Judge hints Galvin can study P&G deal
Regulator oversees Gillette's advisers
A Massachusetts Superior Court judge yesterday suggested state securities regulators have legal authority to investigate certain aspects of the proposed $57 billion acquisition of Gillette Co. by Procter & Gamble Co.
The remarks by Judge Allan van Gestel came during a hearing yesterday in which Secretary of State William F. Galvin sought a court order to force Gillette to provide more material about how company directors, executives, and their investment advisers concluded the proposed offer by P&G was fair to shareholders.
Gillette has said state law explicitly prohibits Galvin from investigating corporate mergers. Galvin argued yesterday that state law does give him latitude to investigate the activities of the two investment advisers to Gillette, Goldman Sachs Group and UBS AG, because they have securities brokerage operations that come under his purview.
Van Gestel seemed to agree about that aspect of the reach of Galvin's powers. ''I don't have much doubt he has the authority to investigate" UBS and Goldman, he said during yesterday's proceedings.
Attorneys for Gillette brushed off van Gestel's statement. While the judge said later he ''has a pretty good sense" of the legal issues at hand, he gave no further hint of how he would eventually rule, but indicated that a decision could come in the next few days.
Yesterday's court hearing was the latest in an escalating legal battle between Galvin and Gillette over the megadeal. Gillette shareholders are scheduled to vote on the acquisition in a special shareholders meeting June 14 in Wilmington, Del., while P&G shareholders vote a day earlier in Cincinnati.
The company has repeatedly pointed to the statement of investment guru and 10 percent Gillette stockholder Warren E. Buffett calling the acquisition a ''dream deal." And it has since suggested that Galvin is now using the two investment banks as a convenient target to search for material he otherwise would not be allowed to investigate.
''The secretary is not permitted to recharacterize a merger investigation as something else" to keep investigating, said Gillette attorney John T. Montgomery of the Boston firm Ropes & Gray. Montgomery also told van Gestel yesterday that by targeting the two investment banks, Galvin ''concedes he doesn't have jurisdiction over the merger."
But Galvin has previously said that internal documents his office obtained suggested Gillette may be worth as much as $72 billion, and he has subpoenaed more material to determine if the company's shareholders are being defrauded. Among the material he is seeking are e-mails and documents from Gillette directors and senior executives, including chief executive James Kilts, who stands to receive as much as $173 million in compensation if the deal goes through.
''There is a discrepancy between the private information" provided to Gillette directors and executives and ''public information" about the value of the transaction that was released to shareholders, Myles W. McDonough, an attorney for Galvin from the Boston firm Sloane and Walsh, argued in court yesterday.
McDonough suggested the investment firms were not in a position to give unbiased advice to Gillette and its shareholders about the value of the company because each stands to be paid $30 million if the deal closes successfully.
UBS and Goldman both declined to comment.
Joseph A. Franco, faculty director of financial services law at Suffolk University, said courts have generally held that state regulators such as Galvin ''have a right to look" into such information. But, he said, ''it's another matter" for Galvin to prove shareholders have been deceived. "You have to actually show people actually engaged in fraudulent conduct. That's a pretty tough standard," he said.
Nonetheless, letting Galvin continue with his investigation could spell trouble for Gillette, Franco added. ''It means he can get access to information and constantly be a source of uncovering more details about the transaction," that while not evidence of fraud, ''may prove to be embarrassing to the company. And that might be why the company understandably wants to resist further release of information."
Andrew Caffrey can be reached at caffrey@globe.com. 