A Fateful Mistake Haunts Goldman Sachs 

Bank faces fresh allegations of share-count error tied to Tibco takeover

Goldman Sachs Group Inc. is entangled in an increasingly contentious fight over a 2014 takeover on which it advised, underscoring the treacherous legal environment for mergers-and-acquisitions bankers.

Goldman faces fresh allegations that it failed to spot in time, then covered up, a share-count error that shortchanged Tibco Software Inc. investors by $100 million when the company was sold last year. The lawsuit, whose allegations Goldman denies, seeks unspecified damages for Tibco investors.

It comes as scrutiny of bankers’ advice, one of the top sources of Wall Street fees and bragging rights in a record year for M&A, is on the rise.

The Tibco case is among a slew of lawsuits targeting bankers for their advice. Plaintiffs’ lawyers have been looking closely at bankers, searching for conflicts of interest or errors that could skew takeovers. As the case has proceeded, more allegations against Goldman have come to light, a number of them not previously reported. Goldman is seeking to have the case dropped, and a Delaware judge will rule in the coming weeks.

In the biggest suit yet, RBC Capital Markets LLC was ordered to pay $76 million to shareholders of Rural/Metro Corp. after a judge faulted the bank for its work on the ambulance operator’s takeover. RBC recently lost an appeal of the judgment.

The Tibco tussle puts Wall Street’s leading M&A adviser in an uncomfortable position: The error shortchanged Goldman’s client, Tibco. Tibco’s buyer, private-equity firm Vista Equity Partners, also is a longtime Goldman client and was founded by a former partner at the firm.

Vista agreed last fall to pay $24 a share for Tibco, valuing the software company at $4.1 billion. But after the agreement was reached, Tibco told its investors that Vista may have relied on an overstated share count.

Using a spreadsheet distributed by Goldman bankers, Vista had double-counted some shares given to executives as compensation and assumed it needed to spread the money it had been willing to pay over an extra four million shares. As a result, shareholders got 57 cents a share less—or $100 million in total—than the proper calculation.

The lawsuit alleges that Goldman didn’t tell Tibco once it realized Vista’s bid was underpriced, and in failing to do so tied the board’s hands at a critical moment. Directors have a legal duty to get the best price they can for investors and the suit claims Tibco’s board, unaware Vista had intended to pay $4.2 billion for the company, didn’t know to press for a per-share bid matching that.

Goldman, which received a $47 million fee for its work on the deal, has blamed Tibco for providing the inaccurate figures. Goldman says it promptly told lawyers for Tibco’s board when it realized Vista had used the wrong share count to set its bid.

The dispute centers on an exchange in mid-October 2014, a few weeks after the deal was announced. Tibco was preparing a proxy document for investors with details of the transaction. According to court filings in the past several weeks, a junior Vista employee told Goldman banker Scott Silverglate in an email that the deal value in the draft proxy statement was off. The Vista employee, Tyler Kellner, said the private-equity firm had used the wrong share count to make its final proposal and couldn’t “reconcile” the two sets of figures.

Mr. Kellner later testified that Mr. Silverglate called him and said “we should not email on this.”

Goldman says Mr. Silverglate relayed the substance of the email in a phone call to the board’s lawyer at Wilson, Sonsini, Goodrich & Rosati PC the next day. Goldman declined to comment beyond its court filings. Mr. Silverglate declined to comment through a bank spokesman.

The lawyer testified that he didn’t remember the conversation, and Tibco directors testified that the information never made it to the board. A week after this phone call, Wilson Sonsini was still seeking answers from Goldman about whether Vista’s bid was skewed because of the error, court filings show.

The parties were close to a settlement in late September, under which Vista—then a defendant along with Goldman and Tibco’s board—would have paid about $35 million and recovered some of that from the bank, according to people familiar with the matter.

But the talks fell apart, the people said, after the Delaware Supreme Court decided on Oct. 2 in an unrelated case that as long as shareholders know all the relevant facts about a buyout and approve it, boards are largely immunized. Tibco’s lawyers sought to have the case dismissed, as the share-count error was fully disclosed to investors, who approved the deal anyway.

A Delaware judge dismissed the case against Tibco’s board and Vista. But he let stand the claims against Goldman, finding that it was “reasonably conceivable that Goldman knowingly…creat[ed] an informational vacuum when it failed to apprise the board of a critical piece of information.”

Source: WSJ – A Fateful Mistake Haunts Goldman Sachs

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