The Case For Independent Experts

In the Chemtura case (see main article) the court questioned the credibility of the valuation experts, although it didn't exclude their testimony. Factors that caused the court to take their opinions "with a grain of salt" included:

• Inconsistencies between trial and deposition testimony,
• Unwillingness to give straight answers on cross-examination,
• Statements indicating bias, and
• Financial incentives in engagement agreements.

The last factor, which took the form of "transaction fees" or "deferred fees" contingent on plan consummation or achievement of distribution targets, gave the experts a financial stake in the outcome. Such arrangements are customary, the court explained, but they "can't be ignored when investment bankers testify."

Given the inherent conflict of interest when an advisor with a contingent fee arrangement testifies, it's advisable in most cases to engage independent experts to opine on critical valuation issues.