Wednesday, July 23, 2014

Antitrust as a Question of Power, Not Competition

Steven Davidoff Solomon, a professor of law at the University of California, Berkeley, has an interesting article on antitrust in the DealBook today:  Changing Old Antitrust Thinking for a New Gilded Age. Professor Solomon argues that a new wave of mergers in the tech and telecommunications industries mirror the consolidation wave of the Gilded Age a century ago which lead to our current antitrust laws.  These mergers leave competition in tact, albeit among a few huge companies, and therefore facially meet the competition requirements under antitrust law.  He argues that "[t]his calculus, however, excludes the political and other power that a concentrated industry can wield with government and regulators."  Citing to industry-based nonprofits and the ability to participate in political spending in a post-Citizens United world, professor Solomon concludes that antitrust may become a question of power, not just competition. 

"[R]ight now there is simply no real government ability to review the industry consolidation that is occurring today in which industries become dominated by a handful of major players. Yet it is becoming increasingly apparent that size and industry concentration affect American society even if competition still exists."

I think that this is an interesting lens through which to view, and teach, current market trends in mergers and acquisitions and related questions of antitrust law.

-Anne Tucker

July 23, 2014 in Business Associations, Anne Tucker, Corporations, Current Affairs, Merger & Acquisitions | Permalink | Comments (0)

Tuesday, July 22, 2014

Berkshire 2.0

Amazon BBB Book Cover
You may think of Warren Buffett as a savvy stock picker but his greater accomplishment is in configuring an exceptionally strong corporation that defies widespread conceptions of effective corproate governance.  

Since early in his career, Buffett adopted what he calls the double-barreled approach to capital allocation, meaning both stock picking and business buying. He gained prominence primarily as an investor in stocks, championing a contrarian investment philosophy.

Attracting three generations of devoted followers to a school of thought called “value investing,” he doubted the market’s efficiency and deftly exploited it. Buffett bought stocks of good companies at a fair price, assembling a concentrated portfolio of large stakes in a small number of firms. Today, nearly three-fourths of Berkshire’s stock portfolio consists of just seven stocks.     

But late in his career, beginning around 2000, Buffett shot more often through the other half of his double-barreled approach: buying 100 percent of companies run by trusted managers given great autonomy. True, Berkshire early on bought all the stock of companies such as Buffalo News and See’s Candies. But, through the 1990s, the first barrel dominated, with Berkshire consisting 80 percent of stocks and 20 percent owned companies. That mix gradually reversed and recently flipped, making subsidiary ownership the defining characteristic of today’s Berkshire.

Owning primarily subsidiaries rather than merely stocks gives Berkshire a different shape compared to its previous character as the holding company of a famed investor. After all, even for a buy-and-hold investor, stocks come and go. Berkshire has sold the stocks of many once-fine companies, including Freddie Mac, McDonald’s, and The Walt Disney Company.

In contrast, aside from a few Berkshire subsidiaries that it acquired from the Buffett Partnership in the 1970s, Berkshire has never sold a subsidiary and vows to retain them through thick and thin.  Despite their variety, moreover, Berkshire companies are remarkably similar when it comes to corporate culture, which is the central discovery I document and elaborate in my upcoming book, Berkshire Beyond Buffett: The Enduring Value of Values.

When Berkshire consisted mostly of the stock portfolio of a famed stock picker, you could expect that, once that investor departed, the portfolio would naturally be unwound and the company dissolved. Now, however, with Berkshire made of companies not stocks, its life expectancy stretches out in multiple decades, not mere years. It certainly goes beyond the stock picker who founded it.  That's not an accident either, as the dominant cultural motif at Berkshire and its subsidiaries is a sense of permanence--the longest possible time horizon imaginable.   

Continue reading

July 22, 2014 in Business Associations, Books, Corporate Governance, Corporations, Current Affairs, Merger & Acquisitions | Permalink | Comments (2)

Wednesday, May 28, 2014

Law & Society Corporate Law Panels 2014

Tomorrow kicks off the 2014 Law & Society Annual meeting in Minneapolis, MN.  Law & Society is a big tent conference that includes legal scholars of all areas, anthropologists, sociologists, economists, and the list goes on and on.  A group of female corporate law scholars, of which I am a part, organizes several corporate-law panels. The result is that we have a mini- business law conference of our own each year.  Below is a preview of the schedule...please join us for any and all panels listed below.


Thursday 5/29

Friday 5/30

Saturday 5/31



0575 Corp Governance & Locus of Power

U. St. Thomas MSL 458

Participants: Tamara Belinfanti, Jayne Barnard, Megan Shaner, Elizabeth Noweiki, and Christina Sautter




1412 Empirical Examinations of Corporate Law

U. St. Thomas MSL 458

Participants: Elisabeth De Fontenay, Connie Wagner, Lynne Dallas, Diane Dick & Cathy Hwang




1468 Theorizing Corp. Law

U. St. Thomas MSL 458

Participants: Elizabeth Pollman, Sarah Haan, Marcia Narine, Charlotte Garden, and Christyne Vachon

1:00 Business Meeting Board Rm 3


Roundtable on SEC Authority

View Abstract 2967

Participants: Christyne Vachon, Elizabeth Pollman, Joan Heminway, Donna Nagy, Hilary Allen

1473 Emerging International Questions in Corp. Law

U. St. Thomas MSL 458

Participants:  Sarah Dadush, Melissa Durkee, Marleen O'Conner, Hilary Allen, and Kish Vinayagamoorthy

1479 Examining Market Actors

U. St. Thomas MSL 321

Participants:  Summer Kim, Anita Krug, Christina Sautter, Dana Brackman, and Anne Tucker




1474 Market Info. & Mandatory Disclosures

U. St. Thomas MSL 321

Participants: Donna Nagy, Joan Heminway, Wendy Couture, and Anne Tucker



May 28, 2014 in Anne Tucker, Corporate Governance, Financial Markets, Law School, Marcia L. Narine, Merger & Acquisitions, Securities Regulation | Permalink | Comments (0)

Thursday, May 22, 2014

Brown and Giles on Stock Purchase Agreements

Two of my former colleagues at King & Spalding LLP, Jaron Brown and Tyler Giles, sent me their recently published book, Stock Purchase Agreements Line by Line.  Jaron Brown made partner in King & Spalding’s M&A group before moving in-house to Novelis, Inc.  Tyler Giles moved in-house earlier in his career (to Equifax, Inc.) and has since moved back to law firm life as a partner at FisherBroyles LLP.

The book appears aimed at practitioners, but it could also be a valuable resource for those who teach M&A or drafting courses.  The book includes various practical pointers for drafting typical provisions in a stock purchase agreement and, as the title suggests, goes through an SPA line by line.  The authors are true experts in their subject matter, and I look forward to using the book.   

May 22, 2014 in Business Associations, Corporations, Haskell Murray, Law School, Merger & Acquisitions | Permalink | Comments (0)

What if Companies Could Pick Their Shareholders?

Earlier this week, Stanford University's Rock Center for Corporate Governance released a study entitled “How Investment Horizon and Expectations of Shareholder Base Impact Corporate Decision-Making.” Not surprisingly, the 138 North American investor relations professionals surveyed prefer long-term investors so that management can focus on strategic decisionmaking without the distraction of “short-term performance pressures that come from active traders,” according to Professor David F. Larcker. Companies believed that attracting the "ideal" shareholder base could lead to an increase in stock price and a decrease in volatility.

The average “long-term investor” held shares for 2.8 years while short-term investors had an investment horizon of 7 months or less.  Pension funds, top management and corporate directors held investments the longest, and companies indicated that they were least enamored of hedge funds and private equity investors.  Those surveyed had an average of 8% of their shares held by hedge funds and believed that 3% would be an ideal percentage due to the short-termism of these investors. Every investor relations professional surveyed who had private equity investment wanted to see the ownership level down to zero.

I wonder what AstraZeneca’s investor relations team would have said if they could have participated in the survey given the various reactions by its shareholders to Pfizer’s proposed takeover. (See here and here to read about the divisions within the shareholder ranks). What would AstraZeneca’s “ideal” shareholder base look like? BlackRock, which owns 8%, is the company’s largest shareholder. Will it sway AstraZeneca’s board to reconsider its rejection of Pfizer's bid and should it? Pfizer’s purported behind the scenes attempts to get shareholders to express their anger at AstraZeneca’s board may not be working, but this may be a prime example of why companies wish they could pick their shareholders.

As one of the study’s authors Professor Anne Beyer aptly concluded, “companies see very large, tangible benefits to managing their shareholder base, so there seems to be a real opportunity for some companies to improve corporate decisions and increase their value by paying close attention to who holds their shares.” 




May 22, 2014 in Business Associations, Corporate Governance, Corporations, Current Affairs, Marcia L. Narine, Merger & Acquisitions | Permalink | Comments (2)

Tuesday, May 6, 2014

The (Energy) Business of National Security

The New York Times Dealbook Blog reports that France is opposing GE's attempt to acquire a large portion of Alstom:

“While it is natural that G.E. would be interested in Alstom’s energy business,” France’s economy minister, Arnaud Montebourg, said in a letter to Jeffrey R. Immelt, the G.E. chairman and chief executive, “the government would like to examine with you the means of achieving a balanced partnership, rejecting a pure and simple acquisition, which would lead to Alstom’s disappearing and being broken up.”

The government’s legal means for stopping a deal would appear to be limited, though it could refuse to approve such an investment on national security grounds. The government does not hold Alstom shares, but the company is considered important enough to have received a 2.2 billion euro bailout in 2005. And Mr. Montebourg noted in the letter on Monday that the government was Alstom’s most important customer.

Alstom’s energy units, which make turbines for nuclear, coal and gas power plants, as well as the grid infrastructure to deliver electricity, contribute about three-quarters of the company’s 20 billion euros, or about $30 billion, in annual sales.

Alstom is France's largest industrial entity, and the government says the deal, as the Times put it, "should be reconfigured on a more equitable footing."  France is concerned about "maintain[ing] its technological sovereignty.”  

That's fine, I suppose, but it seems to me this kind of forced restructuring is more likely to result in a weaker Alstom long term, even if it extends the life of the entity as it now appears.  There may be times when foreign ownership of an entity is a real threat to national security, but this appears more likely to be national pride, than national security because the security concerns can be addressed in other ways.  Sometimes foreign ownership is better the alternative, even if it makes a major, traditional company a more international conglomerate.  Right, Chrysler?  

May 6, 2014 in Business Associations, Corporations, Joshua P. Fershee, Merger & Acquisitions | Permalink | Comments (1)

Thursday, April 10, 2014

JURIFY: Transactional Resources Pt. 2 (Hybrid Sources)

Earlier this spring, I posted about transactional resources  (the current source list is available here: Download Transactional Law Resources).

Continuing with the theme, I want to highlight a new hybrid resource, JURIFY, which is a mostly-free, online transactional law resource. 

“Jurify provides instant access to high-credibility, high-relevance legal content, including forms and precedent in Microsoft Word® format written by the world’s best lawyers, white papers and webinars from top-tier law firms, articles in prestigious law journals, reliable blog posts and current versions of statutory, regulatory and case law, all organized by legal issue.”

Here are the stats:  Jurify, launched in 2012, covers 5 broad transactional areas:  General Corporate, Governance, Mergers & Acquisitions, Securities and Startup Companies.  The 11,000+ sources that the website currently contains have been verified by transactional attorneys and generated from free on-line platforms or submitted by private attorneys who are voluntarily sharing their work.  Documents are organized according to 586 tags.  Three transactional attorneys started this website (husband/wife duo and their former law-firm colleague); none take compensation from editors, publishers or law firms. 

Jurify is a unique transactional law resource for the following reasons: 

  • FREE (mostly). Website contents including primary law, secondary sources and template agreements and forms.  All content is searchable; most is free; some templates/forms, available in Microsoft word version, require either a fee or a paid membership. In the future, Jurify founders hope to generate revenue by providing performance metrics and career services components. 
  • Emphasis on Primary Sources—collecting the most current and complete versions of governing statutes, and here is the important part—putting relevant sources together.  Want to find out registration obligations?  A search on Jurify will pull from several different sources to give you a comprehensive look at the governing law.
  • Organization.  The website resources are organized in a consumer-friendly, vertically integrated platform (like the searching functions on YouTube).  If you search for one term of art, (the example used was break-up fees), the search results pull all related terms of art (i.e., termination fees, reverse break-up fees, etc.).  The data base has been encoded with 1600 corporate law synonyms in the platform to facilitate more robust natural language searches.
  • Multiple search modes (i.e., accessible for the novice).  Non-experts can search for information using tags and drop down boxes to sort information by source type (news articles, videos, journals, statutes and regs, etc.).   The site also includes a glossary of terms, and those terms serve as searchable categories that have documents associated with them. 
  • Narrowing the field.  You don’t need every document- you just need the right document.  Researchers can narrow search results through subcategories, which include definitions on all of the subcategories to assist the non-expert (i.e., students, generalist attorneys like some in-house teams). Within general categories, researchers can also conduct granular searches within a topic and can narrow by specific fields (i.e., M&A).
  • Sorting the results.  Search results are displayed in order of relevance.  Relevance, in Jurify, is determined by the tags assigned by Jurify attorneys reviewing and labeling each document in the database.  While a document may have 15 tags, 2 or 3 tags will be the primary tag, and the document will be flagged as “noteworthy” for that particular topic.  The idea is that you review the most relevant documents first not just any document that contains any reference to your search fields.
  • Networking Component.  Some of the documents are voluntarily provided by practicing attorneys and their names remain associated with the document(s). If an attorney wants to establish herself as an expert in an area, she may do so in part, by contributing high-quality documents on that topic.  Top contributors are highlighted on the website, using in part, a Credibility Score. In the future, a ranking/review feature will be added so that users can provide feedback on the quality/relevance of a document as well.

Erik Lopez, co-founder of Jurify, contacted the BLPB editors earlier this spring.  As a result, I test drove the site with Erik a few weeks ago, which formed the basis of my comments above.  Thanks Erik!  (Note: Neither BLPB nor I, individually, received any compensation as a result of this post. I am passing it along because I genuinely am intrigued by the platform, business model, and potential for the website to be a valuable transactional resource.)

If anyone currently uses Jurify, or test drives the site after reading this post, please share your experience in the comments.

-Anne Tucker

April 10, 2014 in Business Associations, Anne Tucker, Corporations, Law School, LLCs, Merger & Acquisitions, Securities Regulation, Teaching, Web/Tech | Permalink | Comments (0)

Sunday, April 6, 2014

Cooke on “10 Surprises for a US Bidder on a UK Takeover.”

Over at the Harvard LSFOCGAFR, Stephen Cooke, partner and head of the Mergers and Acquisitions practice at Slaughter and May, has posted a fascinating review of “10 Surprises for a US Bidder on a UK Takeover.”  It’s a bit long for a blog post (16 printed pages on my end), but well worth the time if you have any interest at all in the subject matter.  What follows is a very brief excerpt, which is really just a teaser in light of the excellent depth of treatment the post provides.  Given my latest project, "Corporate Social Responsibility & Concession Theory," I find # 7 to be of particular interest.

Takeovers in the UK are in broad terms decided by the Target’s shareholders, with the Target Board rarely having decisive influence …. Unlike in the US, the Target Board is not the gatekeeper for offers. A Bidder may take its offer direct to shareholders and the Board has no power to block or delay an offer …. The Takeover Code (the “Code”) reflects this environment and, although changes were made post-Cadbury to reflect the interests of non-shareholder stakeholders, it remains a body of rules embodying the pre-eminence of shareholders….

1…. [I]n the UK: a potential Bidder may be publicly “outed” before it is ready to announce its offer; once outed, a potential Bidder is required to either announce a firm offer or withdraw (“put up or shut up”) within a specified period; and once a firm offer is made, there is a time limit within which the offer must succeed or fail….

2…. In the UK … you cannot combine … transaction structures and must either obtain 90% acceptances or proceed by way of the UK nearest equivalent to a merger…. There is no concept of statutory merger in the UK…. Therefore, any acquisition of a UK public company takes place through the acquisition of shares in the Target by the Bidder. This is effected either by a tender offer (referred to in the UK simply as “an offer”) or by the nearest UK analogue of a US-style merger, a “scheme of arrangement”.

3…. [I]n the UK … rules on equality of information require that any information or access to management provided by a Target to one Bidder or potential Bidder is made available on request to any other Bidder or bona fide potential Bidder, whether or not welcome….

4…. In … 2011, the Panel introduced a general prohibition on break fees (along with various other deal protection measures) in UK takeovers as part of its response to the demands from some quarters (following the Kraft/Cadbury takeover) that the balance of negotiation power be shifted away from Bidders and in favour of Targets….

6…. In the UK … financing conditions [are] prohibited (except in very limited circumstances) ….

7…. In the UK … a Bidder is required to disclose its intentions as regards the future of the Target’s business and the impact its bid may have on the Target’s employees in its offer document. In addition, the Bidder must make equivalent disclosures in respect of its own future business, employees and places of business where these are affected by the offer…. [T]he Panel has signalled a tougher approach to enforcement in this area and has stated that it expects to investigate complaints from any interested person, which would include trade unions, employee representatives and political representatives. It is also worth noting that breaches of this section of the Code can attract criminal liability as well as the more usual range of Panel disciplinary measures….

April 6, 2014 in Corporate Governance, Merger & Acquisitions, Stefan J. Padfield | Permalink | Comments (0)

Sunday, March 16, 2014

Texas Tech to host conference on "the most important current development in corporate litigation."

The "Conference on Multi-Jurisdictional Deal Litigation" will be held April 25, 2014.  Here is a brief introduction:

M&A litigation is increasingly filed in both the target’s state of incorporation and its headquarters state. It is the most important current development in corporate litigation. The leading plaintiffs’ and defendants’ deal litigators from Delaware and from Texas will discuss every aspect of this issue at our day-long conference. Chief Justice Strine of the Delaware Supreme Court and Justice Brown of the Texas Supreme Court will be panelists.

March 16, 2014 in Conferences, Corporations, Current Affairs, Merger & Acquisitions, Stefan J. Padfield | Permalink | Comments (0)

Monday, March 10, 2014

In re Rural Metro Corp: Investment Bankers' Liability for Aiding and Abetting Breaches of Fiduciary Duty

On Friday (March 7, 2014), the Delaware Court Chancery issued Vice Chancellor Laster's 91-page post-trial opinionin In re Rural Metro Corp. S’holders Litig

The decision holds the investment bank defendant, RMC Capital Markets LLC, liable for aiding and abetting breaches of fiduciary duty by the directors.  I have not finished the entire opinion yet, but interested readers can access the full opinion here.

The opinion is sure to be one of the most carefully read Chancery opinions of the year - especially by those in the M&A area - and has already generated a fair bit of commentary.  For now, I will outsource to the following:

March 10, 2014 in Business Associations, Corporations, Delaware, Haskell Murray, Merger & Acquisitions | Permalink | Comments (0)

Thursday, March 6, 2014

If It's Good Enough For Justice Kennedy....

Some law professors may remember when Justices Roberts and Kennedy opined on the value legal scholarship. Justice Roberts indicated in an interview that law professors spend too much time writing long law review articles about “obscure” topics.  Justice Kennedy discussed the value he derives from reading blog posts by professors who write about certs granted and opinions issued. I have no doubt that most law students don’t look at law review articles unless they absolutely have to and I know that when I was a practicing lawyer both as outside counsel and as in house counsel, I almost never relied upon them. If I was dealing with a cutting-edge issue, I looked to bar journals, blog posts and case law unless I had to review legislative history.

As a new academic, I enjoy reading law review articles regularly and I read blog posts all the time. I know that outside counsel  read blogs too, in part because now they’re also blogging and because sometimes counsel will email me to ask about a blog post. I encourage my students to follow bloggers and to learn the skill because one day they may need to blog for their own firms or for their employers.

Blogging provides a number of benefits for me. First, I can get ideas out in minutes rather than months via the student-edited law review process. This allows me to get feedback on works/ideas in progress. Second, it forces me to read other people’s scholarship or musings on topics that are outside of my research areas. Third, reading blogs often provides me with current and sophisticated material for my business associations and civil procedure courses. At times I assign posts from bloggers that are debating a hot topic (Hobby Lobby for example). When we discuss the Basic v. Levinson case I can look to the many blog posts discussing the Halliburton case to provide current perspective. 

But as I quickly learned, not everyone in the academy is a fan of blogging. Most schools do not count it as scholarship, although some consider it service. Anyone who considers blogging should understand her school’s culture. For me the benefits outweigh the detriment. Like Justice Kennedy, I’m a fan of professors who blog.  In no particular order, here are the mostly non-law firm blogs I check somewhat regularly (apologies in advance if I left some out):  (thanks again for giving me first opportunity to blog a few months into my academic career!) (currently on a short hiatus)

I would welcome any suggestions of must-reads.














March 6, 2014 in Business Associations, Corporate Governance, Corporations, Current Affairs, Entrepreneurship, Marcia L. Narine, Merger & Acquisitions, Securities Regulation, Social Enterprise, Teaching, Unincorporated Entities, Weblogs | Permalink | Comments (2)

Monday, March 3, 2014

Book Review: Harriman vs. Hill

What happens if short sellers of stock are unable to cover because no one has any shares to sell? That’s one of the many interesting issues in the new book, Harriman vs. Hill: Wall Street’s Great Railroad War, by Larry Haeg (University of Minnesota Press 2013). Haeg details the fight between Edward Henry Harriman, supported by Jacob Schiff of the Kuhn, Loeb firm, and James J. Hill, supported by J.P. Morgan (no biographical detail needed), for control of the Northern Pacific railroad. Harriman controlled the Union Pacific railroad and Hill controlled the Great Northern and Northern Pacific railroads. When Hill and Harriman both became interested in the Burlington Northern system and Burlington Northern refused to deal with Harriman, Harriman raised the stakes a level by pursuing control of Hill’s own Northern Pacific.

I’m embarrassed to admit that I wasn’t aware of either the Northern Pacific affair or the stock market panic it caused. I had heard of the Northern Securities antitrust case that grew out of the affair; I undoubtedly encountered it in my antitrust class in law school. (Everything the late, great antitrust scholar Phil Areeda said in that class is still burned into my brain.)

I’m happy I stumbled across this book, and I think you would enjoy it as well. Harriman vs. Hill has everything needed to interest a Business Law Prof reader: short selling; insider trading; securities fraud; a stock market panic; a hostile takeover; a historical antitrust case; and, of course, J. P. Morgan. This was a hostile takeover before hostile takeovers were cool (and before tender offers even existed, so the fight was pursued solely through market and off-market purchases).

The book does have a couple of shortcomings. One is a polemic at the end of the book against the antitrust prosecution. The antitrust case was clearly a political play by Theodore Roosevelt, and Haeg may be right that the railroads’ actions were economically defensible, but his discussion is a little too one-sided for my taste. Haeg also has a tendency to put thoughts into the characters’ minds (Hill might have been thinking . . .), but he only uses the device to add factual background, so it isn’t terribly offensive. Finally, Haeg occasionally gets the legal terminology wrong. For example, he refers to the railroad holding company “that the U.S. Supreme Court narrowly declared unconstitutional,” when what he means is that the court upheld the law outlawing the holding company. He only makes legal misstatements like that a couple of times, but those errors are very grating on a lawyer reading the book.

Still, in spite of those minor flaws, this is a very good book and I highly recommend it.

March 3, 2014 in Business Associations, Books, C. Steven Bradford, Corporate Governance, Corporations, Financial Markets, Merger & Acquisitions, Securities Regulation | Permalink | Comments (0)

Wednesday, February 5, 2014

Transactional Law Resources pt. 1

If you practiced as a transactional attorney before law teaching, chances are that you looked at form agreements provided in treatises, saved on your law firm database, handed to you by partners from past deals, or saved in your own template archives.  This is no different from what litigators do either—they look for model existing memos, complaints, document requests, etc. that guide the first draft and let you start somewhere past “zero”.  The rapidly changing legal environment and unique needs of each client in each deal limits the shelf life of form agreements and saddles them with all sort of potential downsides if they aren’t used thoughtfully, verified by research, or tailored to the specific deal.  This disclaimer aside, I am curious about how we teach students about the role of exemplars, and as a starting point, where to find exemplars.  Students and junior attorneys, if not given the right tools to find the best models, will use bad model forms.  If you don’t believe me, see what you get when you search for “standard asset purchase agreement”. 

This raises the question of where should students, attorneys, law professors wanting to incorporate experiential learning exercise modules into their courses look for these resources. 

 This post will be the first in a series that will highlight these resources.  If you have suggestions for a source, please leave a comment or email me at  I will compile a list of sources and link a word document in the final post.  If there is interest, I will be happy to update the list over time.  For now, the first installment of free, publically available resources.  Paid sources will be next.

-Anne Tucker

February 5, 2014 in Business Associations, Anne Tucker, Merger & Acquisitions, Partnership, Teaching | Permalink | Comments (4)

Tuesday, January 14, 2014

People Are People, Too: The Dish on DISH Network, Part I

In December, the Deal Professor, Steven Davidoff, wrote a great piece about the grey areas triggered by DISH Network Chairman Charles Ergen's debt purchase from LightSquared (a failing satellite-based broadband comany).  This case has several twists and turns, and I plan to write a few posts on some of these areas.  Today, we'll start with debt purchase. 

As Davidoff explains, Lightsquared's debt could not (per the debt documents) be purchased by “direct competitor” (e.g., Dish Network), so Ergen used a personal investment vehicle to buy the debt.  This, the Deal Professor notes, appears acceptable under the debt documents (even if it's not what was intended):

In a court filing, LightSquared contends that Mr. Ergen breached the debt agreement because the documents define a “direct competitor” to also be a subsidiary of a direct competitor. LightSquared is arguing that because Mr. Ergen controls both Dish and the hedge fund that bought the debt, the fund is a subsidiary of Dish.

Yet that argument stretches the plain meaning of a “subsidiary” — a company owned or controlled by a holding company — language that is not in the document. So LightSquared’s claims against Mr. Ergen are tenuous at best.

The acquisition itself seemed to link DISH and Lighsquared, even if that was not technically the case. Although the major outlets seemed to understand the structure of the purchase (see, e.g., here), some early takes from the blogosphere were less precise, such as this headline: Dish Snaps Up Some LightSquared Debt, which links to articles characterizing the purchase correctly. In fact, Lightsquared has its own issues with the purchase. According to a Lightsquared Special Committee Report of November 15, 2013 (pdf here):

45. Although “Lenders” have the right to assign their rights under the Credit 
Agreement to third parties, the Credit Agreement contains strict transfer restrictions regarding those assignments. Specifically, section 10.04(b) of the Credit Agreement provides that a Lender can only “assign to one or more Eligible Assignees all or a portion of its rights and obligations under this Agreement.” The Credit Agreement proscribes that “Eligible Assignee” “shall not  include Borrower or any of its Affiliates or Subsidiaries, any natural person or any Disqualified Company.” (Credit Agreement, § 1.01.) A “Disqualified Company” is “any operating company that is a direct competitor of the Borrower,” as well as “any known subsidiary thereof.” (Id.) . . . .

49. The parties intended for the transfer restrictions to be as broad as possible, 
yet specific about which entities the Credit Agreement forbade from holding the LP Debt. Thus, the Credit Agreement includes a list of “Disqualified Companies.” As of October 10, 2010, EchoStar was on the “Disqualified Company” list. On May 9, 2012, LightSquared added DISH and several other entities. Therefore, DISH, EchoStar, and all entities they control directly or indirectly in any way cannot be “Eligible Assignees.”

The report further states that DISH and EchoStar personnel were used "to handle all trades . . .  at Mr. Ergen’s behest."

Still, Ergen is not DISH or EchoStar, nor is he an entity.  It seems to me that clauses such as this may need to consider including directors, management, and/or large shareholders of the entities they seek to disqualify if that really is the goal.  Now, using DISH and Echostar to further personal investing may be a problem, and in fact, some DISH shareholder have taken issue with how things have transpired (Shareholders Sue Dish, Charlie Ergen Over $2.2 Billion Spectrum Bid).  That, however, has to do with Ergen and his role with DISH, and not Lightsquared.  

Expanding the limitations on credit agreements like Lightsquared's to include directors, executives, and other shareholders could be argued as excessive.  It may be.  It certainly would further limit the pool of potential acquirers, but that's okay, if that's the desire.  Credit agreements are contracts, and the parties are free to limit their scope of dealing in this way, as well if they so choose.  In fact, we see this kind of language in contests all the time: "Employees and agents of [Entity], its respective affiliates and subsidiaries and members of their immediate families and households are not eligible."  This kind of language could be adopted (and even expanded) for use in credit agreements.  

If that is what a company wants, though, they need to specifically do so to carry out their intent. Maybe this issue is that, with  the complaints about corporations being people, perhaps that some have forgotten that people are people, too, something I have known since at least 1984.  

January 14, 2014 in Business Associations, Corporations, Current Affairs, Joshua P. Fershee, Merger & Acquisitions | Permalink | Comments (0)

Friday, December 13, 2013

Call for Papers: National Business Law Scholars Conference

The National Business Law Scholars Conference (NBLSC) will be held on Thursday, June 19th and Friday, June 20th at Loyola Law School, Los Angeles. This is the fifth annual meeting of the NBLSC, a conference which annually draws together dozens of legal scholars from across the United States and around the world. We welcome all scholarly submissions relating to business law. Presentations should focus on research appropriate for publication in academic journals, especially law reviews, and should make a contribution to the existing scholarly literature. We will attempt to provide the opportunity for everyone to actively participate. Junior scholars and those considering entering the legal academy are especially encouraged to participate.

To submit a presentation, email Professor Eric C. Chaffee at with an abstract or paper by April 4, 2014. Please title the email “NBLSC Submission – {Name}”. If you would like to attend, but not present, email Professor Chaffee with an email entitled “NBLSC Attendance.” Please specify in your email whether you are willing to serve as a commentator or moderator. A conference schedule will be circulated in late May.  More information is available here:,81539,en.html


Conference Organizers

Barbara Black (The University of Cincinnati College of Law)
Eric C. Chaffee (The University of Toledo College of Law)
Steven M. Davidoff (The Ohio State University Moritz College of Law)
Kristin N. Johnson (Seton Hall University School of Law)
Elizabeth Pollman (Loyola Law School, Los Angeles)
Margaret V. Sachs (University of Georgia Law)


December 13, 2013 in Business Associations, Anne Tucker, Corporate Governance, Corporations, Financial Markets, Merger & Acquisitions, Securities Regulation, Unincorporated Entities | Permalink | Comments (0)

Monday, December 9, 2013

"Material Adverse Change" Clauses

Thanks to Professor Brian Quinn (Boston College) for passing along the video posted below on "Material Adverse Change" in the M&A Context (Part 1) from law firm Weil Gotshal.  Weil Gotshal has posted a number of similar clips, which I have found useful in the past. 


This past Sunday, Robert B. Schumer (Paul Weiss) authored a related post over at the Harvard Law School Forum on Corporate Governance and Financial Regulation.  His post is entitled "Delaware Court: Missed Sales Forecasts Could be 'Material Adverse Effect"' and opens with the following paragraph:

In Osram Sylvania Inc. v. Townsend Ventures, LLC, the Delaware Court of Chancery (VC Parsons) declined to dismiss claims by Osram Sylvania Inc. that, in connection with OSI’s purchase of stock of Encelium Holdings, Inc. from the company’s other stockholders (the “Sellers”), Encelium’s failure to meet sales forecasts and manipulation of financial results by the Sellers amounted to a material adverse effect (“MAE”). The decision was issued in the context of post-closing indemnity claims asserted by OSI against the Sellers and not a disputed closing condition.

Few, if any, Delaware cases have found a triggering of a MAC/MAE clause, but such cases obviously depend on the wording of the agreement and the relevant facts.  Read the entire post here

December 9, 2013 in Haskell Murray, Merger & Acquisitions | Permalink | Comments (0)

Sunday, December 1, 2013

BLPB Links 12/1/13

The increase in institutional ownership of corporate stock has led to questions about the role of financial intermediaries in the corporate governance process. This post focuses on the issues associated with the so-called “separation of ownership from ownership,” arising from the growth of three types of institutional investors, pensions, mutual funds, and hedge funds.

Originally, the anti-takeover law passed its court challenges because the judges accepted faulty data that showed investors could acquire at least 85 percent of the target corporation and satisfy the Williams Act, Subramanian said. But none of the cases used to support the anti-takeover law actually allowed hostile suitors to acquire a controlling 85 percent of a target company, he said, and plaintiffs using research from new studies would be able to convince a judge that the statute is unconstitutionally restrictive.

For me, the financial crisis was an eye-opening moment. I’ve long believed in free market economics and believed that the Church would do a lot of good in the world if it embraced it. And I still believe those things. But what the financial crisis has laid bare is that the most conventional version of free market economics was actually dead wrong.

In many respects, the relentless drive to adopt corporate governance mandates seems to have reached a plateau: essentially all of the prescribed “best practices”—including say-on-pay, the dismantling of takeover defenses, majority voting in the election of directors and the declassification of board structures—have been codified in rules and regulations or voluntarily adopted by a majority of S&P 500 companies…. In other respects, however, the corporate governance landscape continues to evolve in meaningful ways.

December 1, 2013 in Business Associations, Constitutional Law, Corporate Governance, Corporations, Financial Markets, Merger & Acquisitions, Religion, Stefan J. Padfield | Permalink | Comments (0)

Sunday, October 6, 2013

Restrepo on Whether Different Standards of Judicial Review Affect the Gains of Minority Shareholders in Freeze-Out Transactions

Fernan Restrepo has posted “Do Different Standards of Judicial Review Affect the Gains of Minority Shareholders in Freeze-Out Transactions? A Re-Examination of Siliconix” on SSRN.  Here is the abstract:

Freeze-out transactions have been subject to different standards of judicial review in Delaware since 2001, when the chancery court, in In re Siliconix Inc. Shareholders Litigation, held that, unlike merger freeze-outs, tender offer freeze-outs were not subject to “entire fairness review”. This dichotomy, in turn, gave rise to a tension in the literature regarding the potential impact of Siliconix, as well as the treatment that freeze-outs should receive. While some defended the regime established by Siliconix, others argued for doctrinal convergence through a universal application of entire fairness, and still others proposed alternative variations of convergence based on how the negotiation process is conducted. The Delaware Chancery Court itself, in fact, subsequently made a partial step toward convergence by narrowing the scope of its precedent, as reflected in In re CNX Gas Corporation Shareholders Litigation. The empirical evidence on the effect of Siliconix (and, therefore, on the practical relevance of different standards of judicial review), however, is limited. In particular, in “Post-Siliconix freeze-outs: Theory and Evidence,” Guhan Subramanian found that minority shareholders obtain lower cumulative abnormal returns (CARs) in tender offer freeze-outs relative to merger freeze-outs, and, based on this finding, Subramanian advocates for doctrinal convergence. That article, however, does not formally examine whether Siliconix generated a structural change in relative CARs in both transactional forms and, therefore, whether the differences in outcomes are actually attributable to the disparity in standards of judicial review. The purpose of this work is, therefore, to fill this gap in the literature. To this end, this work uses a difference-in-differences approach, which compares changes over time (before and after Siliconix) between CARs in tender offers (the treatment group) and CARs in statutory mergers (the control group). As further discussed in the text, the results seem to suggest, in line with Subramanian’s intuition, that Siliconix actually had at least some negative effect on CARs in tender offers, since the estimator of difference-in-differences is consistently negative and generally significant. Based on the results, this work discusses specific policy implications, particularly in terms of regulatory convergence.

October 6, 2013 in Corporate Governance, Merger & Acquisitions, Stefan J. Padfield | Permalink | Comments (0)

Sunday, February 6, 2011

Hate Insider Trading Restrictions? Take a Close Look at Poison Pills, Too

Chancellor Chandler issued his ruling yesterday upholding the poison pill Airgas, Inc.'s board of directors adopted in response to Air Products and Chemicals, Inc.'s $5.8 billion hostile takeover ($70/share, all cash). Chancellor Chandler determined that the Airgas board of directors "acted in good faith and in the honest belief that the Air Products offer, at $70 per share, is inadequate.”  (PDF of the case here, thanks to Francis G.X. Pileggi.)

One reason this decision bugs me is that I suspect a good number of people who don't like insider trading restrictions would be supportive of this decision.  To me, it's the same question:  What does the shareholder want for his or her shares?  Period.  

For some who don't like insider trading restrictions, they argue that, at least in non-face-to-face insider trading transactions, the sharedholder did not suffer harm. (See, e.g.Henry Manne.) Sharedholders were offered a price they deemed acceptable, and sold.  Who cares who was on the other side of the transaction?  I find parts of this rationale compelling, although I also find the property rights concerns related to insider trading even more compelling. (See, e.g.Professor Bainbridge.)

For me, the anti-insider-trading rationale holds true in this case, too.  If shareholders would accept the price, and there is no concern about the value of the payment (and there can't be in an all-cash offer), the board should make their case and get out of the way. 

The board is supposed to facilitate profit maximizing for shareholders. This can take many forms, and the process is subject to legitimate board decisions to balance short- and long-term prospects. Thus, there should be a lot of latitude for the board to exercise their authority, expertise, and judgment.  

That said, I can't see a good justification for not presenting an all-cash offer to shareholders once (as was the case here) ample time has been given to entice other potential bidders into the game. That's one decision that should always be the sharedholder's call.  

February 6, 2011 in Corporate Governance, Corporations, Joshua P. Fershee, Merger & Acquisitions, Securities Regulation | Permalink | Comments (0) | TrackBack (0)