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Plain Meaning of Engagement Agreement Did Not Entitle Advisor to Transaction Fee

By GianClaudio Finizio

On December 12, 2012, Judge Kevin J. Carey granted the post-effective date Claims Agent’s (the “Claims Agent”) cross motion for summary judgment in connection with the Claims Agent’s objection to The Levin Group, L.P.’s (“TLG”) proof of claim, resulting in the disallowance and expungement of TLG’s claim for a 2% transaction fee. In re AbitibiBowater Inc., 2012 WL 6186508 (Bkrtcy.D.Del., 2012).

On July 31, 2006, Bowater, Inc. (“Bowater”) and TLG had entered into a six-month engagement agreement (the “Agreement”) , pursuant to which TLG was (i) to be a strategic and financial advisor to Bowater, and (ii) “to review certain potential acquisitions and divestitures as specifically identified by Bowater to TLG in writing as a transaction subject to Paragraph 2(b)…” (emphasis added) (the “Transaction Services Phrase”). Paragraph 2(b) of the Agreement provided that upon the closing of a transaction, TLG would receive a transaction fee equal to 2% of the transaction enterprise value. Paragraph 2(a) of the Agreement provided for a monthly advisory fee of $100,000 pursuant to which TLG received $600,000.

Following the April 16, 2009 petition date of Abitibibowater, Inc and its affiliated debtors (which included Bowater), TLG filed a proof of claim against Bowater seeking a fee of $88 million which represented 2% of the enterprise value of the pre-petition merger (the “Merger”) between Bowater and Abitibi-Consolidated, Inc. The Debtors objected to the proof of claim. Both TLG and the Claims Agent subsequently filed summary judgment motions seeking favorable interpretation of the Agreement and, in particular, the Transaction Service Phrase.

The Court rejected TLG’s reading that the plain language of the Transaction Service Phrase was intended to clarify that a potential transaction fee of 2% was due if TLG performed requested services on a transaction that closed. The Court instead found that the plain language reading of the Agreement provided for two distinct services: (i) strategic and financial advisor services, and (ii) services related to specified transactions. The Court also concluded that TLG’s interpretation would produce the absurd result of an $88 million payment to TLG while the other financial advisors for the Merger engaged by Bowater, such as Goldman Sachs & Company and UBS Investment Bank, would be paid a combined fee of approximately $20 million. In conclusion, the Claims Agent’s motion for summary judgment was granted because TLG was unable to provide evidence that Bowater designated, in writing, that the Merger was a “transaction subject to Paragraph 2(b)” as required pursuant to the plain language of the Agreement.

A copy of the bankruptcy court’s opinion is available here.

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