During a recent hearing on a motion to expedite litigation involving Validus Holdings’s hostile bid to acquire Transatlantic Holdings, Judge Leo E. Strine, Jr., recently promoted to Chancellor of the Delaware Court of Chancery, made several observations worthy of note by deal lawyers, bankers, and corporate litigators.
Banker Conflicts and Fairness Opinions
Validus’s hostile takeover bid came after Transatlantic signed a friendly deal with Allied World. In the process leading to the Allied World agreement, Transatlantic was advised by Goldman Sachs. Apparently in response to a potential Goldman conflict, Transatlantic obtained a fairness opinion from another bank. Chancellor Strine said, “I don’t understand the idea of a banker running a process … and not having to back it up with a fairness opinion. It in no way addresses the conflict for the person who plays the operative role to not actually have to put the fairness opinion on the line. In fact, it would seem more vital when someone acts in a conflicted basis to make them render a fairness opinion.” Where one banker performs important tasks like “testing the market” and “giving strategic advice,” Chancellor Strine thought it “a very strange cure” to a conflict to hand off the job of giving a fairness opinion to another banker who is not compensated as highly. Referencing Smith v. Van Gorkom, Chancellor Strine emphasized the importance of financial advisors in deals and that “conflicts of interest” in the deal process are “taken seriously.”