CVR Energy Sues Wachtell Over Role in Icahn Spat

, The Am Law Daily

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CVR Energy's nitrogen fertilizer plant in Coffeyville, Kansas.
CVR Energy's nitrogen fertilizer plant in Coffeyville, Kansas.

The long-running feud between Carl Icahn and Wachtell, Lipton, Rosen & Katz is heading to a new battleground.

In a suit filed Thursday in federal court in Kansas City, Kan., CVR Energy, which Icahn now controls, accuses Wachtell and corporate partners Andrew Brownstein and Benjamin Roth of malpractice in connection with its representation of the oil refining company last year as it attempted to fend off the activist investor's hostile takeover bid.

At the heart of the 16-page complaint is the claim that the firm, which earned $6 million for its work advising CVR in connection with that takeover bid, did not adequately advise the company about how much it would owe financial advisers Goldman Sachs and Deutsche Bank in the event Icahn succeeded in gaining control of the company. The suit alleges that Wachtell ignored CVR's own interests in order to preserve its close ties to Goldman and Deutsche Bank.

The events at issue in the litigation began in January 2012, when Icahn paid $144.7 million for a 14.5 percent stake in suburban Houston-based CVR, which promptly adopted a “poison pill”—the takeover defense mechanism first crafted by Wachtell founding partner Martin Lipton—to prevent Icahn or anyone else from amassing more than 15 percent of the company's shares.

In addition to retaining Wachtell, the complaint states that CVR hired Goldman and Deutsche Bank as part of its effort to defeat Icahn's subsequent $2.6 billion tender offer for the company. CVR initially urged shareholders to resist Icahn's overtures, but as reported last year by The Am Law Daily, the company eventually made peace with Icahn, dropping its poison pill in April 2012 and clearing the way for the corporate raider to take control of CVR.

Icahn—who now owns roughly 80 percent of CVR—officially claimed victory in the proxy fight that same month. Wachtell's work for CVR came to an end in early May 2012 as Icahn assumed control of the company, says Herbert Beigel, a solo practitioner in Tucson advising CVR in both its suit against Wachtell and separate litigation initiated against the company by both Goldman and Deutsche Bank.

The financial services giants sued CVR last year in New York state court in Manhattan seeking a combined $37 million in advisory fees for their work on the Icahn matter. Specifically, the banks seek $18.5 million apiece that they claim CVR agreed to pay in the event of any transaction involving the company, including Icahn's eventual takeover. CVR has refused to pay the fees—Icahn has said publicly they don't deserve to be paid—which has left the company defending itself against separate breach of contract suits filed by lawyers for both banks at Stroock & Stroock & Lavan.

In both litigation with Goldman and Deutsche Bank and its own suit against Wachtell, CVR claims it only hired the banks to ward off Icahn, and agreed to pay them $9 million apiece if that effort succeeded.

"I'd sure like to get paid twice as much for losing," Beigel told The Am Law Daily in a phone interview on Friday morning.

The CVR complaint also alleges that Wachtell drafted minutes of company board meetings—and that Brownstein and Roth approved those minutes—that did not appropriately explain the fees CVR would owe Goldman and Deutsche Bank. The suit further states that when CVR decided to challenge those fees, Wachtell advised the company that it needed to retain separate counsel if it wanted to take on Goldman and Deutsche Bank.

Beigel says the suit was filed in Kansas City because CVR executives have offices in the city. The company is seeking damages and the repayment of the $6 million in fees Wachtell received for its role representing the company against Icahn.

Neither Brownstein nor Roth responded to phone calls to their offices Friday by The Am Law Daily about the CVR suit. A Wachtell spokeswoman also did not return a request for comment on the matter.

The two Wachtell partners are veteran dealmakers. The Am Law Daily named Roth a Dealmaker of the Week last year for his role advising Kellogg Co. on its $2.7 billion buy of Pringles from Procter & Gamble. Brownstein garnered weekly dealmaker accolades last year for his role representing Walgreens on its $6.7 billion acquisition of a 45 percent stake in European pharmacy chain Alliance Boots.

Lee Smithyman, a name partner with Overland Park, Kansas–based Smithyman & Zakoura, is serving as local counsel to CVR in its suit against Wachtell. He did not return a request for comment, nor did New York solo practitioner Robert Viducich, CVR’s local counsel in its litigation with Goldman and Deutsche Bank.

CVR general counsel Edmund Gross did not respond to a request for comment on the company's suit against Wachtell. Keith Schaitkin, the general counsel of Icahn’s holding company Icahn Enterprises, declined to comment.

The president of Icahn Enterprises, former Winston & Strawn corporate partner Daniel Ninivaggi, is a member of the board of directors at CVR. Ninivaggi is also a general partner at CVR Refining, a unit that raised $600 million earlier this year in an initial public offering.

Vinson & Elkins advised CVR Refining on the listing, while Latham & Watkins represented underwriters led by Barclays, Citigroup, Credit Suisse, and UBS. An SEC filing shows that the IPO yielded $1.25 million in legal fees and expenses.

The takeover battle for CVR has not left Icahn unscathed. He and the new directors he named to the company's board—including Ninivaggi and attorney James Strock—have been named as defendants in shareholder litigation filed in Delaware accusing them of pressuring minority shareholders to sell CVR shares at bargain prices. Icahn withdrew plans last year to take CVR private.

Delaware's Ashby & Geddes and Morris James are representing Icahn and CVR in the litigation, while plaintiffs have turned to Bernstein Litowitz Berger & Grossmann and Grant & Eisenhofer.

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