The bombshell dropped by Delaware Vice Chancellor J. Travis Laster on the largest LBO since the financial crisis may prove a boon to Wall Street's boutique banks. By singling out Barclays Capital in the auction that resulted in Del Monte Foods Co.'s sale to a Kohlberg Kravis Roberts & Co.-led private equity consortium, Laster provided ammunition to boutiques that make their living by convincing boards of the merits of their unbiased M&A advice.

In an opinion related to a shareholder lawsuit seeking to halt the proposed buyout, Laster lashed out at Barclays for its role in the $5.3 billion deal, announced Nov. 25. Barclays acted as Del Monte's financial adviser and provided staple financing to the buyers, which included KKR, Centerview Partners LLC and Vestar Capital Partners. It was that willingness on Barclays' part to play both sides of the deal, advising the seller and financing the buyers -- a common practice -- that Laster singles out for condemnation.

"Barclays secretly and selfishly manipulated the sale process to engineer a transaction that would permit Barclays to obtain lucrative buy-side financing fees," Laster writes. However, he largely absolves Del Monte's board, portraying it as an unwitting pawn in Barclays' scheme. "On this preliminary record, it appears that the Board sought in good faith to fulfill its fiduciary duties, but failed because it was misled by Barclays."

Laster follows this with several pages describing Barclays' conduct, noting that the bank effectively engineered the deal so it could add to its $23.5 million fee from Del Monte by $21 million to $24 million more for providing financing. Alleging that the bank's self-interest was paramount, Laster suggests that Del Monte's board was ill served by the bank. Indeed, he writes, Barclays' dual role cost Del Monte actual money, beyond any supposed money left on the table.

"Not only did Del Monte fail to secure any benefits for itself or its stockholders as the price of Barclays' buy-side participation, but Del Monte actually incurred an additional $3 million for a second financial advisor," writes Laster, noting that it hired Perella Weinberg Partners LP for a fairness opinion. "Perella Weinberg's fee is not contingent on closing. On the plus side, this helps make its work independent. On the minus side, Del Monte incurred a $3 million expense to help Barclays make another $24 million, and Del Monte will have to bear this expense even if the deal does not close."

According to a banker at an advisory-only shop, Laster's opinion exposes the taken-for-granted process that occurs in many going-private deals. "This crystallizes an ongoing issue in the going-private market," he says. "The conflicts have always existed, but finally someone is calling the banks out on it." The banker notes that the case will now undoubtedly be in boutiques' pitch books, allowing them to use a voice from the court to trumpet the boutiques' cause.

Others agree that the opinion will, at least for the short term, change the landscape for sell-side advisers, regardless of the ultimate outcome of any subsequent shareholder suit. Laster's opinion will force boards to rethink their relationship with advisers, says an M&A lawyer. "Instead of assuming, they'll specifically ask banks to confirm that they haven't had any prior discussions with buyers, and then ask them to confirm that they have no intention of working on the financing. It will make any discussion with potential banks more demanding. The boutiques will have a field day with this."

Barclays, for its part, defends itself by arguing that Laster's characterizations are based on incomplete facts. Barclays noted that, despite its dual role, it continued to seek other buyers at a higher price for Del Monte during the go-shop period, and that the ultimate $19 a share bid was greater than any price at which Del Monte stock had ever traded.

"Throughout the sales process, we approached 53 potential buyers in an extensive, robust, and public sale that yielded no higher price," said Barclays in a statement. "One fact is incontrovertible -- Del Monte's shareholders have received an opportunity to sell their shares at a price greater than they have ever traded in the public market. The $19 share price represents a 40% premium to the average trading price for the three months prior to the possibility of a sale transaction becoming public." That may be true, but the boutiques have Laster's opinion on their side.

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