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`EXHIBIT B
`Proposed Redacted Document
`Appendix And Declaration Of Jeffrey J. Zeiger In Support Of
`Memorandum Of Law In Support Of The Paragon Litigation
`Trust’s Motion To Exclude The Testimony Of Emilie Feldman
`
`
`
`
`
`
`
`
`
`
`
`

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`Case 17-51882-CSS Doc 319-2 Filed 06/04/20 Page 2 of 98
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`
`
`IN THE UNITED STATES BANKRUPTCY COURT
`FOR THE DISTRICT OF DELAWARE
`
`In re
`
`Chapter 11
`
`PARAGON OFFSHORE PLC, et al.,
`
`Case No. 16-10386
`
`Debtors.
`
`PARAGON LITIGATION TRUST,
`
`Plaintiff,
`
`v.
`
`NOBLE CORPORATION PLC, NOBLE
`CORPORATION HOLDINGS LTD,
`NOBLE CORPORATION, NOBLE
`HOLDING INTERNATIONAL
`(LUXEMBOURG) S.à.r.l., NOBLE
`HOLDING INTERNATIONAL
`(LUXEMBOURG NHIL) S.à.r.l., NOBLE
`FDR HOLDINGS LIMITED, NOBLE
`HOLDING INTERNATIONAL LIMITED,
`NOBLE HOLDING (U.S.) LLC, NOBLE
`INTERNATIONAL FINANCE
`COMPANY, MICHAEL A. CAWLEY,
`JULIE H. EDWARDS, GORDON T.
`HALL, JON A. MARSHALL, JAMES A.
`MACLENNAN, MARY P.
`RICCIARDELLO, JULIE J. ROBERTSON,
`AND DAVID W. WILLIAMS,
`
`Defendants.
`
`Adv. Proc. No. 17-51882 (CSS)
`
`APPENDIX AND DECLARATION OF JEFFREY J. ZEIGER
`IN SUPPORT OF THE PARAGON LITIGATION TRUST’S MOTION
`TO EXCLUDE THE TESTIMONY OF EMILIE FELDMAN
`
`I, Jeffrey J. Zeiger, declare under the penalty of perjury, pursuant to 28 U.S.C.
`
`§ 1746, that the following is true and correct to the best of my knowledge:
`
`1.
`
`I am an attorney at law duly admitted to the practice of law in the State of
`
`Illinois and am a partner at the law firm of Kirkland & Ellis LLP, with an office located at
`
`
`
`

`

`Case 17-51882-CSS Doc 319-2 Filed 06/04/20 Page 3 of 98
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`300 N. LaSalle St, Chicago, IL 60654. Kirkland & Ellis is counsel to the Paragon Litigation
`
`Trust in the above-captioned matter.
`
`2.
`
`I respectfully submit this Declaration in support of the Paragon Litigation
`
`Trust’s Motion to Exclude the Testimony of Emilie Feldman and to submit true and correct
`
`copies of the documents attached hereto.
`
`3.
`
`Attached hereto are true and correct copies of the following documents:
`
`Date
`
`APPENDIX
`
`Description
`
`9/2/2011 Excerpt of Noble Corporation Presentation: Mission, Values,
`and Vision [Noble_00680579]
`
`4/2/2013
`
`3/17/2014
`
`4/10/2014
`
`4/22/2014
`
`7/8/2014
`
`Email from J. MacLennan re Transition
`[Noble_00319948]
`
`Email from R. Stilley re Spin off Questions
`[Noble_00021952]
`
`Email from B. Beaulieu re ARB 51
`[Noble_00293665]
`
`B. Wolford Internal Correspondence re Noble Interim
`Operating Reporting Structure (pre-IPO)
`[Noble_00056437]
`
`J. MacLennan Email re Paragon YTD 2014 Capital
`Expenditures - Spending by Budget Category
`[Noble_00119632]
`
`Page Nos.
`
`A1 - A3
`
`A4
`
`A5 - A7
`
`A8
`
`A9 - A11
`
`A12 - A13
`
`1/16/2020
`
`Emilie Feldman Expert Report
`
`A14 - A47
`
`4/24/2020
`
`Excerpts of the Deposition of Emilie Feldman
`
`A48 - A98
`
`I declare under penalty of perjury that the foregoing is true and correct to the best
`
`of my knowledge and information.
`
`Dated: June 1, 2020
`
`/s/ Jeffrey J. Zeiger
`Jeffrey J. Zeiger
`
`2
`
`

`

`Case 17-51882-CSS Doc 319-2 Filed 06/04/20 Page 4 of 98
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`9/2/2011 Excerpt of Noble Corporation Presentation:
`Mission, Values, and Vision
`[Noble_00680579]
`
`DOCUMENT FILED UNDER SEAL
`
`

`

`Case 17-51882-CSS Doc 319-2 Filed 06/04/20 Page 5 of 98
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`4/2/2013 Email from J. MacLennan re Transition
`[Noble_00319948]
`
`DOCUMENT FILED UNDER SEAL
`
`

`

`Case 17-51882-CSS Doc 319-2 Filed 06/04/20 Page 6 of 98
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`3/17/2014 Email from R. Stilley re Spin off Questions
`[Noble_00021952]
`
`DOCUMENT FILED UNDER SEAL
`
`

`

`Case 17-51882-CSS Doc 319-2 Filed 06/04/20 Page 7 of 98
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`4/10/2014 Email from B. Beaulieu re ARB 51
`[Noble_00293665]
`
`DOCUMENT FILED UNDER SEAL
`
`

`

`Case 17-51882-CSS Doc 319-2 Filed 06/04/20 Page 8 of 98
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`4/22/2014 B. Wolford Internal Correspondence re Noble Interim
`Operating Reporting Structure (pre-IPO)
`[Noble_00056437]
`
`DOCUMENT FILED UNDER SEAL
`
`

`

`Case 17-51882-CSS Doc 319-2 Filed 06/04/20 Page 9 of 98
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`7/8/2014 J. MacLennan Email re Paragon YTD 2014 Capital
`Expenditures - Spending by Budget Category
`[Noble_00119632]
`
`DOCUMENT FILED UNDER SEAL
`
`

`

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`1/16/2020 Emilie Feldman Expert Report
`
`

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`UNITED STATES BANKRUPTCY COURT
`DISTRICT OF DELAWARE
`
`In re
`PARAGON OFFSHORE PLC, et al.,
`Debtors,
`Chapter 11
`Case No. 16-10386 (CSS)
`(Jointly Administered)
`
`-----------------------------------------------
`
`PARAGON LITIGATION TRUST,
`Plaintiff,
`
`vs.
`
`NOBLE CORPORATION PLC, NOBLE
`CORPORATION HOLDINGS LTD, NOBLE
`CORPORATION, NOBLE HOLDING
`INTERNATIONAL (LUXEMBOURG) S.A
`R.L., NOBLE HOLDING
`INTERNATIONAL (LUXEMBOURG
`NHIL) S.A R.L., NOBLE FDR HOLDINGS
`LIMITED, NOBLE HOLDING
`INTERNATIONAL LIMITED, NOBLE
`HOLDING (U.S.) LLC, NOBLE
`INTERNATIONAL FINANCE COMPANY,
`MICHAEL A. CAWLEY,
`JULIE H. EDWARDS, GORDON T. HALL,
`JON A. MARSHALL, JAMES A.
`MACLENNAN, MARY P.
`RICCIARDELLO, JULIE J. ROBERTSON,
`AND DAVID W. WILLIAMS,
`Defendants.
`
`EMILIE FELDMAN EXPERT REPORT
`
`A14
`
`

`

`Case 17-51882-CSS Doc 319-2 Filed 06/04/20 Page 12 of 98
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`I.
`
`Retention and Scope
`
`A.
`
`Qualifications, background, education
`
`1.
`
`My educational background is as follows:
`
`Doctorate of Business Administration in Strategy, Harvard Business
`School, 2010; Master of Business Administration in Strategy and Finance,
`Harvard Business School, 2007; Bachelor of Arts in Economics (speciali-
`zation in Industrial Organization, certificate in French Literature), magna
`cum laude, Harvard College, 2004.
`
`2.
`
`I am currently an Associate Professor of Management (with tenure) at the
`Wharton School of the University of Pennsylvania.
`
`I was hired by Wharton upon the completion of my doctorate in 2010, and
`I received tenure in 2016.
`
`I conduct research; teach executive, MBA, and undergraduate courses; ad-
`vise doctoral students; participate in the administration of my department,
`the school, and the university; and perform editorial functions for the lead-
`ing academic journals and professional associations in my field.
`
`I received the Emerging Scholar Award from the Strategic Management
`Society in 2017, and I was recognized as one of the 40 best business
`school professors under the age of 40 by a popular academic publication in
`2019.
`
`3.
`
`My area of specialization is corporate strategy, which includes spinoffs,
`divestitures, mergers and acquisitions, corporate scope, diversification,
`corporate governance, boards of directors, and ownership.
`
`To date, I have published 15 articles about corporate strategy in the lead-
`ing academic journals in strategy and management, and I have 4 articles
`that are presently under review in these journals. Of the 15 published arti-
`cles, 13 are specifically about divestitures and/or spinoffs, and 3 have won
`prestigious awards from the major professional associations in my field.
`
`In addition to my publications, I have a robust pipeline of ongoing re-
`search about various topics in corporate strategy, especially divestitures
`and spinoffs. I regularly present my ongoing research before national and
`international academic audiences.
`
`I have appeared in and I am regularly sought out by leading media outlets
`(including the Wall Street Journal, the New York Times, the Washington
`
`2
`
`A15
`
`

`

`Case 17-51882-CSS Doc 319-2 Filed 06/04/20 Page 13 of 98
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`
`
`Post, the Economist, and the New Yorker) for my views on major corpo-
`rate transactions (especially divestitures and spinoffs) and on key trends in
`corporate strategy.
`
`4.
`
`I frequently serve as an external consultant and collaborator to corpora-
`tions and professional services companies, including Google, Intuit,
`McKinsey, KPMG, and PricewaterhouseCoopers.
`
`5.
`
`My Curriculum Vitae is attached as Appendix A.
`
`B.
`
`Defined terms, scope of opinions, sources considered
`
`1.
`
`Defined terms
`
`In the interest of clarity, I define certain terms, below, that I use through-
`out this report. Other terms may be defined later in the report as well.
`
`a. “ParentCo” refers to a generic company that undertakes a spinoff;
`
`b. “RemainCo” refers to that same company after the completion of that
`spinoff;
`
`c. “SpinCo” refers to the generic company that has been spun off by
`ParentCo;
`
`d. “Old-Noble” refers to pre-spinoff Noble Corporation plc as a
`ParentCo;
`
`e. “New-Noble” refers to post-spinoff Noble Corporation plc as a Re-
`mainCo;
`
`f. “Paragon” refers to Paragon Offshore, the SpinCo;
`
`g. The “Spinoff Process” refers to the period between (i) the point that
`the ParentCo’s board of directors approves the spinoff, and (ii) the
`point that the spinoff has been completed; and
`
`h. The “First Shareholders” of SpinCo are the ParentCo shareholders that
`are entitled to receive SpinCo shares upon the completion of the
`spinoff.
`
`2.
`
`Scope of opinions
`
`I have been retained by Noble Corporation plc to serve as an expert, and I
`have been asked: (a) to opine on whether ParentCos typically direct
`spinoff transactions; (b) to opine on the extent to which businesses that are
`spun off have outside counsel separate and different from that of
`ParentCos during the Spinoff Process; and (c) to opine as to whether
`
`3
`
`A16
`
`

`

`Case 17-51882-CSS Doc 319-2 Filed 06/04/20 Page 14 of 98
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`shareholder interests in ParentCos and the future SpinCos are aligned dur-
`ing the Spinoff Process.
`
`The scope of my opinions, research, and reports (if any) is explicitly lim-
`ited to matters concerning spinoff transactions. I have not been asked to
`opine on, and I have no opinion on matters beyond the scope of spinoff
`transactions, including but not limited to matters concerning bankruptcy,
`valuation, litigation, and any of the industries involved in the transactions
`discussed herein, including that of the offshore oil industry. I am being
`compensated for my work in connection with this report at a rate of $500
`per hour, and my compensation is in no way dependent on the outcome of
`this litigation.
`
`3.
`
`Sources considered
`
`In deriving the foregoing, I have drawn upon my professional expertise
`and knowledge about spinoffs and divestitures, including my academic
`publications on these transactions and the underlying datasets and cited
`research that I used to conduct my analyses and draw my conclusions in
`these articles.
`
`I also reviewed the relevant factual background regarding Old-Noble’s
`spinoff of Paragon from documents and public sources. A discussion of
`the salient points of this factual background appears in Section IV of this
`report.
`
`II.
`
`Executive Summary
`
`A.
`
`Overview
`
`On August 1, 2014, Old-Noble completed the 100% spinoff of the majority of its
`standard-specification fleet of offshore drilling rigs into a newly-created, publicly-
`traded company called Paragon, leaving New-Noble with its high-specification
`fleet of offshore drilling rigs after the completion of the spinoff.
`
`In its prerogative as Paragon’s sole shareholder, Old-Noble directed the process
`by which it spun off Paragon in several key ways.1 Old-Noble made the initial de-
`cision to divest its standard-specification fleet of offshore drilling rigs. Old-Noble
`incorporated and established the internal structure necessary to ultimately spin off
`Paragon as an independent company. Old-Noble appointed Paragon’s initial man-
`agement team and board of directors. Old-Noble aided Paragon in securing third-
`party post-spinoff financing. Old-Noble guided Paragon through the process by
`which it would become a stand-alone public company. Old-Noble entered into a
`series of agreements with Paragon that would clarify New-Noble’s and Paragon’s
`post-spinoff relationship. Old-Noble’s Board of Directors retained Houlihan
`
`1
`
`These items are not necessarily presented in chronological order.
`
`4
`
`A17
`
`

`

`Case 17-51882-CSS Doc 319-2 Filed 06/04/20 Page 15 of 98
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`Lokey to render a solvency opinion in connection with the various spinoff trans-
`actions. Finally, Old-Noble spun off Paragon as an independent company.
`
`Old-Noble hired external advisors, including Baker Botts and Travers Smith as
`legal advisors and Barclays2 as financial advisor, to render advice in connection
`with the Spinoff Process for Old-Noble, which at the time involved the business
`that would become Paragon. With the exception of Houlihan providing Old-Noble
`with a solvency opinion and Mayer Brown advising Paragon as to tax issues aris-
`ing from the spinoff, neither New-Noble nor Paragon had legal or financial repre-
`sentation that was separate and/or different from that of Old-Noble.
`
`• Old-Noble’s retention of a single complement of experts is consistent with
`current practitioner guidance that it is inappropriate to provide SpinCo
`separate legal representation before completion of the spinoff.3
`
`Throughout the Spinoff Process, there were no equity owners of pre-spinoff Para-
`gon (then still a wholly-owned subsidiary of Old-Noble); rather, the shareholders
`of Old-Noble owned a company that owned pre-spinoff Paragon. Accordingly, the
`directors that managed the Spinoff Process were the directors of Old-Noble.
`
`• Put differently, Old-Noble’s shareholders on the “ex-distribution date” and
`Paragon’s First Shareholders were identical, as were their respective inter-
`ests. Any transfer of value from the one post-spinoff company (i.e., New-
`Noble or Paragon) was concomitantly equal to the increase in value of the
`other post-spinoff company, and vice versa.
`
`B.
`
`Principal Opinions
`
`1.
`
`2.
`
`3.
`
`ParentCos typically direct the spinoff transactions that they undertake. The
`process by which Old-Noble spun off Paragon was typical of spinoffs of
`80%-to-100%-owned corporate subsidiaries.
`
`SpinCos often do not have outside counsel separate and different from that
`of their ParentCos during the Spinoff Process. The fact that Paragon did
`not have outside counsel separate and different from that of Old-Noble
`during the Spinoff Process is consistent with these practices and, therefore,
`unremarkable.
`
`Shareholder interests in ParentCos and the businesses they spin off are one
`and the same – and as such they are aligned – during the Spinoff Process
`because the equity owners of ParentCos are the First Shareholders of Spin-
`
`2
`
`3
`
`Successor to the renowned mergers and acquisition business of Lehman Brothers.
`
`https://www.wlrk.com/webdocs/wlrknew/WLRKMemos/WLRK/WLRK.25192.16.pdf at page 11.
`
`5
`
`A18
`
`

`

`Case 17-51882-CSS Doc 319-2 Filed 06/04/20 Page 16 of 98
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`Cos upon the completion of the spinoff. Put differently, shareholder inter-
`ests in Old-Noble and Paragon were aligned during the Spinoff Process
`because the equity owners of Old-Noble owned a company that owned
`Paragon until the completion of the spinoff.
`
`III. Methodology
`
`A.
`
`Review of academic research
`
`I reviewed numerous academic articles, including my own publications and ongo-
`ing research, as well as other academic and practitioner publications, about
`spinoffs, divestitures, and diversification. The references for all of these sources
`appear in footnotes throughout this report.
`
`B.
`
`Review of Old-Noble’s Spinoff of Paragon
`
`Appendix B contains a list of all of the documents and public sources I consid-
`ered.
`
`IV.
`
`Factual Background
`
`Without intending to be inclusive, following are the facts that form the basis of my opin-
`ions.
`
`A.
`
`B.
`
`C.
`
`By 2011, Old-Noble operated two businesses: the one business consisted of high
`specification (“High Spec”) rigs, which are primarily used for drilling in greater
`water depths that require greater technological capabilities, and the other business
`consisted of standard specification (“Standard Spec”) rigs, which are used in less
`complex projects.
`
`In 2011, Old-Noble’s Board of Directors decided to separate the two businesses.
`Old-Noble retained advisors and explored a potential divestiture of its Standard
`Spec business “by sales of assets to third parties, a spin-off or other distribution or
`separation of assets.”4
`
`By 2013, Old-Noble’s Board of Directors took steps to effectuate the divestiture
`of its Standard Spec business into a new company called Paragon via a two-step
`spinoff. First, as referenced in Paragon’s S-1 filing, Paragon would issue up to
`19.7% of its shares to the public in an initial public offering (“IPO”) and then dis-
`tribute the remaining shares held by Old-Noble to the shareholders of Old-Noble.5
`
`4
`
`5
`
`Noble Form 10-K (February 27, 2012), at 3, available at
`https://www.sec.gov/Archives/edgar/data/1169055/000095012312003293/c25565e10vk.htm
`
`Noble Spinco Limited, later named Paragon Holdings Ltd., Form S-1 (Dec. 20, 2013), at F-39, available at
`https://www.sec.gov/Archives/edgar/data/1594590/000119312513481086/d635036ds1.htm
`
`(cont'd)
`
`6
`
`A19
`
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`

`Case 17-51882-CSS Doc 319-2 Filed 06/04/20 Page 17 of 98
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`D.
`
`E.
`
`F.
`
`G.
`
`Second, at some later date, Old-Noble would have the flexibility to spin off its re-
`maining stake in Paragon in a tax-free transaction.6
`
`In April 2014, Old-Noble’s Board of Directors decided to forego the IPO of Para-
`gon, and instead decided to structure the transaction as a complete spinoff in
`which Old-Noble’s shareholders would receive a pro rata distribution of shares in
`Paragon.
`
`As a means of “monetizing” some of the inherent value in the Paragon that was to
`be spun off, Old-Noble caused Paragon (i) to issue approximately $1.7 billion of
`intercompany notes to Old-Noble, and (ii) later to repay those intercompany notes
`from the proceeds of approximately $1.7 billion of borrowings from a consortium
`of lenders led by Deutsche Bank. At the precise moment of the spinoff, these
`transactions increased the value of New-Noble by $1.7 billion, and concomitantly
`decreased the value of post-spinoff Paragon by that same amount.
`
`In its prerogative as Paragon’s sole shareholder, Old-Noble directed the process
`by which it spun off Paragon: making the initial decision to divest its Standard-
`Spec rigs7; incorporating and establishing within Old-Noble the entity that would
`ultimately be spun off as Paragon8; appointing Paragon’s initial management team
`and board of directors9; entering in a series of agreements with Paragon that
`would clarify its post-spinoff relationship with New-Noble10; and retaining Houli-
`han Lokey to render a solvency opinion in connection with the various spinoff
`transactions.11
`
`Old-Noble hired a team of advisors to advise it on the spinoff. They included
`Baker Botts and Travers Smith as legal advisors, Barclays as financial advisor,
`Houlihan Lokey to render a solvency opinion, and KPMG to provide tax advice.
`Throughout the Spinoff Process, the wholly-owned but soon-to-be independent
`Paragon was the beneficiary of advice rendered by common outside counsel,
`
`6
`
`7
`
`8
`
`9
`
`10
`
`Noble_00029269-70 (April 29, 2014 Talking Points for Paragon Lender Call and Potential Impact on Banks).
`
`Noble Form 10-K (February 27, 2012), at 3, available at
`https://www.sec.gov/Archives/edgar/data/1169055/000095012312003293/c25565e10vk.htm
`
`Noble Spinco Limited, later named Paragon Holdings Ltd., Form S-1 (Dec. 20, 2013), at F-39, available at
`https://www.sec.gov/Archives/edgar/data/1594590/000119312513481086/d635036ds1.htm
`
`Paragon Form 10-12B (May 23, 2014) at 115, available at
`https://www.sec.gov/Archives/edgar/data/1594590/000119312514211236/d727354d1012b.htm.
`
`Paragon Form 10-12B (May 23, 2014) at 111-114, available at
`https://www.sec.gov/Archives/edgar/data/1594590/000119312514211236/d727354d1012b.htm.
`
`11 HL-0007043 (July 11, 2014 Houlihan Lokey Solvency Opinion).
`
`(cont'd)
`
`7
`
`A20
`
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`

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`Baker Botts and Travers Smith.12 At Paragon’s request, Old-Noble consented to
`its retention of Mayer Brown to advise Paragon on tax issues for the spinoff and
`to negotiate the terms of the Tax Separation Agreement between Old-Noble and
`Paragon, which Agreement would survive the spinoff.13
`
`H.
`
`On July 11, 2014, Old-Noble’s board authorized and approved Paragon’s separa-
`tion and the pro rata distribution of its shares to Old-Noble’s shareholders.14 On
`August 1, 2014, Old-Noble made a pro rata distribution to its shareholders of all
`of Paragon’s issued and outstanding ordinary shares (all of which had been previ-
`ously owned by Old-Noble), through which all of the Old-Noble shareholders re-
`ceived their aliquot shares of all of the equity in Paragon.15
`
`V.
`
`Opinions and Analysis
`
`A.
`
`ParentCos typically direct the Spinoff Process; the process by which Old-Noble
`spun off Paragon was typical of spinoffs of wholly-owned subsidiaries. The
`Spinoff Process involves making the initial decision to spin off a business, incor-
`porating and establishing the entity that will ultimately become SpinCo, structur-
`ing the transaction, and appointing SpinCo’s top management team and board of
`directors. The idea that these tasks fall within the purview of ParentCo is con-
`firmed in renowned “deal counsel” Wachtell, Lipton, Rosen, & Katz’s
`(“Wachtell”) 2016 Spin-Off Guide, which explains that there is a “fundamental
`premise that the responsibility for the spin-off rests with the parent’s board and
`management.” 16
`
`ParentCos almost always make the initial decision to spin off a business.17 From a
`strategic perspective, some reasons why ParentCos may decide to undertake
`
`12
`
`See, e.g., Paragon Form S-1 (Dec. 20, 2013), at 121 (“We have been represented in this offering by Baker
`Botts”), available at https://www.sec.gov/Archives/ed-
`gar/data/1594590/000119312513481086/d635036ds1.htm; Paragon Form S-1/A (Mar. 7, 2014), at 141 (same),
`available at https://www.sec.gov/Archives/edgar/data/1594590/000119312514089393/d635036ds1a.htm; Para-
`gon Form CORRESP (July 2, 2014) (letter from Stilley to SEC in response to questions says that Baker Botts
`may be contacted and they are cc’ed), available at https://www.sec.gov/Archives/ed-
`gar/data/1594590/000119312514259663/filename1.htm; see also Pl. Memo. in Support of its Mot. for an Order
`Compelling Defs. to Produce Documents Improperly Withheld on Privilege Grounds, Dkt. No. 88, at 18 (“the
`facts clearly support a finding of joint [legal] representation”).
`
`13
`
`Strickler Tr. 95-99
`
`14 Noble_00258874 (Resolutions of the Board of Directors of Noble Corp. plc, July 11, 2014).
`
`15
`
`16
`
`Paragon Form 10-Q (Aug. 29, 2014), at 10, available at https://www.sec.gov/Archives/ed-
`gar/data/1594590/000119312514326877/d776671d10q.htm.
`
`https://www.wlrk.com/webdocs/wlrknew/WLRKMemos/WLRK/WLRK.25192.16.pdf at 12.
`
`17 The exception being government-ordered divestitures (e.g., antitrust).
`
`(cont'd)
`
`8
`
`A21
`
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`
`
`spinoffs include removing businesses that no longer have a clear strategic fit,18
`increasing managerial focus,19 lowering or eliminating the diversification dis-
`count,20 improving the efficiency of capital allocation,21 improving the alignment
`of managerial incentives,22 facilitating future mergers and acquisitions,23 and re-
`ducing complexity and information asymmetry in the eyes of the investment com-
`munity.24 Spinoffs often accomplish many of these objectives, which makes these
`transactions an attractive strategic option.
`
`
`18 Cusatis, P. J., Miles, J. A., & Woolridge, J. R. (1993). Restructuring through spinoffs: The stock market evi-
`dence. Journal of Financial Economics, 33(3), 293-311.
`
`Feldman, E. R. (2016). Corporate spinoffs and analysts’ coverage decisions: The implications for diversified
`firms. Strategic Management Journal, 37(7), 1196-1219.
`
`19 Comment, R., & Jarrell, G. A. (1995). Corporate focus and stock returns. Journal of Financial Economics,
`37(1), 67-87.
`
`Daley, L., Mehrotra, V., & Sivakumar, R. (1997). Corporate focus and value creation evidence from spinoffs.
`Journal of Financial Economics, 45(2), 257-281
`
`Desai, H., & Jain, P. C. (1999). Firm performance and focus: long-run stock market performance following
`spinoffs. Journal of Financial Economics, 54(1), 75-101.
`
`20 Berger, P. G., & Ofek, E. (1999). Causes and effects of corporate refocusing programs. The Review of Financial
`Studies, 12(2), 311-345.
`
`Ahn, S., & Denis, D. J. (2004). Internal capital markets and investment policy: evidence from corporate
`spinoffs. Journal of Financial Economics, 71(3), 489-516.
`
`21 Gertner, R., Powers, E., & Scharfstein, D. (2002). Learning about internal capital markets from corporate spin-
`offs. The Journal of Finance, 57(6), 2479-2506.
`
`Feldman, E. R. (2016). Corporate Spinoffs and Capital Allocation Decisions. Strategy Science, 1(4), 256-271.
`
`Bennett, V. M., & E. R. Feldman. (2017). Make Room! Make Room! A Note on Sequential Spinoffs and Ac-
`quisitions. Strategy Science, 2(2), 100-110.
`
`22 Feldman, E. R. (2016). Managerial Compensation and Corporate Spinoffs. Strategic Management Journal,
`37(10), 2011-2030.
`
`23 Bennett, V. M., & E. R. Feldman. (2017). Make Room! Make Room! A Note on Sequential Spinoffs and Ac-
`quisitions. Strategy Science, 2(2): 100-110.
`
`24 Krishnaswami, S., & Subramaniam, V. (1999). Information asymmetry, valuation, and the corporate spin-off
`decision. Journal of Financial Economics, 53(1), 73-112.
`
`Zuckerman, E. W. (2000). Focusing the corporate product: Securities analysts and de-diversification. Adminis-
`trative Science Quarterly, 45(3), 591-619.
`
`Gilson, S. C., Healy, P. M., Noe, C. F., & Palepu, K. G. (2001). Analyst specialization and conglomerate stock
`breakups. Journal of Accounting Research, 39(3), 565-582.
`
`(cont'd)
`
`9
`
`A22
`
`

`

`Case 17-51882-CSS Doc 319-2 Filed 06/04/20 Page 20 of 98
`
`The board of directors of ParentCo approves the decision to spin off a business.
`ParentCo establishes and incorporates the entity that will ultimately become
`SpinCo. This involves setting SpinCo’s corporate structure, drafting its charter
`and by-laws, selecting its jurisdiction of incorporation, and even choosing its new
`name. “Because a spin-off company is typically a wholly owned subsidiary or is
`created as a wholly owned subsidiary of the parent, its corporate structure, charter
`and by-laws can be established by the parent without holding a vote of public
`shareholders.”25 ParentCo’s board of directors has full discretion over these as-
`pects of the Spinoff Process as well.
`
`ParentCo appoints the top management team and board of directors of SpinCo.
`“Identifying, vetting and selecting directors and officers for the spun-off company
`will be another important task in the planning stages of a spin-off. In cases where
`the spun-off company shared only a few officers with its parent company before
`the separation, management selection will probably be a straightforward process.
`Officer selection becomes more complicated if there is significant overlap be-
`tween the management of the spun-off company and its former parent company,
`and will require an evaluation of the needs of each business and the hiring of new
`management.”26
`
`In addition to the point that ParentCos typically direct the Spinoff Process, it is
`important to note that it may in fact be inappropriate to allow the managers of the
`business that is being spun off to play an active role in the separation process. “In
`some cases a company may choose to allow managers of the business to be spun
`off to take a more active role in planning for the spin-off, such as where the spun-
`off business and the remaining business are of relatively equal size and have his-
`torically been managed independently. However, companies should recognize that
`these managers may begin to view themselves in a quasi-adversarial position to
`the parent, as they begin to focus on positioning the business to be spun off in the
`most advantageous manner.”27
`
`This suggests that not only do ParentCos typically direct the Spinoff Process, but
`it is also preferable for this to be the case. Permitting the involvement of the man-
`agers-to-be of SpinCo may not allow ParentCo to complete the transaction for the
`
`Feldman, E. R., Gilson, S. C., & Villalonga, B. (2014). Do analysts add value when they most can? Evidence
`from corporate spin-offs. Strategic Management Journal, 35(10), 1446-1463.
`
`25
`
`26
`
`27
`
`https://www.wlrk.com/webdocs/wlrknew/WLRKMemos/WLRK/WLRK.25192.16.pdf at page 19.
`
`https://www.sullcrom.com/files/upload/June15_InTheBoardroom.pdf at page 24.
`
`https://www.wlrk.com/webdocs/wlrknew/WLRKMemos/WLRK/WLRK.25192.16.pdf at page 11 (emphasis
`added).
`
`(cont'd)
`
`10
`
`A23
`
`

`

`Case 17-51882-CSS Doc 319-2 Filed 06/04/20 Page 21 of 98
`
`reasons it originally chose to do so, or in a manner that maximizes ParentCo’s
`best interests.28
`
`My conclusion from the foregoing discussion is that ParentCos typically direct the
`Spinoff Process, in particular the key tasks of making the initial decision to under-
`take a spinoff, identifying the assets to be spun off, incorporating and establishing
`the entity that will ultimately become SpinCo, determining the appropriate capi-
`talization of SpinCo, and appointing SpinCo’s management team and board of di-
`rectors. Old-Noble followed these steps in its spinoff of Paragon, suggesting that
`the process by which Old-Noble spun off Paragon was typical of spinoffs of
`wholly-owned subsidiaries.
`
`B.
`
`SpinCos often do not have outside counsel separate and different from that of
`ParentCos during the Spinoff Process. The fact that Paragon did not have outside
`counsel separate and different from that of Old-Noble during the Spinoff Process
`is consistent with current practitioner guidance on this point and, therefore, unre-
`markable.
`
`Given the nature of spinoff transactions, it is typical not to arrange for separate
`counsel for SpinCos. Given that ParentCos direct the Spinoff Process, it follows
`that there is no need for SpinCos to have separate counsel. Indeed, the notion of
`retaining separate counsel for SpinCos suggests that SpinCos would sit at the ne-
`gotiating table opposite of ParentCos, which is intuitively inimical to the whole
`notion of spinoff transactions – namely, that during the Spinoff Process, the inter-
`ests to be served are those of the existing shareholders of ParentCos.
`
`This point is convincingly explained in Wachtell’s Spin-Off Guide, which ex-
`plains that it is generally inappropriate for SpinCos to have separate legal counsel
`during the Spinoff Process:
`
`“In some cases, the question arises whether management of the business to
`be spun off should have separate legal representation in connection with
`negotiating the terms of the spin-off, either initially or when the process is
`closer to completion. Separate legal representation before completion of
`the spin-off generally is inappropriate as it would unnecessarily exacer-
`bate internal divisions and is inconsistent with the notion that it is the duty
`of the parent’s board to establish the terms of the separation in a manner
`that serves the best interests of the parent shareholders (who, of course,
`will also be the initial shareholders of the spin-off company). Moreover, as
`to those matters that will not affect the parent following the spin-off (such
`as the spin-off company’s compensation policies), the spin-off company
`will be able to make whatever changes it desires following the spin-off,
`
`28
`
`https://www.sullcrom.com/files/upload/June15_InTheBoardroom.pdf
`
`(cont'd)
`
`11
`
`A24
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`Case 17-51882-CSS Doc 319-2 Filed 06/04/20 Page 22 of 98
`
`lessening the need for internal negotiations over these topics in connection
`with the spin-off.”29
`
`My conclusion from the foregoing discussion is that SpinCos generally do not
`have outside counsel separate and different from that of ParentCos during the
`Spinoff Process.30 The fact that Paragon did not have outside counsel separate and
`different from that of Old-Noble during the Spinoff Process is consistent with this
`pattern.
`
`C.
`
`Shareholder interests in ParentCos and the businesses they spin off are aligned
`during the Spinoff Process because the equity owners of these entities are identi-
`cal until the completion of the spinoff. Shareholder interests in Old-Noble and
`Paragon were aligned during the Spinoff Process because the equity owners of
`Old-Noble and future Paragon were identical until the completion of the spinoff.
`
`In a 100% spinoff, SpinCo shareholders do not come into existence until the
`spinoff has been completed. Until then, and throughout the Spinoff Process, the
`shareholders of ParentCo are the future shareholders of its components, SpinCo
`and RemainCo, SpinCo being owned by ParentCo and Rema