Avoiding Pitfalls When Establishing Special Committees and Retaining Financial Advisers

A recent decision of the Delaware Court of Chancery (In Re Tele-Communications, Inc. Shareholders Litigation) focuses on issues that boards should consider when establishing a special committee and retaining financial advisers. While the deficiencies of the particular committee in the case are obvious, the deficiencies in the retention of the financial advisers are more complex.

The case involved AT&T’s acquisition of Tele-Communications, Inc. (TCI) in 1999 through a merger in which the holders of high-voting stock received a 10% premium over the consideration received by the holders of the otherwise identical regular voting stock. The high-voting stock was held primarily by certain board members, whereas the regular voting stock was primarily held by the public. Aware of the potential conflict of interest, the board of TCI established a special committee to review the transaction.