

ps (c

ont’d

)

Req

uire

men

ts fo

r Effe

ctiv

e D

iscl

osur

e

Con

sist

ent w

ith th

e th

eme

of C

hief

Jus

tice

Stri

ne’s

artic

le, t

he p

rimar

y go

al o

f cou

nsel

an

d fin

anci

al a

dvis

ors

shou

ld b

e to

ass

ist b

oard

s in

mak

ing

info

rmed

bus

ines

s de

cisi

ons.

Effe

ctiv

e di

sclo

sure

for p

urpo

ses

of in

form

ed b

oard

dec

isio

n m

akin

g re

quire

s th

ree

thin

gs:

Con

tent

–th

e di

sclo

sure

of a

dequ

ate

info

rmat

ion

rega

rdin

g th

e fin

anci

al a

dvis

or’s

m

ater

ial r

elat

ions

hips

with

pro

spec

tive

buye

rs;

Tim

ing

–th

e di

sclo

sure

of i

nfor

mat

ion

at th

e be

ginn

ing

or a

t a re

lativ

ely

early

sta

te

in th

e sa

les

proc

ess;

and

Acc

ess

–bo

ard

acce

ss a

nd a

ttent

ion

to th

e di

sclo

sed

info

rmat

ion.

Thou

gh n

ot th

e pr

imar

y ob

ject

ive,

add

ition

al b

enef

its o

f effe

ctiv

e di

sclo

sure

that

as

sist

s bo

ards

in m

akin

g in

form

ed b

usin

ess

deci

sion

s in

clud

e th

e in

crea

sed

likel

ihoo

d th

at a

boa

rd’s

dec

isio

ns w

ill s

urvi

ve le

gal c

halle

nge

and

the

redu

ced

likel

ihoo

d th

at a

com

pany

’s b

oard

or i

ts fi

nanc

ial a

dvis

or w

ill b

e fo

und

liabl

e fo

r any

da

mag

es re

sulti

ng fr

om th

e bo

ard’

s bu

sine

ss d

ecis

ions

. 10

302

Page 14

© Practising Law Institute

Cop

yrig

ht 2

017©

Dis

clos

ure

of M

ater

ial F

inan

cial

Adv

isor

Rel

atio

nshi

ps (c

ont’d

)

Boa

rd D

iscl

osur

e M

emor

andu

m v

. Eng

agem

ent L

ette

r Pro

visi

ons

-Con

tent

Con

tent

–Th

e de

liver

y of

a B

oard

Dis

clos

ure

Mem

oran

dum

to a

clie

nt’s

or

pros

pect

ive

clie

nt’s

boa

rd a

t a re

lativ

ely

early

sta

ge in

the

sale

pro

cess

that

dis

clos

es

the

rang

e of

agg

rega

te fe

es re

ceiv

ed d

urin

g th

e pa

st tw

o ye

ars

(e.g

., le

ss th

an $

X

milli

on; b

etw

een

$X a

nd $

Y m

illion

; bet

wee

n $Y

milli

on a

nd $

Z m

illion

; mor

e th

an $

Z m

illion

) for

pro

vidi

ng in

vest

men

t ban

king

adv

ice

and

serv

ices

to th

e m

ost-l

ikel

y bu

yers

, as

wel

l as

any

mat

eria

l fin

anci

al in

tere

sts

the

finan

cial

adv

isor

has

in th

ose

mos

t-lik

ely

buye

rs, w

ill g

ener

ally

pro

vide

the

boar

d w

ith a

dequ

ate

info

rmat

ion

to

asse

ss th

e be

nefit

s an

d ris

ks a

ssoc

iate

d w

ith re

lyin

g on

the

finan

cial

adv

isor

’s a

dvic

e w

hen

mak

ing

key

deci

sion

s.

Atte

mpt

ing

to a

ddre

ss th

e ne

ed fo

r ade

quat

e di

sclo

sure

rega

rdin

g a

finan

cial

ad

viso

r’s m

ater

ial r

elat

ions

hips

with

pot

entia

l buy

ers

by m

eans

of c

ontra

ctua

l pr

ovis

ions

in a

n en

gage

men

t let

ter o

ften

resu

lts in

dem

ands

for d

etai

led

disc

losu

re

that

take

s a

long

tim

e to

neg

otia

te a

nd p

repa

re (a

nd, t

o th

e ex

tent

ver

ifiab

le,

adeq

uate

ly v

erify

) and

that

may

requ

ire th

e co

nsen

t of t

hird

par

ties

(e.g

., th

e fin

anci

al

advi

sor’s

oth

er c

lient

s) w

ho m

ay n

ot b

e w

illing

to p

rovi

de c

onse

nt in

a ti

mel

y m

anne

r, if

at a

ll.

11

303

Page 15

© Practising Law Institute

Cop

yrig

ht 2

017©

Dis

clos

ure

of M

ater

ial F

inan

cial

Adv

isor

Rel

atio

nshi

ps (c

ont’d

)

Boa

rd D

iscl

osur

e M

emor

andu

m v

. Eng

agem

ent L

ette

r Pro

visi

ons

-Tim

ing

Tim

ing

–P

ropo

nent

s of

Boa

rd D

iscl

osur

e M

emor

anda

bel

ieve

that

onc

e a

limite

d nu

mbe

r of t

he m

ost-l

ikel

y bu

yers

has

bee

n id

entif

ied,

info

rmat

ion

rega

rdin

g th

e fin

anci

al a

dvis

or’s

mat

eria

l rel

atio

nshi

ps w

ith th

e m

ost-l

ikel

y bu

yers

can

and

sho

uld

be p

rom

ptly

pro

vide

d to

a c

lient

’s o

r pro

spec

tive

clie

nt’s

boa

rd a

nd p

erio

dica

lly

upda

ted

as fa

cts

and

circ

umst

ance

s w

arra

nt –

e.g.

, to

refle

ct a

dditi

onal

like

ly b

uyer

s or

mat

eria

l cha

nges

in th

e pr

evio

usly

dis

clos

ed in

form

atio

n re

gard

ing

the

finan

cial

ad

viso

r’s m

ater

ial r

elat

ions

hips

with

the

mos

t-lik

ely

buye

rs.

Del

ayin

g th

e se

lect

ion

of a

fina

ncia

l adv

isor

and

/or b

oard

act

ion

upon

its

finan

cial

ad

viso

r’s a

dvic

e un

til th

e de

taile

d di

sclo

sure

pro

visi

ons

in a

n en

gage

men

t let

ter h

ave

been

fina

lized

and

the

resu

lting

dis

clos

ures

rega

rdin

g th

e fin

anci

al a

dvis

or’s

mat

eria

l re

latio

nshi

ps w

ith p

oten

tial b

uyer

s ha

ve b

een

revi

ewed

by

the

boar

d, ri

sks

dela

y th

at

coul

d ad

vers

ely

affe

ct th

e tim

ing

(and

pot

entia

lly e

ven

the

likel

ihoo

d) o

f a s

ucce

ssfu

l tra

nsac

tion.

12

304

Page 16

© Practising Law Institute

Cop

yrig

ht 2

017©

Dis

clos

ure

of M

ater

ial F

inan

cial

Adv

isor

Rel

atio

nshi

ps (c

ont’d

)

Boa

rd D

iscl

osur

e M

emor

andu

m v

. Eng

agem

ent L

ette

r Pro

visi

ons

-Acc

ess

Acc

ess

–P

rovi

ding

a B

oard

Dis

clos

ure

Mem

oran

dum

to th

e bo

ard

at a

rela

tivel

y ea

rly s

tage

in a

sal

es p

roce

ss a

lso

sign

ifica

ntly

incr

ease

s th

e lik

elih

ood

that

the

boar

d w

ill be

bet

ter p

ositi

oned

to m

ake

info

rmed

judg

men

ts re

gard

ing

the

sele

ctio

n of

a

finan

cial

adv

isor

and

/or t

he w

eigh

t to

be g

iven

to th

e fin

anci

al a

dvis

or’s

adv

ice,

the

need

for a

dditi

onal

info

rmat

ion

rega

rdin

g th

ose

rela

tions

hips

and

the

poss

ible

nee

d fo

r a s

econ

d ad

viso

r.

Giv

en th

at c

ontra

ctua

l pro

visi

ons

in a

n en

gage

men

t let

ter r

elat

ing

to th

e di

sclo

sure

of

a fin

anci

al a

dvis

or’s

mat

eria

l rel

atio

nshi

ps w

ith p

oten

tial b

uyer

s w

ould

form

onl

y a

part

of th

e br

oade

r con

tract

ual r

elat

ions

hip

esta

blis

hed

by a

fina

ncia

l adv

isor

’s

enga

gem

ent l

ette

r and

that

eng

agem

ent l

ette

rs a

re o

ften

nego

tiate

d co

ncur

rent

ly w

ith

the

perfo

rman

ce o

f an

enga

gem

ent,

the

boar

d m

ay n

ot h

ave

adeq

uate

tim

e to

ad

dres

s th

e re

sulti

ng d

iscl

osur

es re

gard

ing

a fin

anci

al a

dvis

or’s

mat

eria

l re

latio

nshi

ps w

ith p

oten

tial b

uyer

s if

the

cont

ract

ually

requ

ired

disc

losu

res

are

not

rece

ived

unt

il la

te in

the

sale

s pr

oces

s.

13

305

Page 17

© Practising Law Institute

Cop

yrig

ht 2

017©

Dis

clos

ure

of M

ater

ial F

inan

cial

Adv

isor

Rel

atio

nshi

ps (c

ont’d

)

Boa

rd D

iscl

osur

e M

emor

andu

m v

. Eng

agem

ent L

ette

r Pro

visi

ons

-Oth

er

Oth

er C

onsi

dera

tions

–In

add

ition

, if a

prim

ary

goal

of d

etai

led

cont

ract

ual p

rovi

sion

s in

an

enga

gem

ent l

ette

r rel

atin

g to

the

disc

losu

re o

f the

fina

ncia

l adv

isor

’s m

ater

ial

rela

tions

hips

with

pot

entia

l buy

ers

is to

allo

cate

risk

and

liab

ility,

it is

far f

rom

cle

ar

that

suc

h pr

ovis

ions

will

pro

vide

an

effe

ctiv

e re

med

y to

the

com

pany

reta

inin

g th

e fin

anci

al a

dvis

or o

r tha

t com

pany

’s s

tock

hold

ers.

Giv

en th

at, d

espi

te a

llege

d co

nflic

ts, v

irtua

lly a

ll ne

gotia

ted

mer

gers

stil

l clo

se, a

ny

cont

ract

ual c

laim

s fo

r bre

ach

of p

rovi

sion

s in

an

enga

gem

ent l

ette

r bro

ught

by

a ta

rget

com

pany

will

inur

e to

the

bene

fit o

f the

buy

er a

s th

e ne

w o

wne

r of t

he ta

rget

.

Eve

n if

the

targ

et b

ecom

es a

war

e of

suc

h cl

aim

s pr

ior t

o th

e ex

ecut

ion

of th

e m

erge

r agr

eem

ent,

atte

mpt

s by

the

targ

et to

neg

otia

te fo

r add

ition

al c

onsi

dera

tion

from

the

buye

r ref

lect

ing

the

valu

e of

suc

h cl

aim

s w

ill no

t lik

ely

succ

eed

sinc

e bu

yers

will

be

unlik

ely

to a

ttrib

ute

muc

h va

lue

to c

laim

s ag

ains

t the

targ

et’s

fina

ncia

l ad

viso

r tha

t alle

gedl

y re

sulte

d in

the

buye

r obt

aini

ng a

favo

rabl

e pu

rcha

se p

rice.

14

306

Page 18

© Practising Law Institute

Cop

yrig

ht 2

017©

Dis

clos

ure

of M

ater

ial F

inan

cial

Adv

isor

Rel

atio

nshi

ps (c

ont’d

)

Boa

rd D

iscl

osur

e M

emor

andu

m v

. Eng

agem

ent L

ette

r Pro

visi

ons

In p

ract

ice,

it a

ppea

rs th

at, a

s a

resu

lt of

the

issu

es a

nd c

once

rns

disc

usse

d ab

ove,

th

e B

oard

Dis

clos

ure

Mem

oran

dum

has

bec

ome

the

pred

omin

ant m

arke

t app

roac

h fo

r add

ress

ing

the

need

for d

iscl

osur

e of

a fi

nanc

ial a

dvis

or’s

mat

eria

l rel

atio

nshi

ps

with

the

mos

t-lik

ely

buye

rs to

a c

lient

’s o

r pro

spec

tive

clie

nt’s

boa

rd.

15

307

Page 19

© Practising Law Institute

Cop

yrig

ht 2

017©

Inve

stm

ent B

anke

r Iss

ues

& C

onsi

dera

tions

Fina

ncia

l Ana

lyse

s U

nder

lyin

g Fa

irnes

s O

pini

ons

–W

hat’s

on

the

Foot

ball

Fiel

d?

308

Page 20

© Practising Law Institute

Cop

yrig

ht 2

017©

17

Fina

ncia

l Ana

lyse

s U

nder

lyin

g Fa

irnes

s O

pini

ons

–W

hat’s

on

the

foot

ball

field

Purp

ose

of th

e Fo

otba

ll Fi

eld

Sum

mar

izes

the

finan

cial

ana

lysi

s pe

rform

ed in

con

nect

ion

with

pre

para

tion

of a

fa

irnes

s op

inio

n bu

t may

incl

ude

othe

r con

side

ratio

ns

Form

at ty

pica

lly tr

acks

the

trans

actio

n st

ruct

ure

dolla

r val

ues

in c

ash

or fi

xed

valu

e tra

nsac

tions

exch

ange

ratio

s in

sto

ck-fo

r-st

ock/

fixed

exc

hang

e ra

tio m

erge

rs

As

a su

mm

ary,

sho

uld

be re

view

ed a

nd c

onsi

dere

d in

the

cont

ext o

f the

mor

e de

taile

d un

derly

ing

anal

ysis

“All

anal

yses

are

not

cre

ated

equ

al”-

each

refle

cts

a di

ffere

nt fo

cus

and

pers

pect

ives

and

nee

ds to

be

cons

ider

ed in

the

cont

ext o

f the

spe

cific

fact

s an

d ci

rcum

stan

ces

pres

ente

d

Diff

eren

t ana

lyse

s ha

ve u

niqu

e ad

vant

ages

and

lim

itatio

ns, a

nd a

s su

ch, d

iffer

in

info

rmat

iona

l val

ue u

nder

the

fact

s an

d ci

rcum

stan

ces

pres

ente

d

309

Page 21

© Practising Law Institute

Cop

yrig

ht 2

017©

18

Fina

ncia

l Ana

lyse

s U

nder

lyin

g Fa

irnes

s O

pini

ons

–W

hat’s

on

the

foot

ball

field

(con

t’d)

Mos

t Com

mon

Fin

anci

al A

naly

ses

Sel

ecte

d C

ompa

nies

Ana

lysi

s

Sel

ecte

d Tr

ansa

ctio

ns A

naly

sis

Dis

coun

ted

Cas

h Fl

ow A

naly

sis

Con

tribu

tion

Ana

lysi

s (S

tock

Con

side

ratio

n)

Oth

er P

oten

tial A

naly

ses

and

Con

side

ratio

ns (w

heth

er o

r not

on

the

foot

ball

field

)

His

toric

al S

tock

Tra

ding

Ana

lysi

s (i.

e., 5

2 w

eek

high

/low

)

Wal

l Stre

et R

esea

rch

Pric

e Ta

rget

s

Pre

miu

ms

Pai

d A

naly

sis

Leve

rage

d B

uyou

t (LB

O) A

naly

sis

Mer

ger C

onse

quen

ces

–ac

cret

ion/

dilu

tion

Illus

trativ

e Fu

ture

Sto

ck T

radi

ng A

naly

sis

310

Page 22

© Practising Law Institute

Cop

yrig

ht 2

017©

Fina

ncia

l Ana

lyse

s U

nder

lyin

g Fa

irnes

s O

pini

ons

–Se

lect

ed C

onsi

dera

tions

Cho

ice

of A

naly

tical

Met

hodo

logi

es, A

ssum

ptio

ns a

nd In

puts

Exe

rcis

e of

pro

fess

iona

l jud

gmen

t tak

ing

into

acc

ount

rele

vant

fact

s an

d ci

rcum

stan

ces

Pre

cede

nt, c

onve

ntio

n an

d co

nsis

tenc

y pl

ays

an im

porta

nt ro

le in

est

ablis

hing

the

anal

ytic

par

amet

ers

of th

e va

luat

ion

Cer

tain

com

mon

ana

lyse

s m

ay b

e ex

clud

ed if

sig

nific

ant l

imita

tions

impa

ir th

eir

valu

e/ut

ility

19

311

Page 23

© Practising Law Institute

Cop

yrig

ht 2

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Fina

ncia

l Ana

lyse

s U

nder

lyin

g Fa

irnes

s O

pini

ons

–Se

lect

ed C

onsi

dera

tions

(con

t’d)

Cho

ice

of M

etho

dolo

gies

, Ass

umpt

ions

and

Inpu

ts (c

ont’d

)

Dis

coun

ted

cash

flow

ana

lysi

s

Pro

ject

ions

are

the

criti

cal i

nput

to th

e an

alys

is a

nd s

houl

d re

flect

man

agem

ent’s

cur

rent

be

st e

stim

ates

with

resp

ect t

o th

e fu

ture

fina

ncia

l per

form

ance

of t

he C

ompa

ny

Fina

ncia

l adv

isor

s re

ly u

pon

the

Com

pany

for t

he p

repa

ratio

n of

pro

ject

ions

and

app

rova

l to

use/

rely

upo

n th

e pr

ojec

tions

for p

urpo

ses

of th

eir d

cfan

d ot

her a

naly

ses

Mul

tiple

fore

cast

s en

dors

ed b

y m

anag

emen

t can

cre

ate

issu

es

Trea

tmen

t of s

yner

gies

, NO

Ls

Oth

er d

cfco

nsid

erat

ions

:

cost

of c

apita

l dis

coun

t rat

es

Equ

ity ri

sk p

rem

ia, b

etas

and

oth

er in

puts

appr

oach

es to

term

inal

val

uatio

n

mul

tiple

s vs

. per

petu

ity g

row

th ra

tes

term

inal

val

ue m

ultip

les

base

d on

sel

ecte

d co

mpa

nies

ana

lysi

s vs

. se

lect

ed tr

ansa

ctio

ns a

naly

sis

20

312

Page 24

© Practising Law Institute

Cop

yrig

ht 2

017©

Fina

ncia

l Ana

lyse

s U

nder

lyin

g Fa

irnes

s O

pini

ons

–Se

lect

ed C

onsi

dera

tions

(con

t’d)

Cho

ice

of M

etho

dolo

gies

, Ass

umpt

ions

and

Inpu

ts (c

ont’d

)

Sel

ecte

d co

mpa

nies

ana

lysi

s

How

com

para

ble

are

the

com

pani

es re

lativ

e to

eac

h ot

her a

nd to

the

subj

ect

com

pany

–bu

sine

ss p

rofil

e, o

pera

ting

and

finan

cial

met

rics

Add

ress

ing

mat

eria

l cha

nges

in th

e su

bjec

t com

pany

’s b

usin

ess-

hist

oric

al a

nd/o

r pr

ojec

ted

Rel

evan

t met

rics

for a

sses

sing

val

ue –

indu

stry

/com

pany

spe

cific

Sel

ectio

n of

refe

renc

e ra

nges

: mat

hem

atic

al/fi

xed

crite

ria v

s. e

xerc

ise

of

prof

essi

onal

judg

men

t (m

edia

n vs

. sel

ecte

d m

ultip

le ra

nges

that

may

not

be

cent

ered

on

med

ian)

21

313

Page 25

© Practising Law Institute

Cop

yrig

ht 2

017©

Fina

ncia

l Ana

lyse

s U

nder

lyin

g Fa

irnes

s O

pini

ons

–Se

lect

ed C

onsi

dera

tions

(con

t’d)

Cho

ice

of M

etho

dolo

gies

, Ass

umpt

ions

and

Inpu

ts (c

ont’d

)

Sel

ecte

d tra

nsac

tions

ana

lysi

s (a

dditi

onal

con

side

ratio

ns to

thos

e fo

r sel

ecte

d co

mpa

nies

)

Tim

efra

me

of c

ompl

eted

tran

sact

ions

incl

uded

in th

e an

alys

is

Cha

nges

in m

arke

t con

ditio

ns o

ver t

ime

for t

he tr

ansa

ctio

ns c

onsi

dere

d

Diff

eren

t for

ms

of c

onsi

dera

tion

(cas

h, c

ash/

stoc

k, a

ll-st

ock)

Diff

eren

t tra

nsac

tion

stru

ctur

e te

rms

–33

8 (h

)(10

), ac

quire

d N

OLs

Uni

que

cons

ider

atio

ns o

f pa

rticu

lar a

cqui

rer w

hich

impa

ct p

rice

paid

–qu

antu

m

of s

yner

gies

, stra

tegi

c im

pera

tive

22

314

Page 26

© Practising Law Institute

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yrig

ht 2

017©

Fina

ncia

l Ana

lyse

s U

nder

lyin

g Fa

irnes

s O

pini

ons

–Se

lect

ed C

onsi

dera

tions

(con

t’d)

Sel

ecte

d D

iscu

ssio

n To

pics

Mus

t fin

anci

al a

naly

ses

unde

rlyin

g fa

irnes

s op

inio

ns fo

llow

cas

e la

w re

gard

ing

stat

utor

y ap

prai

sals

?

Wha

t if m

anag

emen

t pro

ject

ions

gen

erat

e D

CF

valu

atio

n ra

nges

sig

nific

antly

in

exce

ss o

f the

pro

pose

d pu

rcha

se p

rice?

Wha

t if n

ot a

ll of

the

anal

yses

sup

port

a fa

irnes

s co

nclu

sion

?

How

do

inad

equa

cy o

pini

ons

rend

ered

in re

spon

se to

uns

olic

ited

offe

rs d

iffer

from

fa

irnes

s op

inio

ns?

23

315

Page 27

© Practising Law Institute

Cop

yrig

ht 2

017©

Inve

stm

ent B

anke

r Iss

ues

& C

onsi

dera

tions

Aid

ing

and

Abe

tting

Cla

ims

–Im

plic

atio

ns o

f Tru

lia a

nd

Atte

nbor

ough

(aka

Zal

e)

316

Page 28

© Practising Law Institute

Cop

yrig

ht 2

017©

Trul

ia

In re

Tru

lia, I

nc. S

’hol

derL

itig.

, CA

100

20-C

B (D

el. C

h. J

an. 2

2, 2

016)

In T

rulia

, the

Del

awar

e C

ourt

of C

hanc

ery

reje

cted

a d

iscl

osur

e-on

ly s

ettle

men

t as

inad

equa

te.

The

Cou

rt fo

und

that

the

supp

lem

enta

l dis

clos

ures

obt

aine

d by

the

plai

ntiff

s w

ere

inad

equa

te to

sup

port

a br

oad

rele

ase

of c

lass

cla

ims

–th

e su

pple

men

tal

disc

losu

res

wer

e no

t “pl

ainl

y” m

ater

ial

In o

rder

to s

uppo

rt a

broa

d re

leas

e of

cla

ss c

laim

s, th

e su

pple

men

tal d

iscl

osur

es

mus

t be

“pla

inly

” mat

eria

l –i.e

., “s

igni

fican

tly a

lters

the

tota

l mix

of i

nfor

mat

ion

mad

e av

aila

ble”

25

317

Page 29

© Practising Law Institute

Cop

yrig

ht 2

017©

Trul

ia

In re

Tru

lia (c

ont’d

)

“A fa

ir su

mm

ary,

how

ever

, is

a su

mm

ary.

By

defin

ition

, it n

eed

not c

onta

in a

ll in

form

atio

n un

derly

ing

the

finan

cial

adv

isor

’s o

pini

on o

r con

tain

ed in

its

repo

rt to

the

boar

d. 5

6 In

deed

, thi

s C

ourt

has

held

that

the

sum

mar

y do

es n

ot n

eed

to p

rovi

de

suffi

cien

t dat

a to

allo

w th

e st

ockh

olde

rs to

per

form

thei

r ow

n in

depe

nden

t va

luat

ion.

57Th

e es

senc

e of

a fa

ir su

mm

ary

is n

ot a

cor

nuco

pia

of fi

nanc

ial d

ata,

but

ra

ther

an

accu

rate

des

crip

tion

of th

e ad

viso

r’s m

etho

dolo

gy a

nd k

ey a

ssum

ptio

ns.5

8 In

my

view

, dis

clos

ures

that

pro

vide

ext

rane

ous

deta

ils d

o no

t con

tribu

te to

a fa

ir su

mm

ary

and

do n

ot a

dd v

alue

for s

tock

hold

ers.

59”

See

“Add

ition

al M

ater

ials

” –on

pag

es 6

1 to

63

for f

ootn

otes

56

thro

ugh

59

26

318

Page 30

© Practising Law Institute

Cop

yrig

ht 2

017©

Trul

ia

In re

Tru

lia (c

ont’d

)

“[P]ra

ctiti

oner

ssh

ould

exp

ect t

hat d

iscl

osur

e se

ttlem

ents

are

like

ly to

be

met

with

co

ntin

ued

disf

avor

in th

e fu

ture

unl

ess

the

supp

lem

enta

l dis

clos

ures

add

ress

a

plai

nly

mat

eria

l mis

repr

esen

tatio

n or

om

issi

on, a

nd th

e su

bjec

t mat

ter o

f the

pr

opos

ed re

-leas

e is

nar

row

ly c

ircum

scrib

ed to

enc

ompa

ss n

othi

ng m

ore

than

di

sclo

sure

cla

ims

and

fiduc

iary

dut

y cl

aim

s co

ncer

ning

the

sale

pro

cess

, if t

he

reco

rd s

how

s th

at s

uch

clai

ms

have

bee

n in

vest

igat

ed s

uffic

ient

ly. I

n us

ing

the

term

“p

lain

ly m

ater

ial,”

I m

ean

that

it s

houl

d no

t be

a cl

ose

call

that

the

supp

lem

enta

l in

form

atio

nis

mat

eria

l as

that

term

is d

efin

ed u

nder

Del

awar

e la

w. W

here

the

supp

lem

enta

l inf

orm

atio

n is

not

pla

inly

mat

eria

l, it

may

be

appr

opria

te fo

r the

Cou

rt to

app

oint

an

amic

us c

uria

e to

ass

ist t

he C

ourt

in it

s ev

alua

tion

of th

e al

lege

d be

nefit

s of

the

supp

lem

enta

l dis

clos

ures

, giv

en th

e ch

alle

nges

pos

ed b

y th

e no

n-ad

vers

aria

l nat

ure

of th

e ty

pica

l dis

clos

ure

settl

emen

t hea

ring.

”

27

319

Page 31

© Practising Law Institute

Cop

yrig

ht 2

017©

Trul

ia

In re

Tru

lia (c

ont’d

)

Mat

eria

lity

of In

divi

dual

Tra

nsac

tion

Mul

tiple

s

“The

Pro

xy d

iscl

osed

that

J.P

. Mor

gan

used

pub

licly

ava

ilabl

e in

form

atio

n to

ana

lyze

ce

rtain

sel

ecte

d pr

eced

ent t

rans

actio

ns in

volv

ing

com

pani

es e

ngag

ed in

bus

ines

ses

that

J.P

. Mor

gan

cons

ider

ed a

nalo

gous

to T

rulia

’s b

usin

esse

s. T

he P

roxy

list

ed th

e da

te, t

he ta

rget

, and

the

acqu

irer f

or e

ach

of 3

2 tra

nsac

tions

that

wer

e co

nsid

ered

. It

also

dis

clos

ed th

e lo

w a

nd h

igh

forw

ard

EB

ITD

A m

ultip

les

for t

he g

roup

of

trans

actio

ns. .

. . P

lain

tiffs

’ grie

vanc

e is

that

the

Pro

xy d

id n

ot p

rovi

de th

e re

leva

nt

mul

tiple

s fo

r eac

h of

the

32 in

divi

dual

tran

sact

ions

. The

indi

vidu

al m

ultip

les

wer

e ad

ded

in th

e S

uppl

emen

tal D

iscl

osur

es fo

r tho

se tr

ansa

ctio

ns fo

r whi

ch th

e in

form

atio

n w

as p

ublic

ly a

vaila

ble.

The

add

ition

of t

his

info

rmat

ion

mad

e ev

iden

t tha

t m

ultip

les

wer

e no

t pub

licly

ava

ilabl

e fo

r 15

of th

e 32

tran

sact

ions

. . .

. The

add

ition

of

the

indi

vidu

al m

ultip

les

and

the

reve

latio

n th

at s

ome

wer

e no

t pub

licly

av

aila

ble

coul

d no

t rea

sona

bly

have

bee

n ex

pect

ed to

sig

nific

antly

alte

r the

to

tal m

ix o

f inf

orm

atio

n (e

mph

asis

add

ed).”

28

320

Page 32

© Practising Law Institute

Cop

yrig

ht 2

017©

Trul

ia

In re

Tru

lia (c

ont’d

)

Mat

eria

lity

of In

divi

dual

Com

pany

Mul

tiple

s

“The

Pro

xy d

iscl

osed

the

nam

es o

f six

teen

pub

licly

trad

ed c

ompa

nies

that

J.P

. M

orga

n us

ed to

con

stru

ct ra

nges

of f

orw

ard

EB

ITD

A a

nd re

venu

e m

ultip

les

for T

rulia

an

d Zi

llow

. The

Pro

xy p

rovi

ded

thes

e m

ultip

les

for T

rulia

and

Zill

ow b

ased

on

thei

r la

st u

naffe

cted

trad

ing

day

befo

re th

e an

noun

cem

ent o

f the

mer

ger.

. . .

The

Sup

plem

enta

l Dis

clos

ures

add

ed th

e re

venu

e an

d E

BIT

DA

mul

tiple

s fo

r eac

h of

the

sixt

een

com

pani

es. C

iting

In re

Cel

era

Cor

pora

tion

Sha

reho

lder

Liti

gatio

n, p

lain

tiffs

ar

gue,

in e

ssen

ce, t

hat i

ndiv

idua

l com

pany

mul

tiple

s ar

e m

ater

ial p

er s

e. T

hat i

s no

t a

fair

read

ing

of th

e ca

se. .

. . .

Alth

ough

the

deci

sion

relu

ctan

tly c

oncl

uded

th

at a

mul

tiple

s di

sclo

sure

was

com

pens

able

, it f

ound

it “

ques

tiona

ble

whe

ther

[th

e m

ultip

les]

alte

red

the

‘tota

l mix

’ of a

vaila

ble

info

rmat

ion”

bec

ause

that

in

form

atio

n “a

lread

y w

as p

ublic

ly a

vaila

ble.

” Th

e in

divi

dual

com

pany

mul

tiple

s in

the

Supp

lem

enta

l Dis

clos

ures

her

e al

so w

ere

alre

ady

publ

icly

ava

ilabl

e.

(em

phas

is a

dded

)”

29

321

Page 33

© Practising Law Institute

Cop

yrig

ht 2

017©

Trul

ia

In re

Tru

lia (c

ont’d

)

Mat

eria

lity

of Im

plie

d Te

rmin

al E

BIT

DA

Mul

tiple

s“J

.P. M

orga

n pe

rform

ed a

rela

tive

disc

ount

ed c

ash

flow

ana

lysi

s to

det

erm

ine

the

per-

shar

e eq

uity

val

ues

of T

rulia

and

Zillo

w, u

sing

exp

ecte

d ca

sh fl

ows

from

201

4 th

roug

h 20

28 b

ased

on

man

agem

ent’s

pro

ject

ions

for e

ach

com

pany

and

the

perp

etui

ty g

row

th

met

hod

to c

alcu

late

the

com

pani

es’ r

espe

ctiv

e te

rmin

al v

alue

s. T

he P

roxy

exp

lain

ed th

is

met

hodo

logy

and

pro

vide

d th

e as

sum

ptio

ns J

.P. M

orga

n us

ed in

its

anal

ysis

. Spe

cific

ally

, th

e P

roxy

dis

clos

ed m

anag

emen

t’s p

roje

ctio

ns o

f unl

ever

ed fr

ee c

ash

flow

s, th

e ra

nges

of

disc

ount

rate

s (1

1.0%

to 1

5.0%

) and

per

petu

ity g

row

th ra

tes

(2.5

% to

3.5

%) t

hat w

ere

used

, the

term

inal

per

iod

proj

ecte

d ca

sh fl

ows,

and

oth

er d

etai

ls.

In m

y vi

ew, t

hese

di

sclo

sure

s al

read

y pr

ovid

ed a

mor

e-th

an-fa

ir su

mm

ary

of th

e re

lativ

e di

scou

nted

ca

sh fl

ow a

naly

sis

that

J.P

. Mor

gan

perf

orm

ed T

he S

uppl

emen

tal D

iscl

osur

es a

dded

to

this

sum

mar

y th

e E

BIT

DA

exi

t mul

tiple

rang

es fo

r Tru

lia a

nd Z

illow

that

wer

e im

plie

d by

th

e ra

nge

of te

rmin

al v

alue

s ca

lcul

ated

bas

ed o

n J.

P. M

orga

n’s

chos

en in

puts

. Pla

intif

fs

argu

e th

at, a

lthou

gh J

.P. M

orga

n us

ed th

e pe

rpet

uity

gro

wth

met

hod

and

only

der

ived

the

impl

ied

EB

ITD

A e

xit m

ultip

les

to c

heck

the

stre

ngth

of i

ts m

etho

dolo

gy, t

he im

plie

d m

ultip

les

wer

e im

porta

nt to

sto

ckho

lder

s. .

. . .

. the

sup

plem

enta

l dis

clos

ure

imm

ater

ial.

(em

phas

is a

dded

)”

30

322

Page 34

© Practising Law Institute

Cop

yrig

ht 2

017©

Trul

ia

In re

Wal

gree

n, N

o 15

-379

9 (7

th C

ir 8-

10-1

6) –

Subs

eque

nt F

eder

al J

udic

ial

Com

men

tary

on

Trul

ia

“The

type

of c

lass

act

ion

illust

rate

d by

this

cas

e—th

e cl

ass

actio

n th

at y

ield

s fe

es fo

r cl

ass

coun

sel a

nd n

othi

ng fo

r the

cla

ss—

is n

o be

tter t

han

a ra

cket

. It m

ust e

nd. N

o cl

ass

actio

n se

ttlem

ent t

hat y

ield

s ze

ro b

enef

its fo

r the

cla

ss s

houl

d be

app

rove

d,

and

a cl

ass

actio

n th

at s

eeks

onl

y w

orth

less

ben

efits

for t

he c

lass

sho

uld

be

dism

isse

d ou

t of h

and.

. . .

And

so

Trul

ia a

dopt

ed a

cle

arer

sta

ndar

d fo

r the

app

rova

l of

suc

h se

ttlem

ents

, id.

at 8

98–9

9 (fo

otno

tes

omitt

ed, e

mph

asis

add

ed),

whi

ch w

e en

dors

e, a

nd a

pply

in th

is c

ase

. . .”

31

323

Page 35

© Practising Law Institute

Cop

yrig

ht 2

017©

Sing

h v.

Atte

nbor

ough

Sing

h v.

Atte

nbor

ough

, Cas

e N

o.: 6

45, 2

015

(Del

May

6, 2

016)

In A

ttenb

orou

gh, t

he S

upre

me

Cou

rt af

firm

ed th

e C

ourt

of C

hanc

ery’

s de

cisi

on u

pon

rear

gum

entf

ollo

win

g th

e D

elaw

are

Sup

rem

e C

ourt’

s de

cisi

on in

Cor

win

v. K

KR

Fin

. H

oldi

ngs

LLC

, 125

A.3

d 30

4 (D

el. 2

015)

find

ing

that

a fu

lly in

form

ed,u

ncoe

rced

vote

of

the

disi

nter

este

d st

ockh

olde

rs in

voke

d th

e bu

sine

ss ju

dgm

ent s

tand

ard

of re

view

, ef

fect

ivel

y ex

tingu

ishi

ng th

ose

clai

ms.

“Whe

n th

e bu

sine

ss ju

dgm

ent r

ule

stan

dard

of

revi

ew is

invo

ked

beca

use

of a

vot

e, d

ism

issa

l is

typi

cally

the

resu

lt.”

In e

ffect

, ful

ly in

form

ed a

nd u

ncoe

rced

, sto

ckho

lder

s on

ly g

et o

ne b

ite a

t the

app

le –

if th

ey a

ppro

ve a

tran

sact

ion,

they

can

not t

hen

turn

aro

und

and

sue

thei

r dire

ctor

s or

ex

ecut

ive

offic

ers

for g

ross

neg

ligen

ce o

r pur

sue

aidi

ng a

nd a

betti

ng b

reac

h of

fid

ucia

ry c

laim

s ag

ains

t buy

ers,

adv

isor

s or

oth

er th

ird p

artie

s pr

edic

ated

on

such

al

lege

d gr

oss

negl

igen

ce.

32

324

Page 36

© Practising Law Institute

Cop

yrig

ht 2

017©

Sing

h v.

Atte

nbor

ough

(con

t’d)

Subs

eque

nt C

ourt

of C

hanc

ery

Opi

nion

s In

terp

retin

g C

orw

in

In R

e Vo

lcan

o, C

A 1

0485

-VC

MR

(Del

. Ch.

Jun

e 30

, 201

6)

Cor

win

als

o ap

plie

s to

two

step

mer

gers

pur

suan

t to

251(

h)

The

failu

re o

f the

bre

ach

of fi

duci

ary

duty

cla

ims

agai

nst V

olca

no’s

dire

ctor

s as

a

resu

lt of

the

irreb

utta

ble

pres

umpt

ion

of th

e bu

sine

ss ju

dgm

ent r

ule

resu

lted

in th

e di

smis

sed

the

aidi

ng a

nd a

betti

ng c

laim

s ag

ains

t Vol

cano

’s fi

nanc

ial a

dvis

or.

See

al

so A

ttenb

orou

gh (“

Hav

ing

corr

ectly

dec

ided

, how

ever

, tha

t the

sto

ckho

lder

vot

e w

as fu

lly in

form

ed a

nd v

olun

tary

, the

Cou

rt of

Cha

ncer

y pr

oper

ly d

ism

isse

d th

e pl

aint

iffs’

cla

ims

agai

nst a

ll pa

rties

.”) a

nd C

orw

in (“

An

aidi

ng a

nd a

betti

ng c

laim

[, ho

wev

er,]

‘may

be

sum

mar

ily d

ism

isse

d ba

sed

upon

the

failu

re o

f the

bre

ach

of

fiduc

iary

dut

y cl

aim

s ag

ains

t the

dire

ctor

def

enda

nts.

”)

33

325

Page 37

© Practising Law Institute

Cop

yrig

ht 2

017©

Sing

h v.

Atte

nbor

ough

(con

t’d)

Subs

eque

nt C

ourt

of C

hanc

ery

Opi

nion

s In

terp

retin

g C

orw

in

City

of M

iam

i Gen

eral

Em

ploy

ees'

and

San

itatio

n Em

ploy

ees'

Ret

irem

ent T

rust

v

Com

stoc

k, C

A N

o. 9

980-

CB

(Del

. Ch.

Aug

. 24,

201

6)

“I co

nclu

de th

at p

lain

tiff’s

cla

ims

for p

ostc

losi

ngda

mag

es a

gain

st C

&J’

s di

rect

ors

and

offic

ers

are

subj

ect t

o th

e bu

sine

ss ju

dgm

ent p

resu

mpt

ion

unde

r the

Del

awar

e S

upre

me

Cou

rt’s

deci

sion

in C

orw

in v

. KK

R F

inan

cial

Hol

ding

s LL

C b

ecau

se o

f the

le

gal e

ffect

of t

he s

tock

hold

er v

ote,

and

that

judi

cial

revi

ew o

f pla

intif

f’s fi

duci

ary

duty

cl

aim

s (a

nd re

late

d ai

ding

and

abe

tting

cla

ims)

thus

end

s th

ere.

Thi

s co

nclu

sion

fo

llow

s fro

m tw

o su

bsid

iary

det

erm

inat

ions

: tha

t pla

intif

f has

faile

d to

ple

ad fa

cts

suffi

cien

t to

dem

onst

rate

that

the

C&

J st

ockh

olde

r vot

e w

as n

ot fu

lly in

form

ed, a

nd

that

pla

intif

f has

not

alle

ged

fact

s sh

owin

g th

at th

e ch

alle

nged

tran

sact

ion,

whi

ch w

as

appr

oved

by

a m

ajor

ity o

f dis

inte

rest

ed a

nd in

depe

nden

t dire

ctor

s, s

houl

d be

sub

ject

to

ent

ire fa

irnes

s re

view

.”

No

disc

ussi

on o

f whe

ther

bus

ines

s ju

dgm

ent r

ule

pres

umpt

ion

is ir

rebu

ttabl

e.

“A c

laim

for a

idin

g an

d ab

ettin

g a

brea

ch o

f fid

ucia

ry d

uty

cann

ot s

urvi

ve if

the

unde

rlyin

g fid

ucia

ry d

uty

clai

ms

do n

ot.”

34

326

Page 38

© Practising Law Institute

Cop

yrig

ht 2

017©

Sing

h v.

Atte

nbor

ough

(con

t’d)

Subs

eque

nt C

ourt

of C

hanc

ery

Opi

nion

s In

terp

retin

g C

orw

in

Lark

in v

. Sha

h (a

ka A

uspe

x), C

A N

o. 1

0918

-VC

S (D

el. C

h. A

ug. 2

5, 2

016)

C B

ouch

ard’

s op

inio

n in

C&

J ap

pear

ed to

sug

gest

that

Cor

win

doe

s no

t app

ly to

tra

nsac

tions

sub

ject

to th

e en

tire

fairn

ess

stan

dard

of r

evie

w (“

the

Sup

rem

e C

ourt

held

in C

orw

in th

at if

a tr

ansa

ctio

n th

at is

not

sub

ject

to e

ntire

fairn

ess

is a

ppro

ved

by

a fu

lly in

form

ed, u

ncoe

rced

vote

of s

tock

hold

ers,

Rev

lon

revi

ew d

oes

not a

pply

and

th

e ap

prop

riate

sta

ndar

d fo

r a p

ost-c

losi

ng d

amag

es a

ctio

n is

the

busi

ness

judg

men

t ru

le..

. . .p

lain

tiff h

as n

ot a

llege

d fa

cts

show

ing

that

the

chal

leng

ed tr

ansa

ctio

n, w

hich

w

as a

ppro

ved

by a

maj

ority

of d

isin

tere

sted

and

inde

pend

ent d

irect

ors,

sho

uld

be

subj

ect t

o en

tire

fairn

ess

revi

ew”)

In A

uspe

x, V

C S

light

s in

depe

nden

tly e

xam

ined

the

issu

e in

a d

ecis

ion

rend

ered

one

da

y la

ter a

nd c

oncl

uded

that

“[i]n

the

abse

nce

of a

con

trolli

ng s

tock

hold

er th

at

extra

cted

per

sona

l ben

efits

, the

effe

ct o

f dis

inte

rest

ed s

tock

hold

er a

ppro

val o

f the

m

erge

r is

revi

ew u

nder

the

irreb

utta

ble

busi

ness

judg

men

t rul

e, e

ven

if th

e tra

nsac

tion

mig

ht o

ther

wis

e ha

ve b

een

subj

ect t

o th

e en

tire

fairn

ess

stan

dard

due

to

conf

licts

face

d by

indi

vidu

al d

irect

ors.

” (em

phas

is a

dded

)

35

327

Page 39

© Practising Law Institute

Cop

yrig

ht 2

017©

Sing

h v.

Atte

nbor

ough

(con

t’d)

Subs

eque

nt C

ourt

of C

hanc

ery

Opi

nion

s In

terp

retin

g C

orw

in

Che

ster

Cou

nty

Ret

irem

ent S

yste

m v

Col

lins

(aka

Blo

unt),

CA

No.

120

72-V

CL

(Del

. Ch.

Dec

. 6, 2

016)

“[W]h

en a

tran

sact

ion

has

been

app

rove

d by

a m

ajor

ity o

f the

dis

inte

rest

ed

stoc

khol

ders

in a

fully

info

rmed

and

unc

oerc

edvo

te, t

he b

usin

ess

judg

men

t rul

e ap

plie

s an

d ‘in

sula

tes

the

trans

actio

n fro

m a

ll at

tack

s ot

her t

han

on th

e gr

ound

s of

w

aste

[.]’”

Cite

s La

rkin

v. S

hah

-“In

the

abse

nce

of a

con

trolli

ng s

tock

hold

er th

at e

xtra

cted

pe

rson

al b

enef

its, t

he e

ffect

of d

isin

tere

sted

sto

ckho

lder

app

rova

l of t

he m

erge

r is

revi

ew u

nder

the

irreb

utta

ble

busi

ness

judg

men

t rul

e, e

ven

if th

e tra

nsac

tion

mig

ht

othe

rwis

e ha

ve b

een

subj

ect t

o th

e en

tire

fairn

ess

stan

dard

due

to c

onfli

cts

face

d by

in

divi

dual

dire

ctor

s.” (

emph

asis

add

ed)

Hav

ing

faile

d to

ade

quat

ely

plea

d a

clai

m fo

r bre

ach

of fi

duci

ary

duty

, the

Cou

rt of

C

hanc

ery

held

that

the

plai

ntiff

like

wis

e fa

iled

to a

dequ

atel

y pl

ead

aidi

ng a

nd a

betti

ng

brea

ch o

f fid

ucia

ry d

uty

clai

ms

agai

nst B

loun

t’s fi

nanc

ial a

dvis

or a

nd a

gain

st th

e bu

yers

and

als

o gr

ante

d di

smis

sal o

f tho

se c

laim

s.

36

328

Page 40

© Practising Law Institute

Cop

yrig

ht 2

017©

Sing

h v.

Atte

nbor

ough

(con

t’d)

Dic

ta R

egar

ding

Fin

anci

al A

dvis

or L

iabi

lity

“Del

awar

e ha

s pr

ovid

ed a

dvis

ors

with

a h

igh

degr

ee o

f ins

ulat

ion

from

liab

ility

by

empl

oyin

g a

defe

ndan

t-frie

ndly

sta

ndar

d th

at re

quire

s pl

aint

iffs

to p

rove

scie

nter

and

awar

ds a

dvis

ors

an e

ffect

ive

imm

unity

from

due

-car

e lia

bilit

y. A

s he

ld in

RB

C C

apita

l M

arke

ts, L

LC v

. Jer

vis

[aka

Rur

al/M

etro

], ho

wev

er, a

n ad

viso

r who

se b

ad-fa

ith

actio

ns c

ause

its

boar

d cl

ient

s to

bre

ach

thei

r situ

atio

nal f

iduc

iary

dut

ies

(e.g

., th

e du

ties

Rev

lon

impo

ses

in a

cha

nge-

of-c

ontro

l tra

nsac

tion)

is li

able

for a

idin

g an

d ab

ettin

g.Th

e ad

viso

r is

not a

bsol

ved

from

liab

ility

sim

ply

beca

use

its c

lient

s’ a

ctio

ns

wer

e ta

ken

in g

ood-

faith

relia

nce

on m

isle

adin

g an

d in

com

plet

e ad

vice

tain

ted

by th

e ad

viso

r’s o

wn

know

ing

disl

oyal

ty. T

o gr

ant i

mm

unity

to a

n ad

viso

r bec

ause

its

own

clie

nts

wer

e du

ped

by it

wou

ld b

e un

prin

cipl

ed a

nd w

ould

allo

w c

orpo

rate

adv

isor

s a

leve

l of u

nacc

ount

abili

ty a

fford

ed to

no

othe

r pro

fess

iona

ls in

our

soc

iety

. In

fact

, m

ost p

rofe

ssio

nals

face

liab

ility

und

er a

sta

ndar

d in

volv

ing

mer

e ne

glig

ence

, not

the

seco

nd h

ighe

st s

tate

ofs

cien

ter—

know

ledg

e—in

the

mod

el p

enal

cod

e.”

37

329

Page 41

© Practising Law Institute

Cop

yrig

ht 2

017©

Inve

stm

ent B

anke

r Iss

ues

& C

onsi

dera

tions

Add

ition

al M

ater

ials

330

Page 42

© Practising Law Institute

Cop

yrig

ht 2

017©

Inve

stm

ent B

anke

r Iss

ues

& C

onsi

dera

tions

Add

ition

al M

ater

ials

–Fi

nanc

ial A

naly

ses

Und

erly

ing

Fairn

ess

Opi

nion

s –

Wha

t’s o

n th

e Fo

otba

ll Fi

eld?

331

Page 43

© Practising Law Institute

Cop

yrig

ht 2

017©

Fairn

ess

Opi

nion

s

40

Wha

t Are

The

y?

An

opin

ion

with

resp

ect t

o w

heth

er th

e co

nsid

erat

ion

(som

etim

es e

xpre

ssed

as

an e

xcha

nge

ratio

in a

sto

ck fo

r sto

ck d

eal)

paid

/issu

ed o

r rec

eive

d in

a tr

ansa

ctio

n is

fair

from

a fi

nanc

ial

poin

t of v

iew

to th

e pa

rty o

r per

sons

pay

ing/

issu

ing

or re

ceiv

ing

the

cons

ider

atio

n, a

s ap

plic

able

.

Why

Doe

s a

Boa

rd W

ant O

ne?

To h

elp

the

boar

d de

mon

stra

te th

at it

gat

here

d al

l rea

sona

bly

avai

labl

e in

form

atio

n in

fulfi

lling

its fi

duci

ary

duty

of c

are

in a

ppro

ving

the

trans

actio

n.

Whe

n A

re T

hey

Req

uire

d?

They

are

not

requ

ired

unde

r Del

awar

e la

w o

r the

Fed

eral

Sec

uriti

es L

aws.

Mos

t com

pani

es

will

obta

in th

em in

con

nect

ion

with

tran

sact

ions

requ

iring

sha

reho

lder

app

rova

l and

man

y co

mpa

nies

will

obta

in th

em in

con

nect

ion

with

tran

sact

ions

of a

cer

tain

siz

e or

sig

nific

ance

ev

en if

no

stoc

khol

der a

ppro

val i

s re

quire

d (i.

e., i

f suf

ficie

ntly

mat

eria

l to

the

com

pany

).

Whe

n D

o B

oard

s N

eed

Them

Del

iver

ed?

Gen

eral

ly a

t the

mee

ting

at w

hich

the

boar

d ap

prov

es th

e tra

nsac

tion.

332