Business Law Prof Blog

15% Contingency Fee Award Spurs Discussion

The Wall Street Journal Law Blog discusses the $300 million plaintiffs’ attorneys’ fees awarded by a Delaware court in the Southern Peru Copper Corporation Shareholder Derivative Litigation here.  (Our own Josh Fershee previously commented on the merits of this case here.)  Stephen Bainbridge noted a few days ago that “there are a lot of folks in Delaware who are happily expecting this decision to encourage plaintiffs to come back to Delaware.”  He quotes Jonathan Macey and Geoffrey Miller as explaining that “in Delaware well-intentioned judges can be expected to devise legal rules requiring that Delaware lawyers be consulted when important decisions are to be made. Moreover, if Delaware judges believe that the state judicial system well serves Delaware corporations, they will be more likely to approve rules that stimulate litigation in the Delaware courts.”  But the Macey and Miller quote that caught my attention was this one: “The members of the Delaware Supreme Court are drawn predominantly from firms that represent corporations registered in Delaware.”  Just for the fun of it I decided to search for this quote in other law reviews on Westlaw.  Here’s what I found:

1. The inability of any province to fashion a provincial jurisprudence is also a function of the manner in which judges are appointed. In Delaware, as in other states, judges are state appointees. This ensures that the state can choose judges who will be sympathetic to corporate managers. As Macey & Miller (1986, p. 502) observe, “[t]he members of the Delaware Supreme Court are drawn predominantly from firms that represent corporations registered in Delaware. The bar and the judiciary are tied together through an intricate web of personal and professional contacts.” As a result, Delaware “judges are specialized in resolving corporate law disputes and as a consequence, the state can offer firms access to a system of corporate law rules that is stable, predictable and sophisticated relative to that of other states” (Macey & Miller, 1986, p. 500). Moreover, because judicial appointments are a state matter, the state can decline to renew the appointment of a judge who does not decide cases in a manner suitably sympathetic to corporate concerns.  Douglas J. Cumming & Jeffrey G. MacIntosh, The Role of Interjurisdictional Competition in Shaping Canadian Corporate Law, 20 Int'l Rev. L. & Econ. 141, 157 (2000).

2. Although judges obviously are more isolated from interest group influences than legislators, Delaware's justices are likely to reflect the interests of the corporate bar. The most obvious source of sympathy is the judicial selection process. As described earlier, the Delaware bar plays a central role in selecting justices, and it can be expected to recommend individuals who have a natural affinity to the corporate bar. This natural inclination is amply borne out by even a cursory look at who is ordinarily selected to sit on the supreme court. Nearly all of the justices, both currently and as a historical matter, were members of the Delaware bar before donning judicial robes.  David A. Skeel, Jr., The Unanimity Norm in Delaware Corporate Law, 83 Va. L. Rev. 127, 158 (1997) (quoting Macey & Miller in accompanying footnote).

Not exactly ringing endorsements of objectivity.

SJP

"Shareholder Primacy" in Delaware Still Only Matters When Buyers Benefit

Steven Davidoff notes, For Wall Street Deal Makers, Sometimes It Pays to Be Bad. He focuses on J.Crew’s $3 billion buyout management buyout and Del Monte Foods’ $5.3 billion acquisition by KKR, Vestar Capital Partners and Centerview Capital. Davidoff notes that a Delaware court found J Crew management's behavior to be “icky” and another Delaware court heavily criticized the Del Monte deal.  Nonetheless, the deals went forward.  

Davidoff says that the current state of the law makes it hard to come up with a penalty to to deal with bad behavior.  He explains: 

[T]he problem is what to do about the penalty. Depriving shareholders of a buyout, even at a bad price, would punish them.

He's right, but if you go back to poison pill cases, see, e.g., the Airgas decision, you can see that Delaware courts are willing to deprive shareholders of a buyout, as long as management wants to keep the deal from shareholders, even for an all-cash deal.  As I have noted before, "I can't see a good justification for not presenting an all-cash offer to shareholders once . . . ample time has been given to entice other potential bidders into the game." 

Anyway, I share Professor Davidoff's view that we need a good penalty, but I happen to think the big issue is that there is a lack of willingness, not ability.  I mean, Delaware courts are really, really good at this corporate governance thing.

Maybe the answer to create a sort of shareholder's business judgment rule for all-cash deals.  That is, after adequate time for gathering other offers has passed, we add a blanket rule that all, all-cash deals that offer a premium over the current trading price will be presented to shareholders (along with management's explanantions and recommendations). This would operate like a sort of all-cash Revlon trigger. I can imagine a scenario where shareholders might choose the wrong option in such a case, but I think part of shareholder primacy includes, from time to time, respecting possible shareholder stupidity. 

--JPF

Davidoff on "how globalization increasingly allows companies to avoid United States taxes and regulation."

Over at DealBook, Steven Davidoff has posted "The Benefits of Incorporating Abroad in an Age of Globalization."  Davidoff uses Michael Kors Holdings as a case study demonstrating how companies are incentized to incorporate abroad in order to take advantage of tax savings, decreased regulatory burdens, and a decreased threat of shareholder litigation.  He notes further that this is not an isolated case, as "[p]rivate equity firms have been buying American companies with significant foreign operations and reorganizing them as foreign corporations."  To the extent that this creates problems for the U.S., he suggests that "[p]erhaps it is time for the United States to adopt a tax system more in line with the rest of the world."  What I found more interesting, however, was his suggestion that "American investors may be investing in Kors and other companies incorporated outside the United States without appreciating that they are not subject to the same United States laws that other publicly traded companies are."  This seems to me to be the crux of the debate about whether corporate regulation generally follows a race to the bottom or the top.  The greater the likelihood that signifcant portions of the investing community do not properly value the jurisdiction of incorporation, the greater the likelihood that the race is to the bottom rather than the top.

SJP

Beneish, Marshall & Yang on Collusive Directors

Messod Daniel Beneish, Cassandra D. Marshall, and Jun Yang have posted "Why Do CEOs Survive Corporate Storms? Collusive Directors, Costly Replacement, and Legal Jeopardy" on SSRN.  Here is the abstract:

We use an observable action (non-executive directors’ insider trading) and an observable outcome (the market assessment of a board-ratified merger) to infer collusion between a firm’s executive and non-executive directors. We show that CEOs are more likely to be retained when both directors and CEOs sell abnormal amounts of equity before the delinquent accounting is revealed, and when directors ratify one or more value-destroying mergers. We also show that a good track record, higher innate managerial ability, and the absence of a succession plan make replacement more costly. We find retention is less likely when the misreporting is severe and directors fear greater litigation penalties from owners, lenders, and the SEC. Our results are robust to controlling for traditional explanations based on performance, founder status, corporate governance, and CFOs as scapegoats. Overall, our analyses increase our understanding of the retention decision by about a third; they suggest that financial economists consider collusive trading and merger ratification as additional means of assessing the monitoring effectiveness of non-executive directors.

SJP

"[C]onstrained by Delaware Supreme Court precedent"?

Following up on both Elizabeth's post announcing that Chief Justice Myron T. Steele of the Delaware Supreme Court would be speaking at Stanford, and Josh's post on the Glom's Masters Forum on Chancellor William B. Chandler III's contributions to the Delaware Chancery Court, I note the following:

Over at the Glom, Afra Afsharipour discusses Chancellor Chandler's Airgas decision and notes that "like other commentators … I expected that Chancellor Chandler would uphold the pill. What I didn’t quite expect was Chancellor Chandler’s frank articulation of how decades of Delaware case law on the poison pill essentially gave him no choice but to reach the result that he did."

Meanwhile, a report from a recent panel discussion on cross-border issues in mergers and acquisitions notes that Chief Justice Steele interprets the case law differently:

Steele took issue with the view that the Chancery is constrained in its ability to remove a pill in the appropriate circumstances. He suggested that if the chancellor had found facts that were inconsistent with it being reasonable to keep the pill in place, an injunction against maintaining the pill could be issued under Delaware law. Where there is a battle of valuations, rather than the defence of a long-term strategy, a case can be made for removing the pill and letting the shareholders decide.

SJP

Musings on Chancellor Chandler at The Glom

Over at the Conglomerate, is hosting a "Masters Forum on William B. Chandler III's contributions to the Delaware Chancery Court. There are a series of posts discussing Chancellor Chandler's Disney decisions, M&A (and Airgas), his views on the practice of corporate law and more.  I highly recommend taking a look.

I'd still like to hear more about his eBay v. Newmark decision, which I have posted about here and here. I, like the Masters who have written about Chancellor Chandler, think highly of his work and his decisions. That doesn't mean, though, as my views on his eBay and Airgas decisions indicate, that I necessarily agree with him in every case.  

--JPF

Ritter, Gao & Zhu on Decreasing IPOs

Jay R. Ritter, Xiaohui Gao & Zhongyan Zhu have posted “Where Have All the IPOs Gone?” on SSRN.  Here is the abstract:

During 1980-2000, an average of 311 companies per year went public in the U.S. Since the technology bubble burst in 2000, the average has been only 102 initial public offerings (IPOs) per year, with the drop especially precipitous among small firms. Many have blamed the Sarbanes-Oxley Act of 2002 and the 2003 Global Settlement’s effects on analyst coverage for the decline in U.S. IPO activity. We offer an alternative explanation. We posit that the advantages of selling out to a larger organization, which can speed a product to market and realize economies of scope, have increased relative to the benefits of remaining as an independent firm. Consistent with this hypothesis, we document that there has been a decline in the profitability of small company IPOs, and that small company IPOs have provided public market investors with low returns throughout the last three decades. Venture capitalists have been increasingly exiting their investments with trade sales rather than IPOs, and an increasing fraction of firms that have gone public have been involved in acquisitions. Our analysis suggests that IPO volume will not return to the levels of the 1980s and 1990s even with regulatory changes.

SJP

Coal is Here to Stay. Really.

In case there was any doubt, coal is not going anywhere as an energy source for the foreseeable future. Today it was reported that Peabody Energy, the American coal company, is inching closer to acquiring Australia's Macarthur Coal with a $4.9 billion takeover offer (the Peabody offer is backed by Macarthur's largest shareholder).

For all the discussion of banning coal-fired plants and endless restrictions to new coal plants, those who own the resources continue to have a market. And as restrictions rise in the United States, the market internationally for coal simply expands. I admit, I prefer other fuel sources in most instances, but the reality is that coal provides relatively cheap and abundant power.  "Clean coal," at least to date, is aspirational, not reality.  But cleaner coal is a reality, and we can be doing more with it.  

According to the Energy Information Administration, "coal-fired plants contributed 43.3 percent of the power generated in the United States. Natural gas-fired plants contributed 23.4 percent, and nuclear plants contributed 18.8 percent."  Nearly half of our power comes from coal, and in many areas, a cost-effective and efficient fuel switch is not readily available.  We have already learned that over reliance on natural gas can be a disaster, as that fuel's price volatility is legendary.  

At some point, we need to start getting rid of the oldest coal plants offline.  There shouldn't be much argument about that. (Of course, sometimes there is.) Part of that plan should be to replace the worst old plants with far better new ones. New coal-fired plants aren't clean, but they are without question cleaner.  

If we're going to burn coal, we should be burning it as cleanly and efficiently as is possible. And as of today, I've got $4.9 billion more reasons why I'm sure we're going to burn it.  

--JPF

The Zapata of Acquisitions?: Special Committees Must Act Like Third Parties

As noted in an earlier post, a Delaware court (pdf here) determined that Southern Peru Copper Corp.'s directors were improper (to the tune of $1.2 billion in damages) in following its special committee's recommendation to purchase Minera for $3.1 billion in Southern Peru stock.  The court explained that the special committee violated its fiduciary obligations by not leveraging its position in the same way a third party would in that situation.  The court explains:

In other words, the Special Committee did not respond to its intuition that Southern Peru was overvalued in a way consistent with its fiduciary duties or the way that a third-party buyer would have.  As noted, it did not seek to have Grupo Mexico be the buyer.  Nor did it say no to Grupo Mexico’s proposed deal.  What it did was to turn the gold that it held (market-tested Southern Peru stock worth in cash its trading price) into silver (equating itself on a relative basis to a financially-strapped, non-market tested selling company), and thereby devalue its own acquisition currency.  Put bluntly, a reasonable third-party buyer would only go behind the market if it thought the fundamental values were on its side, not retreat from a focus on market if such a move disadvantaged it.  If the fundamentals were on Southern Peru’s side in this case, the DCF value of Minera would have equaled or exceeded Southern Peru’s give.  But Goldman and the Special Committee could not generate any responsible estimate of the value of Minera that approached the value of what Southern Peru was being asked to hand over.

Note that the court here was evaluating this case for entire fairness, and not considering the applicablity of the business judgment rule.  Here, "the defendants with a conflicting self-interest [had to] demonstrate that the deal was entirely fair to the other stockholders."  They failed.

The court specifically states, "[T]here is no need to consider whether room is open under our law for use of the business judgment rule standard in a circumstance like this, if the transaction were conditioned upon the use of a combination of sufficiently protective procedural devices."  In essence, the court (appropriately) declines to answer here whether there might be a similar circumstance where the court might treat a special acquisition committee like a special litigation committee.  If so, in this instance, I'm thinking a Zapata-like test might be the right call. 

That is, when (like in Southern Peru) "a controlling stockholder stands on both sides of a transaction" (to parallel Zapata): 

First, the Court should inquire into the independence and good faith of the committee and the bases supporting its conclusions. . . . The corporation should have the burden of proving independence, good faith and a reasonable investigation, rather than presuming independence, good faith and reasonableness. . . . .

[Second, t]he Court should determine, applying its own independent business judgment, whether the [acquisition price was reasonable.] . . . The second step is intended to thwart instances where corporate actions meet the criteria of step one, but the result does not appear to satisfy its spirit, or where corporate actions would simply [ratify an improper valuation to the detriment of disinterested shareholders.]

On the one hand, this might be over broad and limit the ability of a company to take advantage of an opportunity uniquely available to it by virtue of the controlling shareholder.  Still, it seems to me that, just as in Southern Peru, the court is capable of making this assessment. If the special committee can justify the transaction, then it should have before supporting the deal.  If not, the court will take a closer look. Note that this would only apply where there was a controlling shareholder on both sides of the transaction, and not in other arm's length deals, where the business judgment rule is the proper test.

Perhaps this is giving the court too much of a role, but I think they got it right in Southern Peru, and that may translate in other contexts, too.

--JPF

$1.236 Billion of Foreshadowing in Delaware

On October 14, 2011, Chancellor Strine issued the opinion, In re Southern Peru Copper Corporation Shareholder Derivative Litigation, C.A. No. 961-CS (Del. Ch. Oct. 14, 2011). As noted by Francis Pileggi, the opinion has more than 100 pages dedicated to explaining the myriad ways the company's directors breached their fiduciary duties.

When I first started reading the case, I couldn't help but think about receiving the opinion if I were an attorney on the case or one of the litigants.  When I was in practice, it was FERC opinions or orders issued by an ALJ or the Commission, and I remember reading anxiously for hints in the first few paragraphs of where it was headed.  This case had more than a billion dollars on the line, so I have to imagine everyone involved started reading it the moment they knew it was available.  

So here's the start of In re Southern Peru Copper Corporation:

This is the post-trial decision in an entire fairness case.  The controlling stockholder of an NYSE-listed mining company came to the corporation’s independent directors with a proposition.  How about you buy my non-publicly traded Mexican mining company for approximately $3.1 billion of your NYSE-listed stock?  A special committee was set up to “evaluate” this proposal and it retained well-respected legal and financial advisors. 

The financial advisor did a great deal of preliminary due diligence, and generated valuations showing that the Mexican mining company, when valued under a discounted cash flow and other measures, was not worth anything close to $3.1 billion.  The $3.1 billion was a real number in the crucial business sense that everyone believed that the NYSE-listed company could in fact get cash equivalent to its stock market price for its shares.  That is, the cash value of the “give” was known. And the financial advisor told the special committee that the value of the “get” was more than $1 billion less.  

Rather than tell the controller to go mine himself, the special committee and its advisors instead did something that is indicative of the mindset that too often afflicts even good faith fiduciaries trying to address a controller.  Having been empowered only to evaluate what the controller put on the table and perceiving that other options were off the menu because of the controller’s own objectives, the special committee put itself in a world where there was only one strategic option to consider, the one proposed by the controller, and thus entered a dynamic where at best it had two options, either figure out a way to do the deal the controller wanted or say no.

As is probably clear, the special committee did not say no.  And as you probably gathered, the court imposed roughly $1.236 billion in damages for their chosen course of action. There are 100 pages of explanation, but it was pretty clear where this one was going after about line four of the opinion.

--JPF 

Davidoff on Britain’s new takeover rules

Over at DealBook, Steven Davidoff provides some excellent analysis of Britain’s new takeover rules, which went into effect this past Monday.  The title of his post sums up his predictions:  “British Takeover Rules May Mean Quicker Pace but Fewer Bids.”

If this sort of thing interests you, you’ll definitely want to read the entire post—but I’ll note some of the highlights here.  First, Davidoff reports that a wide array of rules were originally considered by the Takeover Panel of Britain, but the most controversial of these (requiring a two-thirds vote, requiring disclosure upon acquisition of 0.5 percent, and disenfranchising shareholders who acquired shares after the offer was announced) were rejected.  Second, the rules that were adopted, “set up a nice dichotomy with the American takeover scheme”:

In the United States, targets can agree to large termination fees and provide extensive deal protections to an initial bid. Targets can also adopt a shareholder rights plan, or poison pill, which can prevent a company from acquiring the target. But in Britain none of these devices are allowed.

As mentioned above, Davidoff sees the net result of these new rules being less initial bids (because bidders will be entering the fray subject to more risks), but more competition for targets once bids are launched.

SJP

A Brief Google-Motorola Reader

Unless you've been sleeping under a rock, you know Google recently agreed to buy Motorola for $12.5 billion (a price that apparenlty translates to a 63% premium).  You can read an overview of the deal here.

Steven Davidoff examines the large breakup fee here.  He notes that the large fee actually signals both investors and regulators that Google is very confident of antitrust approval--and will likely fight hard to ensure it gets it.

While Motorola likely appreciated the breakup fee, it's probably not as thrilled with the restrictions it now faces in conducting its business till the deal is done.  Davidoff also comments on that here.

The deal is ultimately about patents, and Bloomberg argues it serves to illuminate how much our current patent system is in need of reform.  Write the editors: The current system "rewards lawyers and investment bankers far more than inventors or consumers."

Finally, some are noting that the deal could ultimately prove to be a disaster for Google, noting the conflicts it creates between Google and a number of its partners, as well as the fact that "hardware manufacturing is a crappy, low-margin commodity business."  Google shares appear to be down over 10% since the announcement of the deal, compared to a roughly 6% decline for the S&P 500.

SJP

A Market Cure for Too-Big-to-Fail?

Over at DealBook, Jesse Eisinger writes:

One of the most remarkable aspects of the debate about overhauling the financial system after the great crisis was the absence of serious contemplation of breaking up the largest banks…. Lawmakers and regulators have failed to remake our system with smaller, safer institutions. What about investors? Big bank stocks have been persistently weak, making breakups that seemed politically impossible no longer unthinkable…. [However, e]ven in the face of investor pressure, there are forces that would hold bank breakups back. Mainly pay. “The biggest motivation for not breaking up is that top managers would earn less,” Mr. [Mike Mayo, an analyst with CLSA] said. “That is part of the breakdown in the owner/manager relationship. That’s a breakdown in capitalism.” Institutional investors — the major owners of the banks — are passive and conflicted. They don’t like to go public with complaints. They have extensive business ties with the banks. The few hedge fund activist investors who aren’t cowed would most likely balk at taking on such an enormous target.

You can read the full post here.

SJP

Oil Extraction Spin-offs: Take Two

I mentioned the other day that I was adding another take to my thought that it was good thing that ConocoPhillips and Marathon were spinning off their oil exploration and extraction businesses.  I still think that it could be a good thing, but I also think it may not be so great, especially if aggressive pursuit of company executives for environmental crimes (rather than more rigorous oversight of safety processes) is going to be the model moving forward.  So, here's an excerpt from a rough draft of my paper that argues reducing mens rea requirements in environmental crimes is not likely to be effective in reducing the risk of environmental harm (the paper will also suggest a few alternatives that may be more effective):

[D]iluting mens rea requirements [for executives companies responsible for environmental disasters] could have the effect of increasing risk taking by those charged with oversight of the very activities that the laws were designed to make safer.[1]  The risk is that those who are likely to be risk averse to criminal sanctions will leave the field all together (to work in other less risky arenas), while leaving those who are undeterred by the risk of jail time in positions of power (and potentially greater positions of power).[2]  In fact, there may be some indication this is happening right now.

In July 2011, ConocoPhillips announced that it would be splitting its company into two separate entities, one that explores for and produces oil, and another that refines the oil.[3]  This followed the January 2011 move by Marathon Oil to the same thing.  Marathon’s spin-off, Marathon Petroleum Corp., which is the refining company, starting trading July 1, 2011. [4]  On the one hand, separating these operations into separate companies could be a good thing. The executives of these entities will now have a more focused business model, and the concerns of each part of the business are now less likely to compete with one another. Further, the companies may be better focused on their own expertise.

These companies are splitting to isolate the risk of the extraction process; at least, that is part of the equation. On the one hand, splitting the entity in two may be reasonable and sensible business planning and risk management.  By spinning off the exploration company, the resulting refining company is giving up the opportunity to participate in the upside of the spun off company, and is eliminating the related risk. If the entity’s decision makers believe that is best, there is little reason to question the decision on that basis.[5]

An inherent risk of this division, though, is that the resulting exploration-and-extraction entity will take along with it executives and other leaders who are not appropriately risk averse, and thus increase the likelihood of disaster.[6] This is not because executives or employees who are in the exploration and extraction industry are generally unlawful or poor risk assessors. But, as the risk of punishment increase (and inappropriately aggressive pursuit of criminal penalties increase) in the industry, there is a parallel risk that executives who are appropriately mindful of the law will be inclined to work in industries where an executive’s actions more likely control how and whether an executive will face criminal sanctions.[7] 

--JPF

---

[1] Cf. Craig S. Lerner & Moin A. Yahya, ‘Left Behind’ After Sarbanes-Oxley, Regulation, at 44, 47 (Fall 2007)  (stating that strict liability penalties could increase the number of executives for whom “criminal laws are just another cost of doing business”).

[2] See id.

[3] See Chris Kahn, Oil Giant ConocoPhillips To Split into 2 Companies (“This is so positive for [ConocoPhillips]. Everyone should stick to one business.”) (quoting Oppenheimer & Co. analyst Fadel Gheit).

[4] Id.

[5] See, e.g., Stephen M. Bainbridge, Dodd-Frank: Quack Federal Corporate Governance Round II, 95 Minn. L. Rev. 1779, 1812 (2011) (“There is no more basic question in corporate governance than ‘who decides.’ . . . Corporate law generally adopts what I have called ‘director primacy.’ It assigns decisionmaking to the board of directors or the managers to whom the board has properly delegated authority.” (footnotes omitted)).

[6] See Lerner & Yahya, supra note 1, at 47  

[7] See id.

The Swashbuckler Problem: Rethinking Increased Liability

I have been a critic of BP and their role in the Deepwater Horizon disaster that dumped to 4.9 million barrels of oil into the Gulf Mexico, but that doesn’t mean I think we need a vast set of new laws to help avoid the problem in the future. In my research for a current project questioning the value of drastic new laws increasing penalties, while reducing the mens rea requirements, for environmental law violations, I came across an interesting article about Sarbanes-Oxley that I thought was worth passing along. Regardless of your views on Sarbanes-Oxley, it’s worth a look.

The article is ‘Left Behind’ after Sarbanes-Oxley, by Craig S. Lerner (George Mason University) & Moin A. Yahya (University of Alberta), and the pdf is available here:

The “Left Behind” from our title is an allusion to the series of novels that are based on the religious doctrine of Rapture — that is, the doctrine that believers will, “in the twinkling of an eye,” be taken body and soul into heaven. Left behind here on earth, according to this view, will then be the unbelievers and the unrighteous. Likewise, albeit on a rather more mundane note, we propose to ask whether, in the wake of criminal laws such as Sarbanes-Oxley, certain kinds of corporate executives may decide to flee the scene and, if they do, what sort of men and women will be left behind. We suggest that there may not only be growing numbers of risk-averse “bean counters,” there may also be an emerging class of entrepreneurs whom we call “swashbucklers.” These men and women have no special regard for the strictures of the criminal law and they may thrive in the post-Sarbanes-Oxley world.

More on this project later, but suffice it to say, my project has made me question a number of assumptions, and articles like the one above have me rethinking my views on a number of things, including this post from a few weeks ago.

--JPF

Splitting Oil Companies Could Be A Good Thing for Investors and Business

ConocoPhillips recently announced that it would be splitting its company into two separate entities, one that explores for and produces oil, and another that refines the oil.  Back in January, Marathon Oil announced a similar move.  Marathon's spin-off, Marathon Petroleum Corp., which is the refining company, starting trading July 1 of this year.  

In this recent era of consolidation, the separation of these operations into separate companies could be a good thing.  The executives of these entities will now have a more focused business model, and the concerns of each part of the business are now less likely to compete.  I will be particularly interested to see how the new refining entities operate.  Obviously, as independent, publicly traded companies, the refining entities may have interests in working with other oil producers.  This could create some real opportunities for synergies, geographically and otherwise, that were less likely to occur under the old model.  

I'm also curious just how independent the new entities will look and act out of the gate.  

--JPF

Practical Law Company Materials

A few months ago, I began receiving weekly updates on finance and corporate and securities law produced by the Practical Law Company. I’m sure the company sent me advertising at some point, but I didn’t check it out until one of our librarians convinced me to take a look. (The librarian in question also happens to be my fiancée, so I tend to listen to her a little more than our other librarians.) I was hesitant to add yet another service to the many products that already stream through my in-box: various daily and weekly updates on the law, blog posts, RSS feeds from newspapers and magazines. But this is something different, and I like it.

In addition to information on regulatory and other legal changes, the PLC update includes various checklists, practice notes, and samples from current deals. For example, my most recent Corporate and Securities Weekly Update includes practice notes on (1) reverse mergers, (2) structuring waterfall provisions in partnership and LLC agreements, and (3) merchant banking. My favorite recurring feature is something PLC calls the “risk factor of the week,” with actual risk factor language pulled from public filings. The weekly updates also include summaries of both public and private acquisition agreements, often featuring some of the contractual provisions in those deals.

Some of the practice notes, such as a recent due diligence checklist, don’t add much to what I already know, but would be very useful to students or inexperienced lawyers. Some of them, like the one on waterfall provisions, deal with topics I never touch on. But most of them are pretty interesting and, for a weekly, the quality is surprisingly good.

If you haven’t seen these, you might want to check them out. The Practical Law Company web site is here. In addition to the weekly updates, the web site has a variety of other content, including webinars, model documents, and handbooks. (As an academic, I don’t pay for the content I receive, so I’m not sure what PLC charges.)

-Steve Bradford

Johnson on Securities Class Actions in State Court

Jennifer Johnson recently posted a paper on SSRN entitled, "Securities Class Actions in State Court."  Here is the abstract:

Over the past two decades, Congress has gradually usurped the power of state regulators to enforce state securities laws and the power of state courts to adjudicate securities disputes. This Paper evaluates the impact of Congressional preemption and preclusion upon state court securities class actions. Utilizing a proprietary database, the Paper presents and analyzes a comprehensive dataset of 1500 class actions filed in state courts from 1996-2010. The Paper first examines the permissible space for state securities class actions in light of Congressional preclusion and preemption embodied in the 1998 Securities Litigation Uniform Standards Act (SLUSA) and Class Action Fairness Act of 2005 (CAFA). The Paper then presents the state class action filing data detailing the numbers, classifications, and jurisdictions of state class action cases that now occupy the state forums. First, as expected, the data indicates that there are few traditional stock-drop securities class actions litigated in state court today. Second, in spite of the debate over the impact of SLUSA and CAFA on 1933 Act claims, very few plaintiffs attempt to litigate these matters in state court. Finally, the number of state court class actions involving merger and acquisition (M&A) transactions is skyrocketing and now surpasses such claims filed in federal court. Moreover, various class counsel file their M & A complaints in multiple jurisdictions. The increasingly large number of multi-forum M&A class action suits burden the defendants and their counsel, the judiciary and even plaintiffs’ lawyers themselves. The paper concludes that absent effective state co-ordination, further Congressional preemption is possible, if not likely.

SJP

The Massey "Walk Away" Deal

Over at DealBook, Steven Davidoff has some nice analysis of the Delaware Chancery Court’s refusal to halt the acquisition of Massey Energy by Alpha Natural Resources in spite of the fact that one lawyer described the ruling as effectively saying that "you can be the worst C.E.O., you can violate all the laws you want, then you can arrange a sweetheart merger and just walk away.”  The same lawyer is also quoted as saying (perhaps summing up the feelings of a number of plaintiffs' lawyers about Delaware courts): "If you can’t win against Massey and Don Blankenship you can’t win.”

SJP

Jay Brown on "The Consequences of the NYSE-Deutsche Combination on Listing Standards"

Over at The Race to the Bottom, Jay Brown has an interesting 8-part (to this point) series on the impact of the NYSE-Deutsche combination on listing standards.  Here are the topics:

• Introduction / Overview
  

• Ensuring Regulatory Independence

• Part 3 [Conflicts of Interest]
  

• The Issue of Funding

• Changes to the Definition of Director Independence

• Limits of Regulatory Independence

• SEC Review and German Ownership

• Regulatory Alternatives

SJP