Obviously a GP is incentivized to go with offers that keep them in the deal.
Let’s say a GP has an offer to “recap” out their current partner and remain the operator.
GP receives a much stronger offer at the 11th hour from an investor that will not keep them in the deal.
Let’s assume the offer removing them from the deal (outright sale) doesn’t “find” its way to the LP.
Would there be legal recourse or otherwise?
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Depends on local jurisdiction but I would assume so. The key person from the GP is also likely a Director of the JVCo, and it is likely their legal responsibility (can’t speak for all jurisdictions here) as a Director to act in the best interests of the shareholders of the company first, rather than their own interests. Keeping a higher priced offer secret from other shareholders so that they stay in the deal is not acting in the shareholders best interests.
In the case it is not a legal requirement, I would assume the JV docs include value maximisation as a goal of the JV? If so, I would assume there is a mechanism to void promote / remaining fees payable for this situation being a bad boy act?
Is this just a hypothetical situation or are you actually facing this OP? If real, get lawyers involved.
The operating agreement (and similar docs) between the GP and LP would be the governing documents, if they define this action as a breech (not presenting all offers, or something to that effect). If it's not explicit, as in something like GP will present qualified/reasonable offers or make a recommendation for sale/divestiture, this would be less clear.
Regardless, if the LP thinks the GP violated the terms of the relationship, they can bring suit. Whether it's worth it versus just severing ties with the GP is another thing. I.e. how much does the LP really loose in the deal vs. the deal done? Legal fees can make these suits impractical, but still happen.
In reality, the big risk to the GP is losing the faith and confidence of the LP and that becoming known to other LPs, thus harming GPs ability to raise capital.
I can’t comment on the legal recourse as I’m not a lawyer. The reality is that when something like this happens, the GP goes back to the group willing to keep them in the deal, and says “hey...the number is this. If this can get to this number, you’ll get awarded the deal.”
If the LP reaches the number, and has surety of close, the GP can than recommend the deal. If the LP doesn’t reach the number, the firm paying the highest price and**** surety of close wins the deal. Surety of close is a big issue. Many firms will not offer the highest price, but win the deal because their reputation is surety of close and minimal or no re-trading unless necessary.
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