Obligations of Financial Advisers in Change-of-Control Transactions: Fiduciary and Other Questions

Abstract:     
Outside the United States, financial regulators have recently focused their attention on whether a financial adviser to a party in a change-of-control transaction (such as a takeover) is obliged to avoid being in positions of conflict with the interests of that party. Because financial advisers in these transactions are typically investment banks, the integrated structure of which may make conflicts of interest inevitable, such an obligation is likely to pose difficult challenges for the investment banking industry. The question is complicated by two apparently inconsistent standards being applied: the fiduciary obligation to avoid conflicts and the statutory obligation in many jurisdictions to manage conflicts. This article considers whether a financial adviser is, and should be, obliged to avoid conflicts in this context and, in doing so, attempts to reconcile the apparent inconsistency between these standards.

Keywords: Investment banks, merchant banks, fiduciary obligations, mergers and acquisitions, takeovers, change-of-control transactions, conflicts of interest, managing conflicts, regulation of investment banks, duties of financial advisers

JEL Classifications: G34, K22, K20, M14

Accepted Paper Series