Developments in Disclosure of Financial Advisor Fees in M&A Transactions

February 23, 2017

Recent developments, including the U.S. Securities and Exchange Commission settlement with CVR Energy and related SEC Staff guidance, reinforce a trend towards more extensive disclosure of financial advisor fees in M&A transactions, including the circumstances in which fees are payable.


  • The tender offer rules require the target of a tender offer to disclose a summary of all material terms of its engagement letters with investment banks that are advising on the transaction.
  • CVR Energy allegedly violated the tender offer rules by failing to properly disclose all material terms of its arrangements with investment banks advising CVR in connection with a hostile tender offer. Potential conflicts of interest that arose from the fee structure were not disclosed to CVR shareholders, including that the financial advisors could receive sizable “success” fees even if the hostile bidder prevailed despite the rejection of the offer by the CVR board.1
  • This enforcement action follows recent guidance by the SEC Staff that general disclosure that financial advisors are entitled to “customary fees” is usually insufficient and that disclosure should typically include a discussion of the fee structure, including the types of fees and circumstances that will trigger payment of the fees.
  • These developments are consistent with a general trend in Delaware case law to require more specific disclosure of financial advisor fees, conflicts and other arrangements in M&A transactions.
  • This is another example of the SEC’s recent enforcement actions related to disclosure obligations in connection with M&A transactions and fights for corporate control. See our other recent articles on these topics: SEC and Activist Investors Reach Settlement over Disclosure Violations and SEC and Drugmaker Allergan Reach Settlement over M&A Disclosure Violations.

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