Merrill Lynch Pays $28 Million in Websense Buyout Settlement

  • Bank of America unit accused of tainting deal with conflicts
  • Vista Equity Partners bought Websense in 2013 for $906 million

Bank of America Corp’s Merrill Lynch unit agreed to pay $28 million to settle claims it tainted the sale of a maker of website-filtering software to a private-equity firm because of undisclosed conflicts of interest.

Merrill agreed to join Websense Inc. directors in a $40 million settlement of a pension fund’s California suit over the nearly $1 billion buyout by Vista Equity Partners, shareholders’ lawyers told a Delaware judge Monday. The pension fund also sued Merrill separately in Delaware Chancery Court last month over its work as Websense’s financial adviser in the deal.

Under the agreement, Websense’s former directors will pay $12 million and Merrill will cover the remaining $28 million, according to the letter to Chancery Judge Travis Laster. Lawrence Grayson, a Bank of America spokesman, declined to comment on the settlement.

The Websense case was among a wave of Delaware lawsuits targeting bankers for their advice or conflicting interests in deals. In April, Goldman Sachs Group Inc. and Vista agreed to pay $30 million to resolve claims they shortchanged Tibco Software Inc. investors by miscounting the number of shares involved in a buyout.

Two years ago, a Delaware judge ordered Royal Bank of Canada to pay $75.7 million to shareholders of Rural Metro Corp. over conflicted bankers’ efforts to spur a speedy sale of the ambulance company so they could garner fees.

Disgruntled Websense investors accused directors of selling the software maker too cheaply and unfairly favoring Vista’s $24.75-a-share bid for the San Diego-based firm in 2013. They also alleged that Merrill bankers provided flawed financial analysis of the deal to help Vista.

The pension fund alleged Merrill officials failed to properly disclose that the investment bank earned $30 million in fees from Vista in the two years prior to Websense deal and was simultaneously advising San Francisco-based Vista on other deals while overseeing the Websense buyout, according to California court filings.

‘Intolerable Situation’

John Schaefer, a Websense director, said he was unaware Merrill had conflicting interests in the buyout and added he would have wanted to know about the bank’s dealings with Vista when considering the offer.

“I assume they’re not representing Vista on a pro-bono basis, so they’re being compensated by both sides, and it’s an intolerable situation,” Schaefer said in a deposition quoted in the pension fund’s suit.

The pension fund’s lawyers said they would “defer further proceedings” in the Delaware case since a California judge was weighing whether to approve the expanded settlement. Vista sold Websense to Raytheon Co. in 2015 for $1.9 billion, according to court filings in the Delaware suit.

The Delaware case is Laborers’ Local #231 Pension Fund v. Merrill Lynch, Pierce, Fenner & Smith Inc., CA 12350-VCL. The California case is Laborers’ Local #231 Pension Fund v. John McCormack, 37-2013-00050879-CU-BT-CTL, California Superior Court (San Diego).

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