In Deal Boom, More Firms Ask: Is

My Banker Conflicted?
Hypersensitive to conflicts, corporate boards demand a higher degree
of loyalty from their advisers

Qatalyst founder Frank Quattrone recently attributed some of his firms success to a backlash against
conflicts of interest at big banks. Shown, Mr. Quattrone played golf in Pebble Beach, Calif., in
February. PHOTO: MICHAEL FIALA/REUTERS

Perrigo Co. last summer dropped J.P. Morgan Chase & Co. as an adviser on its battle against
an unwanted takeover bid from Mylan NV.
The reason, according to people familiar with the episode: Perrigo learned J.P. Morgan was
simultaneously advising on another deal that would undermine the drug makers defense against
Mylan.
The episode highlights the pitfalls for merger bankers in the current deal boom, which has been
marked by complicated, quickly shifting takeover battles. Corporate boards have become
hypersensitive to conflictsreal or perceivedand are demanding a higher degree of loyalty
from their advisers, said bankers, lawyers and corporate executives.
The question you ask is: Will your bankers be working as hard as they can for you if theyre
trying to do business everywhere else? said Jim Rogers, former general counsel of Orbitz
Worldwide Inc., which was sold to Expedia Inc. in September.
The company considered hiring a pair of big banks but worried about their ties to potential
bidders and related parties, Mr. Rogers said in an interview. Orbitz hired boutique Qatalyst
Partners instead.

The boardroom scrutiny is shaking up the market for mergers-and-acquisitions work. Big banks
are becoming more selective about which assignments to take, wary of finding themselves
locked out of others or of offending clients. And the process of hiring bankers is becoming more
fraught, with lawyers peppering potential advisers with questions before they can get retained.

Companies also are sending record amounts of work to boutique investment banks that pitch
themselves as conflict-free.
Navigating conflicts is tricky, especially for a sprawling bank like J.P. Morgan, which has a vast
web of relationships and imperfect visibility into what clients are up to. Rapid consolidation in
industries such as health care, as well as a spike in hostile deals, have further complicated the
choices facing bankers.
But a lot of money, and bragging rights, are at stake. M&A volume is running near record levels
and advisory fees are feeding a bigger chunk of bank profits as trading slows.
After joining Perrigos defense team, J.P. Morgan advised Allergan PLC on the $40 billion
agreed sale of its generic-drug unit toTeva Pharmaceutical Industries Ltd. in July. That deal
effectively ended Tevas hostile bid for Mylan, leaving Mylan free to focus on its pursuit of
Perrigo.
The boardroom anxiety stems from a rise in shareholder lawsuits targeting bankers. About two
dozen such suits have been filed since 2014, claiming financial advice was tainted and seeking

millions on behalf of investors. Directors and executives often are named as defendants, too, and
companies typically must foot their bankers legal bills, which serve as strong incentives to root
out conflicts before they arise.
If a company is hiring advisers to run a sale process, past work for potential buyers is a red flag,
bankers and lawyers said. So are big lending arms that could skew bankers advice toward events
that would generate financing fees.
When Williams Cos. was negotiating its pending combination with Energy Transfer Equity LP, it
hired Lazard as a second adviser after becoming concerned about past work that its bankers
at Barclays PLC had done for ETE, securities filings show. Thoratec Corp. hired Centerview
Partners for a second opinion on its sale to St. Jude Medical Inc. last summer after learning that
its bankers at Guggenheim Securities had earlier pitched St. Jude on the same transaction,
according to filings.
And science-lab landlord BioMed Realty Trust Inc. last year hired Raymond James
Financial Inc. to give a second opinion on its sale to Blackstone Group LP in part because of ties
between Morgan Stanley, its main adviser, and Blackstone, a person familiar with the matter
said. Morgan Stanley owned 6.6% of Blackstones stock through its asset-management arm and
had received $192.8 million in fees from the private-equity firm over the previous two years,
filings show. BioMeds board worried that shareholders might later argue that Morgan Stanley
orchestrated a sweetheart deal for a favored client, the person said.
Of course there are conflicts given that the leading banks have broad relationships, saidRobert
Kindler, Morgan Stanleys global head of M&A. Whats important is that they are fully
disclosed. He declined to comment on specific deals.
To that end, law firms including Davis Polk & Wardwell LLP and Skadden, Arps, Slate, Meagher
& Flom LLP have started sending out questionnaires to banks pitching their corporate clients,
people familiar with the practice said. They ask how much banks have earned from potential
bidders over the past few years and whether they have any financial interest in a transaction,
such as through debt or swaps.

Bankers in many cases are bristling at the heightened scrutiny. Some answers arent easy to come
by and disclosing others would breach confidentiality agreements, they said. And there is another
concern: Their answers might prompt the company to hire a different bank.
This new scrutiny is a boon to boutiques, which have fewer of the entangling relationships that
can unnerve clients. Qatalyst founder Frank Quattrone recently attributed some of his firms
success to a backlash against conflicts of interest at big banks.
Boutiques earned a record 19% of M&A advisory revenue in 2015, according to Dealogic. Often
they are brought in alongside a larger bank to provide a second opinion, but are increasingly
handling assignments solo.
Some deal makers see an overreaction, adding that what looks like a conflict can actually be a
benefit. Bankers with deep industry ties can work faster and secure a better price, said Steven
Seidman, a lawyer at Willkie, Farr & Gallagher LLP.
The reason you hire the big banks is because theyre in the mix, because they know everybody,
he said. Those relationships are incredibly valuable.
Bank of America Corp. advised Furiex Pharmaceuticals Inc. in its 2014 sale to Forest
Laboratories Inc. At the time, Bank of America was financing a takeover of Forest Labs, which
effectively put it on both sides of the Furiex deal.
Furiex directors determined that relationship had, in fact, been advantageous in facilitating a
potential transaction, according to a regulatory filing, but they hired Credit Suisse Group AG to
give a second opinion anyway.