M&A spin doctors take a thumping on the record
By Reynolds HoldingĀ
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
Wall Streetās M&A spin doctors have taken a thumping on the record. Delaware Judge Leo Strine has called out two firms – Kekst and Joele Frank, Wilkinson Brimmer Katcher – for blabbing confidential information in Martin Marietta Materialās hostile $5.3 billion offer for rival Vulcan. The sand-and-gravel outfit will pay the price of a court order delaying the bid. But the general reputation of deal flacks wonāt emerge unscathed.
When the companies began friendly talks two years ago, they agreed to keep each otherās information confidential unless disclosure was legally required. Martin then went hostile, becoming obligated to disclose under securities laws. But Vulcan claimed a breach of the secrecy pact, because, among other things, Martin had triggered those laws voluntarily.
The claim was no slam dunk. For starters, Vulcan hadnāt negotiated a prohibition on hostile offers, so why should it get one indirectly through the confidentiality contracts? Whatās more, the documents said the information could be used for a ātransactionā between the parties, and the hostile bid arguably qualified.
But Strine concluded that, whatever the documents said, the premise all along was that the two had contemplated a friendly merger with the strictest secrecy, and Martin was after the fact changing its tune merely as a litigation tactic.
At times, Strineās analysis has a flavor of mind-reading, but itās tough to dispute on at least one point: Martin had ālardedā its regulatory disclosures with anti-Vulcan rhetoric that exceeded what even a generous reading of the agreements permitted. The primary culprits, suggested Strine, were the PR firms that had advised Martin to broadly criticize its targetās resistance. The āflacksā received internal Vulcan data and āblow-by-blowā accounts of negotiations, the judge said. And they had made decisions that should have been left to the lawyers.
Strine may be prone to hyperbole, but heās well qualified to judge the influence of spin. Not only has he seen it in the nationās biggest transactions, but he often rubs elbows with its practitioners at the annual Tulane M&A conference in New Orleans. So his criticism carries weight.
Yet companies are accountable for their own deals and disclosures, no matter who they consult. Thatās why Strineās order aims squarely at Martin. But his decision also sideswipes the image of the image-makers in ways not dissimilar to the Delaware courtās critiques of investment bankers in the recent El Paso and Del Monte cases. That seems a reasonable penalty for spinning out of bounds.