Kirkland & Ellis Accused of Conflict in Private Equity Spat

Law firm Kirkland & Ellis has been drawn into a dispute between investors of Ascent Resources and the private equity firm that’s seeking to raise a continuation fund to prolong its hold on the natural gas producer.

Mason Capital Management questioned the law firm’s role representing the Ascent board while also advising the private equity firm, Energy & Minerals Group, in its legal fight with another Ascent investor, the Abu Dhabi Investment Council, according to a letter seen by Bloomberg.

Last month, the Mideast sovereign wealth fund sued to stop EMG from shunting Ascent into a continuation vehicle amid disagreements over the valuation of the portfolio company and the process surrounding the proposed fund.

The two sides agreed to pursue arbitration, and the continuation fund can’t close until that’s resolved.

Ascent, based in Oklahoma City, operates in Ohio’s Utica shale basin and is that state’s largest natural gas producer, according to the company’s website.

Read More: Abu Dhabi Fund Blocks $800 Million Private Equity Asset Shuffle

“Managers may not reasonably rely on conflicted advisers whose interests are aligned with a controller pursuing a challenged transaction,” Mason wrote in the letter dated Monday and addressed to Ascent’s board, which is led by Chairman and Chief Executive Officer Jeff Fisher. Five of the 12 board members are EMG executives.

Ascent and Kirkland & Ellis didn’t reply to messages seeking comment. Mason declined to comment.

Kirkland & Ellis topped the deals and private equity league tables last year, according to its website. The firm serves more than 800 private equity firms, advising on a variety of matters, including fund formation, fundraising, buyouts, take-privates, recapitalizations and deal exits.

The dispute over the sale concerns an increasingly popular, sometimes controversial asset-shuffling technique that allows managers to extend their bets on long-held companies. The strategy gained traction amid a tough environment for asset sales, though some critics have said it poses conflicts when private equity firms are on both sides of the transaction.

In the case of Ascent, the board “stifled a fair and open process” to evaluate options such as an initial public offering or strategic sale of the company, New York-based Mason said last month in a Delaware Chancery Court filing.

Special Committee

At the time, Mason asked the board to form a special committee and retain an independent financial adviser to evaluate alternatives and disclose valuation materials. But the board — through Kirkland & Ellis — refused, asserting it had no obligation to take action.

“The board taking advice as to its own conflicts, collectively and individually, from legal counsel which it knows, or reasonably should know, has a direct conflict is wrongful on its face,” Mason wrote in Monday’s letter.

Even as EMG and ADIC pursue arbitration, other Ascent investors have come forward with offers to buy the company. Mason put forth its own proposal to deliver a fully financed, all-cash approval to acquire Ascent at a “price superior to that contemplated by the EMG transactions” and to make the payment upfront rather than over multiple years, according to a separate letter viewed by Bloomberg.

Kimmeridge Energy Management had also submitted a $6 billion proposal for Ascent, according to Monday’s letter.

“Neither bidder has received any response from the board,” Mason wrote, adding that it also asked for “immediate corrective action, including withdrawal of conflicted counsel.”

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