Lawsuit Against Bank of America Moves Forward
October 01 2015 - 8:10PM
Dow Jones News
A Delaware judge on Thursday declined to dismiss allegations
that Bank of America Corp.'s investment-banking unit was conflicted
when it advised Zale Corp. in its $1.5 billion sale to rival Signet
Jewelers Ltd., the latest setback for investment banks facing new
scrutiny of their merger advice.
Delaware Vice Chancellor Donald Parsons said it was "reasonably
conceivable" that Bank of America Merrill Lynch was conflicted
because the bank had earlier pitched Signet on the same deal.
"We respectfully disagree with the ruling," said a Bank of
America spokesman, "The investment banking presentation at issue
created no conflict of interest and had no impact on Bank of
America Merrill Lynch's efforts on Zale's behalf." He added the
bank will "continue to vigorously defend against any suggestion to
the contrary."
Lawyers representing former Zale stockholders sued Bank of
America Merrill Lynch and the jewelry retailer's board, arguing
that because the bank had recently pitched Signet on the
transaction, its advice to Zale's board was tainted.
In particular, the plaintiffs alleged that because a Bank of
America Merrill Lynch team—including a senior banker who later
advised Zale—had pitched Signet on a takeover of Zale at a price of
up to $21 a share, the bankers were later reluctant to push for a
higher price when negotiating on behalf of Zale.
A deal ultimately was announced in February 2014 at $21 a share.
Zale's board didn't know about its bankers' earlier presentation to
Signet until after the deal was signed, according to regulatory
filings.
"I find it reasonably conceivable that this undisclosed conflict
hampered the ability of Merrill Lynch and, consequently, the board
to seek a higher price," Mr. Parsons wrote in his ruling, released
Thursday. He dismissed the allegations against Zale's
directors.
Mr. Parsons said it was plausible that the bankers would have
concealed their earlier presentation from Zale's board for fear of
losing the assignment, which generated a $12 million fee for the
bank.
The ruling comes at an early stage in the case and doesn't
necessarily imply wrongdoing.
Bank of America Merrill Lynch has said its presentation to
Signet, delivered before the bank was hired by Zale, was the sort
of standard pitch that mergers-and-acquisitions bankers often make.
The lawsuit "does not articulate how the mere fact that Merrill
Lynch gave a presentation—which is routine industry
practice—precluded it from later…negotiating a fair price" for
Zale's public stockholders, the bank said in a court filing.
The suit is among more than a dozen filed over the past 18
months seeking to hold banks liable for tainted M&A advice. RBC
Capital Markets LLC went to court this week to appeal a $100
million judgment against it, while Goldman Sachs Group Inc., Moelis
& Co. and Deutsche Bank AG have faced similar allegations.
The banks all deny wrongdoing.
Write to Liz Hoffman at liz.hoffman@wsj.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires
(END) Dow Jones Newswires
October 01, 2015 19:55 ET (23:55 GMT)
Copyright (c) 2015 Dow Jones & Company, Inc.
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