Wall Street’s 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 Material’s 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 won’t emerge unscathed.
When the companies began friendly talks two years ago, they agreed to keep each other’s 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 hadn’t negotiated a prohibition on hostile offers, so why should it get one indirectly through the confidentiality contracts? What’s more, the documents said the information could be used for a “transaction” 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, Strine’s analysis has a flavor of mind-reading, but it’s tough to dispute on at least one point: Martin had “larded” 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 target’s resistance. The “flacks” received internal Vulcan data and “blow-by-blow” 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 he’s well qualified to judge the influence of spin. Not only has he seen it in the nation’s 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. That’s why Strine’s order aims squarely at Martin. But his decision also sideswipes the image of the image-makers in ways not dissimilar to the Delaware court’s critiques of investment bankers in the recent El Paso and Del Monte cases. That seems a reasonable penalty for spinning out of bounds.