Stapled financing1/2/2023 ![]() ![]() ![]() RBC's conduct in the sale process was motivated by its seemingly singular desire to collect both adviser fees from Rural/Metro and much larger financier fees from Warburg. In Rural/Metro, the court found that the self-dealing conduct of RBC in the sale process to mislead and manipulate Rural/Metro's board set the directors up to breach their fiduciary duties by unknowingly approving a sale that significantly undervalued the company. In a strongly worded decision, Laster emphasized that investment bankers function as "gatekeepers" in the sale process, and the "threat of liability helps incentivize gatekeepers to provide sound advice, monitor clients and deter client wrongs." He explained that "the prospect of aiding and abetting liability for investment banks who induce boards of directors to breach their duty of care creates a powerful financial reason for the banks to provide meaningful fairness opinions and to advise boards in a manner that helps ensure that directors carry out their fiduciary duties when exploring strategic alternatives and conducting a sale process." ![]() Continuing where he left off in Del Monte Foods, Laster criticized Rural/Metro's banker, RBC, for its role in both advising the board of the seller, Rural/Metro, and at the same time seeking a fee to provide financing to the buyer, Warburg. Stapled financing trial#March 7, 2014), the Court of Chancery held after a four-day trial that investment banker RBC Capital Markets LLC was liable for aiding and abetting the breach of fiduciary duties of Rural/Metro Corp.'s board in connection with its sale to the buyer, private equity firm Warburg Pincus LLC. In its latest decision criticizing bankers guiding corporate sales processes who are on both sides of a transaction, In re Rural/Metro Stockholders Litigation, C.A. Strine criticized both El Paso's alleged self-dealing CEO and Goldman Sachs in the negotiations, referring to the sale process as "tainted," "inadequate" and "disturbing," but denied a request to preliminarily enjoin the merger to allow shareholders the opportunity to choose for themselves whether to approve the merger because no competing bidders had emerged. Strine Jr., now chief justice of the Delaware Supreme Court, issued his decision in a case in which El Paso Corp.'s banker, Goldman Sachs Group, allegedly steered El Paso's $21.1 billion sale to its buyer, Kinder Morgan Inc. In the following year, then-Chancellor Leo E. Laster found that Barclays "secretly and selfishly manipulated the sale process to engineer a transaction that would permit Barclays to obtain lucrative buy-side financing fees." Laster explained that Barclays faced conflicts of interest in the sale process, which were not disclosed to the board of Del Monte Foods, in its role as financial adviser to the board, while at the same time profiting by providing staple financing to the buyer, private equity firm KKR & Co. Travis Laster criticized investment banker Barclays PLC for acting both as adviser to the seller and financier to the buyer in the sale process of Del Monte Foods Co. In a highly publicized 2011 decision that changed the landscape for investment bankers, Vice Chancellor J. Investment bankers seeking to profit as both adviser to the seller and financier to the buyer in corporate sales processes have faced increased scrutiny by the Delaware Court of Chancery over the last few years. ![]()
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