Opinion ID: 3158748
Heading Depth: 2
Heading Rank: 3

Heading: The Special Committee and Engagement of RBC

Text: In early December 2010, EMS was rumored to be in play. The trial court found that Munoz and his RBC colleagues realized that a private equity firm that acquired EMS might decide to buy Rural rather than sell AMR. It found that RBC recognized that if Rural engaged in a sale process led by RBC, then RBC could use its position as sell-side advisor to secure buy-side roles with the private equity firms bidding for EMS. Further, the trial court concluded that RBC believed that with the Rural angle, it could get on all of the EMS bidders’ financing trees. The record evidence supports these findings. In a December 18, 2010 email, Moti Rubin urged his RBC colleagues to get “up to speed with all of ems (amr and emcare) as who knows what we end up financing[.]” He wrote: As you know we are working all angles re EMS. Rural is an important angle and most sponsors want to use that angle in some way – either splitting up EMS and having [Rural] buy AMR . . . or [the] sponsor buying the [sic] ems and [Rural] and combining the 2, or other combos. Clearly this is the most important fee event opportunity we have in healthcare and [there is a] reasonable probability this will happen in some shape or form. 11 we are not treeing up yet but I want to make sure that we are getting ready to move swiftly on this. Four days later, Rubin told Munoz that RBC “should be able to get on all [EMS bidder financing] trees given the [Rural] angle.”11 The Rural Board met on December 8, 2010. The trial court found that the Board re-activated the Special Committee as a response to the meeting, but, in so doing, it did not authorize the Special Committee to pursue a sale. The evidence reflects that, at the meeting, Shackelton discussed the Company’s long-term strategic choices and outlined three alternatives: “(1) continue to pursue the Company’s current standalone business plan (including taking advantage of opportunities to purchase smaller competitors); (2) pursue a sale of the Company; or (3) pursue a transaction that would seek to take advantage of the synergies available via some form of business combination transaction involving the Company and its principal competitor.” Shackelton, at the time, suggested that he had not “formulated a preference among the three” strategic alternatives. When Shackelton’s presentation concluded, the Board unanimously agreed that the Company should promptly proceed to engage an appropriate strategic advisory team and pursue an in-depth analysis of the alternatives discussed during the meeting. Also at the December 8 meeting, the Board “unanimously agreed that the scope of authority for the [S]pecial [C]ommittee created at the Board’s meeting of October 27, 2010 would be revised to include this project, and authorized and directed the [C]ommittee to proceed to interview advisers.” Shackelton maintained his position as 11 In a December 8, 2010 email to Munoz, Shackelton wrote: “At the right price, we can be part of the ‘angle[.]’” 12 Chair of the Special Committee. At the same meeting, Shackelton took over as Chairman of the Board from Conrad. The trial court found that Shackelton told RBC that he was open to reaching out to private equity firms about partnering on an acquisition of EMS. Also, on December 13, Shackelton advised his fellow directors that he was setting up a meeting to interview potential financial advisors. On December 14, EMS publicly announced that it was exploring strategic alternatives. Its stock price spiked 19%. Rural’s stock also traded up. Shackelton, on December 20, emailed the Board with an update: “The EMS process is moving more quickly than we’d anticipated. Over the past 5 days, we have been contacted by nine private equity firms that are either interested in partnering to buy EMS or turning the tables and acquiring [Rural].” Shackelton suggested that he was “increasingly focused on engaging an advisor.” To expedite the hiring process, Shackelton arranged for a call with the other members of the Special Committee, reasoning: “Since the purpose of this call will not be to evaluate and select a strategic direction, I do not believe we need the entire board to block off four hours for the banker presentations. Our only objective will be to select an advisor.” On December 23, 2010, the Special Committee interviewed Houlihan Lokey, Moelis, and RBC. The trial court found that, unlike the other firms, RBC devoted the bulk of its presentation to a sale and recommended coordinating the effort with the EMS process. RBC stated that it “recognize[d] that selling the Company today is opportunistic and that the optimal time to sell is when the interests of the seller and external market 13 factors are aligned to best maximize value. We believe that time is now[.]” RBC favored an immediate sale because the M & A environment for healthcare was “strong,” Rural possessed “compelling assets” that would sell at premiums, and such quality assets were otherwise not readily available to interested buyers that played in the healthcare market. The trial court found, and the evidence indicates, that RBC only identified financial sponsors as potential bidders and suggested that an advantage of selling Rural at that period in time was that the “[d]ebt markets remain[ed] open.” By contrast, the trial court found that Moelis approached the engagement from a different standpoint. Moelis’s presentation stressed its growing M & A franchise and the bulk of its presentation examined a potential combination with AMR. Moelis placed less emphasis on a sale, and noted that it would not seek to finance any of the bidders. RBC hoped to offer staple financing to the potential buyers. The minutes of December 23 meeting reflect that the Special Committee considered the “‘pros and cons’ of retaining an investment banker as a financial advisor if that advisor would also seek to provide so-called ‘staple financing.’” The Committee’s legal counsel advised that, “if the Committee were to select RBC, the Committee would need to be especially active and vigilant in assuring the integrity of the progress [sic], and that it should consider appointing a second firm which would not be in a position to provide staple financing, but that would be very close to the process to assure both the fact and appearance of an appropriate and robust auction process.” The trial court found that RBC did not disclose that it planned to use its engagement as Rural’s advisor to capture financing work from the bidders for EMS, and 14 the minutes do not reflect such a disclosure. Munoz’s trial testimony supports this finding: Q. . . . Now, when going through these -- these reasons about why to initiate a sale process, did you say that RBC would use the initiation of a Rural/Metro sale process to help RBC get a role financing EMS? A. In our materials we included a discussion about, one, the financing of potential [sic] sale of Rural; and, two, then we also discussed the possibility of financing both the merger of both companies. Q. But did you advise the special committee, in writing or orally, that RBC would be using the initiation of a Rural/Metro sale process to help RBC get a role financing EMS? A. No. Q. At any time did you say to anybody at Rural/Metro that RBC was using its relationship with Rural/Metro as an angle to get a role financing the EMS transaction? A. We told both the management team and Mr. Shackelton that we were working with select parties on the potential financing of EMS. Q. Did you say that RBC was using its relationship with Rural/Metro as an angle to get a role financing the EMS acquisition? A. No. On December 26, 2010, Shackelton sent an email update to the Board, noting that “the Special Committee selected RBC (as primary) and Moelis (as secondary) [advisors].” The trial court found that the Board only authorized the Special Committee to retain an advisor to analyze the range of strategic alternatives available and to make a recommendation to the Board. The email from Shackelton to the Board states: “Partner/sale process: We are continuing to refine a target list of PE firms (10-15). We have reached out informally to almost all of them over the past two weeks. Given that 15 most of the firms are currently working through the EMS sale process, it is not yet clear where their individual preferences will end up.”12