Morgan Stanley Fees in $1.5B Deal Disclosed After Del. Ruling

By Michael Greene

Morgan Stanley & Co. and its affiliates will receive about $20 million in fees from Consolidated Communications Holdings Inc.'s $1.5 billion merger with FairPoint Communications Inc. ( Vento v. Curry , Del. Ch., No. 2017-0157-AGB, 3/22/17 ).

Consolidated reported the fee information in a March 22 financial filing after the Delaware Chancery Court temporarily blocked the deal in response to Consolidated stockholder Richard Vento’s lawsuit alleging inadequate disclosures.

Delaware courts have increased their scrutiny of the role financial advisers play in mergers and acquisitions. The court’s ruling provides more guidance as to what companies should disclose in relation to potential financial adviser conflicts of interest.

Vento claimed that Consolidated should have disclosed the amount of financing-related fees that Morgan Stanley, its lead financial adviser in the transaction, or its affiliates will receive from the deal.

Chancellor Andre G. Bouchard ruled that a special meeting of Consolidated stockholders to vote on the company’s share issuance, which is necessary to complete the merger, couldn’t take place until five days after Consolidated supplemented its disclosures.

A Consolidated representative said that after the company’s latest disclosure, the special meeting will not be held up. “In response to the letter decision, Consolidated Communications supplemented the Joint Proxy Statement/Prospectus, as reported in a Form 8-K filed with the SEC on March 22, 2017, in a timely manner that would not cause any delay of the special meeting of Consolidated’s stockholders, which will be held on March 28, 2017,” Jennifer Spaude, Consolidated’s senior director of communications, told Bloomberg BNA.

A Morgan Stanley representative declined to comment on the lawsuit.

‘Buried Facts’ Doctrine

Last December, Consolidated, a Mattoon, Ill.-based telecommunications company, agreed to buy Charlotte, N.C.-based communications services provider FairPoint in a stock-for-stock deal. Under the parties’ agreement, Consolidated is required to issue approximately 24.2 million of its shares to FairPoint stockholders.

Morgan Stanley affiliate Morgan Stanley Senior Funding Inc. provided financing for the merger.

The chancery court found that Consolidated’s disclosures were inadequate under Delaware’s “buried facts” doctrine. The doctrine provides that an investor reasonably can expect to find all material facts about a financial adviser’s potential conflicts of interest in one place, such as a company’s registration statement.

Consolidated’s amended registration statement disclosed a $13 million advisory fee that Morgan Stanley stood to receive if the merger were approved, but it didn’t include “any facts concerning the magnitude of the financing fees Morgan Stanley and its affiliates stand to receive if the merger is approved,” Bouchard said.

“A stockholder should not have to go on a scavenger hunt to try to obtain a complete and accurate picture of a financial advisor’s financial interests in a transaction,” Bouchard said. “The amount of fees Morgan Stanley and/or its affiliates stand to receive for providing financing in connection with the proposed merger is material and quantifiable, and there is simply no excuse for Consolidated’s failure to disclose that information in a clear and transparent manner along with related information bearing on its financial advisor’s potential conflicts of interest.”

To contact the reporter on this story: Michael Greene in Washington at

To contact the editor responsible for this story: Yin Wilczek at

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