Lawsuit Against Bank of America Over Zale Sale Moves Forward

By Liz Hoffman 

A Delaware judge on Thursday declined to dismiss allegations that Bank of America Corp.'s investment-banking unit was conflicted when it advised Zale Corp. in its $1.5 billion sale to rival Signet Jewelers Ltd., the latest setback for investment banks facing new scrutiny of their merger advice.

Delaware Vice Chancellor Donald Parsons said it was "reasonably conceivable" that Bank of America Merrill Lynch was conflicted because the bank had earlier pitched Signet on the same deal.

Lawyers representing former Zale stockholders sued Bank of America Merrill Lynch and the jewelry retailer's board, arguing that because the bank had recently pitched Signet on the transaction, its advice to Zale's board was tainted.

In particular, the plaintiffs alleged that because a Bank of America Merrill Lynch team--including a senior banker who later advised Zale--had pitched Signet on a takeover of Zale at a price of up to $21 a share, the bankers were later reluctant to push for a higher price when negotiating on behalf of Zale.

A deal ultimately was announced in February 2014 at $21 a share. Zale's board didn't know about its bankers' earlier presentation to Signet until after the deal was signed, according to regulatory filings.

"I find it reasonably conceivable that this undisclosed conflict hampered the ability of Merrill Lynch and, consequently, the board to seek a higher price," Mr. Parsons wrote in his ruling, released Thursday. He dismissed the allegations against Zale's directors.

Mr. Parsons said it was plausible that the bankers would have concealed their earlier presentation from Zale's board for fear of losing the assignment, which generated a $12 million fee for the bank.

The ruling comes at an early stage in the case and doesn't necessarily imply wrongdoing.

Bank of America Merrill Lynch has said its presentation to Signet, delivered before the bank was hired by Zale, was the sort of standard pitch that mergers-and-acquisitions bankers often make. The lawsuit "does not articulate how the mere fact that Merrill Lynch gave a presentation--which is routine industry practice--precluded it from later...negotiating a fair price" for Zale's public stockholders, the bank said in a court filing.

The suit is among more than a dozen filed over the past 18 months seeking to hold banks liable for tainted M&A advice. RBC Capital Markets LLC went to court this week to appeal a $100 million judgment against it, while Goldman Sachs Group Inc., Moelis & Co. and Deutsche Bank AG have faced similar allegations.

The banks all deny wrongdoing.

Write to Liz Hoffman at [e-mail]

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(END) Dow Jones Newswires

October 01, 2015 19:10 ET (23:10 GMT)

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