Business Law Prof Blog

Canada Gets it Right, Darn

The Canadian Supreme Court, without a written opinion, ruled unanimously in favor of Bell Canada and its buyout group, overruling a lower court that had ruled in favor of bondholders and held up the buyout.  Now the buyers, who are suffering buyer's remorse, have to decided whether to go through with the buyout.  In so doing, the Court upheld the shareholder primacy theory of Anglo-American law for Canada, against the wishes of academics and other members of the left who are pushing a "constituency theory" of board duty.  By deciding sensibly, the Canadians will be more competitive with us than otherwise, darn.

Courts and Mergers, Closed or Not

If one company wants to acquire another or the companies want to merge, the parties must now expect a court hearing and a certification from a judge is required to close.  Now if one party wants to call off a merger, it must seek a court hearing and ask permission.  Hexion wants to call off an acquisition of Huntsman so it filed with the Delaware Chancery Court to ask permission to do so.  Our Courts have become a de facto certification agent for all acquisitions. Those who like courts and distrust corporate executives will cheer; those who wonder about the competency of judges will not.

Buffett for the Insurgents

On Wednesday, Belgian newspaper De Standard reported that Warren Buffett supports InBev in its cash offer for Anheuser-Busch.  Buffett's company, Berkshire Hathaway, has a 35 million share stake in the beer conglomerate, worth approximately 5% of the company. 
The endorsement comes as a bit of a slap in the face for Anheuser CEO August Busch IV and the Missouri politicians.smen.
Shareholders are displeased with the company's performance under Busch IV's leadership and seem happy to have company operated with competent Belgians at the helm.
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Anheuser-Busch on the Block: What a Difference Fifteen Years Makes

The potential sale of Anheuser Busch to a Belgian company, InBev, has produced the normal local efforts to block the sale from the Missouri governor, the St. Louis mayor, and St. Louis employees.  What is different is the heavy push back in the national financial press supporting the bid.  Anheuser Busch management, top heavy with Busch family members, has been average at best and the family only owns 5 percent of the stock.  The company's staggered board is fully eliminated by the 2009 elections and it has no poison pill in place.  Warren Buffet is a major shareholder, one who trumpets investing in management and often supports incumbents in hostile bids for privileged preferred stock positions.  The bid is thus a litmus paper test of several things:  1) takeover popularity 2) last minute takeover defenses  and 3) the prominence of share price.

Another Hatchet Job By Morgenson

In today's business section of the New York Times, Gretchen Morgenson writes, under her op-ed title "Fair Game", of the buyout by a private equity firm, TPG, of the otherwise failing savings and loan bank Washington Mutual.  It is total hatchet job.  TPG is pumping cash into the bank in exchange for a potential controlling interest (if it exercises all the warrants in the deal) and a board seat.  In the latest quarter the bank lost $1.1 billion and sits on a $10 billion in non-performing mortgage loans, which may increase when interest rate resets hit in less than two weeks.  One wonders what TPG sees in the bank.  It bought the common stock in the package for $8.75 and it is trading today at $6.66.  The strike price on the purchase warrants is $10.65, now well out of the money. Morgenson has found disgruntled shareholders who do not like the "extreme dilution" and feel "forced" to vote for the deal (under NYSE rules).  She also, in typical fashion, chronicles the salary of the CEO.  It took no bonus last year and was paid $1 million in cash, but the year before he took a bonus of $4 million.(and the firm "declined to comment.") Perhaps the board should have negotiated a better deal or perhaps it should have done a "rights offering" that "forced" existing shareholders to exercise in the money options or suffer dilution.

Here is the better story. Washington Mutual is in jeopardy of bankrupt, in which the shareholders get nothing.  They do not have any bargaining power when seeking a cash infusion, which is needed now, not later.  They took the best deal they could get.  A rights offering takes longer and has historically been a declaration of defeat that hammers stock price.  Shareholders should be disappointed and they are not blameless -- they invested in the company and voted in favor of its leaders.  The vote is "forced" because it is a good deal. 

Morgenson mentions "penalties" if the vote fails and suggests the vote is coerced.  Her own analysis makes no sense.  The penalties mentioned are stock dividends to TPG (on the preferred in the package I assume) and a reduction in price in the warrants.  Put if the deal fails a vote TPG cannot get the stock and warrants it intends to purchase -- so how does this penalty work?  I assume the dividend and warrant package is scaled back to less than a 20 percent voting interest, but Morgenson does not say.   

A true hatchet job.    

Microsoft Drives Yahoo into Arms of Google

Microsoft's attempt to buy Yahoo drove Yahoo into an agreement with Google to share ad revenue.  Google is, in essence, a white knight, a party that cuts a deal with a target of a hostile bid to foil the bidder.  White knights do very, very well -- they pick up valuable at a discount.  Warren Buffet's success in the 80s is strong testimony to this.  The losers?  The bidder and the target.

This Bud's for Belgium

American beer giant Anheuser-Busch confirmed Wednesday that it had received a cash offer from Belgium-based InBev for $65 per share.  The buyout sum totals $46B USD, but only 30B euro. The governor of Missouri is in a panic, trying to block the offer.

Employees in Employee Buyout Get Fired

Tribune Co. Chairman, Sam Zell, disclosed Thursday he plans to cut the staffing size of newspapers across the board.  Tribune Co. intends to downsize and sell assets to pay down $13 billion in debt Zell incurred when he took it private last year.

P&G sells Foldgers to Smuckers

On Tuesday, J.M. Smucker Co. stated its intent to purchase the Folgers brand from Proctor and Gamble in an all-stock deal.  Given Folger's annual sales in excess of $1.6B, the price for the business could be upwards of $2B.  The acquisition of Folgers nearly doubles the size of Smucker and would give it the top-selling ground coffee brand in the United States.

Shareholders Approve Bear Stearns Deal

On Thursday, Bear Stearns Company shareholders approved JPMorgan Chase & Co.'s $2.2 billion buyout of the investment bank.  The Bank is buying Bear Stearns for approximately $10 per share.  the meeting was short and lightly attended.

Commenting on the ten minute meeting at Bear Stearns' Manhattan office, shareholder Hannah Horgan noted,
"They were up there drinking coffee paid with my money ... and we lost our money overnight. I have nothing left, and they were so calm."

So ends with a whimper one of the more dramatic episodes in American financial history.  The Fed injects $29 million tax dollars into a deal brokering the sale of an investment bank to keep the bank from defaulting on its short term paper.  It is at the outer limit of Fed power and the theory behind what the Fed should do.  We are no doubt leaning towards a belief in a "managed economy."  The belief empowers fed officials who, whenever faced with claim of "chaos will come if....", will now act to broker solutions with taxpayer dollars. 

Airline Mergers

US Air and United will not merge. We should not weep.  Airline mergers have a terrible recent history. Most are prompted by airline desires to restructure.  A merger ought not be needed to restructure a poorly performing airline;  CEOs find the restructuring business after a merger is more expected and therefore easier or some such gibberish.   

Germany Backs VW Anti-Takeover Law

For some time I have watched the dispute over the a special German law that protects VW from takeovers.  The law also gives a government sub-unit, Lower Saxony, effective veto power of all significant strategic decisions. It also capped voting of large shareholders at 20 percent and put representatives of the federal government and Lower Saxony on the company supervisory board (a rough equivalent to our board of directors).  Recently the European Court of Justice ruled that the law was protectionist in violation of the directives of the European Union.  Germany amended the law, dropping the capped voting and government board delegates, but left intact the veto for Lower Saxony.  At issue is whether the European Commission will seek to contest the veto.  The changes in the law were pushed by another German company, Porsche, which owns 30 percent of VW's stock and is seeking to purchase a controlling stake.  Note carefully here that the European Court of Justice has taken a tack directly opposite to that of the Supreme Court of the United States in attempting to cut back local anti-takeover laws.  Europe will be healthier for it and we will be poorer.   

Canadian Courts and the Bell Canada Buyout

As mentioned yesterday on this site, a Canadian appeals court permitted Bell Canada debt holders to complain about the effects of a negotiated leveraged buyout on the value of the debt securities.  The effect?  The deal is in danger and the Bell Canada stock has dropped like a rock.  Stock prices were down 12 percent and selling volume was so heavy that computer systems at Canadian exchanges could not keep up with it.  The banks financing the buyout have wanted out anyway and the court handed them a convenient excuse to bail on the deal.  Don't you love it when courts act in "our best interest."

Icahn and Yahoo

Carl Icahn is threatening a proxy fight for some seats on the Yahoo board in an effort to restart the deal with Microsoft.  The sad part is that he ought not to have to use the proxy fight avenue.  He ought to be able to mount a takeover.  But the country's state legislatures and state courts have effectively stopped hostile takeovers and we continue to pay for it.

Wireless Deal Forms a New Blockbuster Company

On Wednesday, Sprint Nextel and Clearwire agreed to combine their wireless broadband businesses in a $14.5 billion deal to form a new communications company. The new company, which will be named Clearwire, will deploy the first nationwide mobile WiMax network. This is a major move in the wireless market.

Yahoo's Deal with Google: A Takeover Defense?

Yahoo negotiated a strategic partnership with Google contingent on Yahoo staying independent (i.e. not selling to Microsoft).  The deal lead Yang to demand a higher price, too high a price for Microsoft to pay.  Shareholders of Yahoo can bring a derivative action on the deal.  The argument:  The deal is an anti-takeover device and subject to the "enhanced scrutiny" of the Unocal test.  Evidence in support would be that the deal was with Google after the Microsoft bid and that Google was intent on blocking the bid.  The problem:  A target board can often meet the Unocal test requirements if it met and carefully considered the bid and had good arguments (that were not personal or quirky) for refusing to sell.  Relief:  The board would be personally liable for damages (which are huge and would test their D&O policy exclusions and limits).  I doubt the court would order to Yahoo board to accept a lower price ($34) unaffected by the Google deal if Microsoft chooses to pay.  The Court has the power to do so however.

Google's Clever

Google used a carrot and a stick to meddle in the Microsoft bid for Yahoo.  It state that it would fight the deal on anti-trust grounds and then cut a contingent deal with Yahoo to share valuable technology if Yahoo did not sell to Google.  The technology deal emboldened Yang, the CEO of Yahoo, to ask Microsoft for $37 a share -- a price Ballmer would not pay.  Now the press is all over the failed deal -- did Ballmer or Yang look more foolish???  Google looked smart. 

Yahoo Successfully Blocks Microsoft Offer

Microsoft has withdrawn its offer for Yahoo.  The Yahoo board demanded $37 a share and Microsoft only offered in the low 30s.  The Yahoo board demand is cheeky considering that the Microsoft offer came on the heels of a four year low stock price of $20 a share.  Look for Yahoo stock to drift down and for Yahoo shareholders to be left wondering whether or not they have missed the boat. 

Mars to Acquire Wrigley

Today, Mars, Inc., and Berkshire Hathaway, Inc., agreed to acquire Wrigley Jr. Company for about $23 billion. Mars will spend $11 billion, with Goldman Sachs providing a $5.7 billion credit facility, and Berkshire will provide provide $4.4 billion of subordinated debt.  At closing Berkshire will also purchase a $2.1 billion stake in Wrigley at a discount relative to the $80 per-share price.  It agains looks like Buffett has once again negotiated a special price for himself; he shows once again his bargaining savy.