Sell-Side Advisor Conduct Prompts Delaware Court to Enjoin Merger Vote and Deal Protections in Del Monte Buyout
In a move that further limits the actions of investment banks to pair buyers and sellers in acquisition transactions, the Delaware Court of Chancery (the Court) granted a 20-day preliminary injunction with respect to the shareholder vote required to approve the merger between Del Monte Foods Company (Del Monte) and a group of private equity firms. Moreover, the Court held that the parties to the merger agreement (the Merger Agreement) were enjoined from enforcing the deal protections set forth in the Merger Agreement.
The Court’s decision to enjoin the shareholder vote was based on its finding that the Merger Agreement was entered into as a result of the collusion of Del Monte’s sell-side investment bank (the Advisor) and certain private equity funds and that the price per share offered to Del Monte was obtained through a flawed sale process. In addition, the Court found that the board of directors (the Board) of Del Monte breached its fiduciary duty to the shareholders despite evidence that the Board was misled and deceived by the Advisor during the sale process.
Investments banks provide numerous services to their clients including buyside advice, sell-side advice and suggesting strategic transactions to their clients. In this case, the Advisor had a long- standing relationship with each of Del Monte and the primary private equity fund (the Sponsor) seeking to acquire Del Monte.
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