A recent Delaware court ruling with respect to the Rural/Metro buyout is part of a series of recent rulings in that jurisdiction targeting advisor conflict of interest.
The ruling is that Royal Bank of Canada (Capital Markets) misled the Directors of Rural/Metro about the company’s value in order to influence a sale to Warburg Pincus. RBC was marketing their work to Warburg to secure other financing deals.
RBC will pay damages yet to be determined. The Plaintiffs are seeking $172 million.
Advisor independence is a key consideration for Directors, particularly in troubled situations. Consider the all too often dual role of the monitor or senior lender’s financial adviser also advising on or managing the debtor’s sale or refinancing process (or otherwise providing “turnaround advice”). Directors have a right to independence and full disclosure of conflicts and they should seek to protect the integrity of a sale process by resisting the services of conflicted bankers and advisors.
Posted by Scott Sinclair, Range Advisors
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