A Delaware judge ordered RBC Capital Markets LLC last month to pay nearly $76 million to a class of former Rural/Metro Corp. shareholders for its role in what was described as the ambulance company’s “hasty and lowballed sale” to Warburg Pincus LLC. Vice Chancellor J. Travis Laster found that the class of shareholders had suffered $91.3 million in damages, amounting to $4.17 per share. The judgment against RBC represents 83 percent of the total damages in the case, according to the court’s opinion. The argument by RBC that breaches of their duties by Rural/Metro directors and their other financial adviser, Moelis & Co. LLC, should reduce RBC’s liability. The order stated on that issue:
RBC forfeited its right to have a court consider contribution for these matters by committing fraud against the very directors from whom RBC would seek contribution.
A shareholder of the ambulance company filed suit in 2011, challenging the consideration for the Warburg sale as much too low, given Rural/Metro’s value. RBC allegedly provided false information to the board in a financial presentation, manipulated financial analyses, gave false justifications for certain charges, failed to disclose issues and made misrepresentations throughout the merger process, the judge wrote, citing his liability opinion issued in March.
Rural/Metro’s director-defendants and Moelis agreed to a settlement in 2013. The individuals agreed to pay $6.6 million and Moelis $5 million in that settlement. That only left claims against the investment bank for trial. Vice Chancellor Laster had ruled that RBC had given faulty advice to Rural/Metro’s board before the sale. In his liability opinion, which was issued in March, the vice chancellor criticized RBC for undershooting the company’s valuation to make Warburg’s offer look better than it actually was. He blasted the investment bank for hiding from the Rural/Metro board that it was also in the running to help finance a takeover by Warburg. He called RBC’s actions “behind-the-scenes maneuvering” that came to light only after the parties finalized their deal.
The vice chancellor found that Moelis played a secondary role in the matter. During final negotiations in the merger process, while RBC pushed hard to be included in Warburg‘s financing package, it appears that Moelis did not. The judge found that Moelis was not shown to have provided Rural/Metro with materially false or misleading statements.
The Rural/Metro lawsuit almost ended in early 2012. The parties had reached a settlement that would have covered fees tied to the proceedings. But Vice Chancellor Laster struck down that settlement, finding that the lawyers representing shareholders at the time had overlooked or ignored valuable claims in the deal. Warburg’s ownership of Rural/Metro had been stripped in late 2013. At that time, a Delaware bankruptcy judge approved a restructuring plan months after the ambulance company had filed for Chapter 11 protection. When filing, Rural/Metro said it had a debt load of $735 million. The current case is in the Delaware Court of Chancery.
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