A recent Law 360 story by Rose Krebs, “Abrams, Olshan Draw Guff for $22M Fee Bid on $47M Deal,” reports that Abrams & Bayliss and Olshan Frome Wolosky faced pushback on a $22 million fee bid for brokering a potential $47 million deal on behalf of a putative class of investors challenging Medley Capital Corp.'s proposed tie-up with Sierra Income Corp., as the defendants cast doubt that the deal is worth that much. MCC, Sierra and other Medley entities and certain directors named as defendants in the class suit filed briefs asking the Delaware Chancery Court to either deny or delay deciding co-lead counsel Abrams & Bayliss LLP and Olshan Frome Wolosky LLP's request, saying there is still too much uncertainty around deal terms and the settlement amount.
They also claim the settlement to be considered later this month is actually less beneficial to stockholders than an earlier merger proposal. "To the extent the court awards a fee now, any fee should be reduced to account for the fact that plaintiffs conferred no benefit on the MCC stockholders through the revised merger plan," Sierra said in its brief.
The Medley entities and certain directors filed a brief asking the court to flat out reject the fee request, calling it "excessive" and "disproportionate to the litigation efforts involved in a case that took less than four weeks from complaint to trial." The fee amount is "untethered to the benefits actually achieved for the class," the Medley entities and directors said. They contend an award of no more than $3.1 million is "fair and reasonable." "To award plaintiffs' counsel anything close to the $22 million they seek would only harm the class that plaintiffs' counsel is bound to represent, and which this court must safeguard," the Medley entities assert.
The opposing parties took issue with various details of the settlement and fee request, including provisions that tie the amount of recovery for shareholders to whatever fee award amount ends up being granted. They were also critical of Abrams & Bayliss and Olshan Frome basing their fee request on what the co-lead counsel contends will be an up to $47 million cash and stock deal, calling into question if that amount will actually ever be realized.
"Plaintiffs seek a fee award of $22 million, roughly 80% of which is based on their suggestion that they created a 'settlement fund' ... Not so," Sierra asserted in its brief. "That settlement fund is nothing more than a contingent, contractual commitment to pay additional cash and stock to MCC stockholders if the revised merger plan closes. No settlement fund exists today, and the potential benefits may never be paid." Sierra also flagged the amount of the fee request as being "equivalent to more than 15% of the total market capitalization of Medley Capital Corporation's common stock based on yesterday's closing price." The opposing parties also said the fee request is way too high because co-lead counsel have not shown they secured a benefit for shareholders.
In April, the proposed deal was announced by which the stockholder suit would be dropped in return for the $17 million in cash and an estimated $30 million of common stock in the combined company, which is set to be distributed to the class upon closing of the proposed transactions. The attorney fees and expenses would not be taken from the settlement fund, but rather "will be paid separately by Medley Capital or its successor," co-lead counsel claimed in court filings. The exact value of the combined company and stock would not be determined until the merger is finalized and the related transactions will require regulatory and stockholder approval.
The suit stems from a deal announced last year through which MCC is to merge into Sierra. The transaction was initially to be contingent on Sierra also acquiring the asset management business Medley Management Inc. to form a combined business development company of all three entities with roughly $5 billion in total assets under management, the companies said in a news release at the time.
Late last month, Abrams & Bayliss and Olshan Frome Wolosky told the court in a filing that the fee request is "reasonable compensation for the significant results achieved in this case." The fee award is justified given they took on a "small army of attorneys from leading national and Delaware firms," that "spared no expense and waged a vigorous defense" and were still able to achieve substantial benefits for the proposed class, the firms assert.
Another stockholder, Stephen Altman, made similar claims as FrontFour in a suit he filed, and the cases were consolidated, with Abrams & Bayliss and Olshan Frome receiving the Chancery Court's nod to co-lead the proposed class. Altman told the court on that his counsel, Kessler Topaz Meltzer & Check LLP and Prickett Jones and Elliott PA, are entitled to about $440,000 in fees and expenses for their work on the case, and also flagged co-lead counsel's $22 million request as being based on "questionable assumptions and calculations."