M & A Law Prof Blog

Editor: Brian JM Quinn
Boston College Law School

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Wednesday, October 22, 2014

Dogs do Hobby Lobby

So this had to be done...for your pleasure.  

 -bjmq

October 22, 2014 | Permalink | Comments (0) | TrackBack (0)

Specific performance and other remedies

Rick Climan and Keith Flaum's videos on negotiating the merger agreement have become something of a regular feature on this blog.  I think Keith and Rick do a great job teeing up the issues, and the animation is almost on par with dogs hearing arguments at the Supreme Court. In this installment Rick and Keith negotiate specific performance and other remedies:

 -bjmq

October 22, 2014 | Permalink | Comments (0) | TrackBack (0)

Tuesday, October 21, 2014

Information Networks

Ken Ahern has posted a new paper, Information Networks: Evidence from Illegal Insider Trading Tips

Abstract: This paper exploits a novel hand collected dataset to provide a comprehensive analysis of the demographics and social relationships behind illegal insider trading networks. I find that the majority of inside traders are connected through family and friendship links and a minority are connected through professional relationships. Traders cluster by age, occupation, gender, and location. Traders earn prodigious returns of about 35% over 21 days, where traders farther from the original source earn lower percentage returns, but higher dollar gains. More broadly, this paper provides some of the first evidence on information networks using direct observations of person-to-person communication.

The paper is really interesting.  There's a ton of data. Let's start with the most important for my purposes: more than 51% of all insider trading tips involve M&A announcements. Ahern had access to the LexisNexi Public Records Database (LNPRD) for his work and was able to give us a look at who inside traders - who have been caught - are:

There are 622 people in the data set. Of these, 162 people are tippers only, 249 are tippees only, 152 are both tippees and tippers, and 59 are original information sources who do not tip anyone else. Table IV presents summary statistics of the people. Across the entire sample, the average age of the people in the sample is 44.1 years old and 9.8% of the people are women. The youngest person is 19 years old and the oldest is 80. The large majority of insiders (92%) are married.

On of the most common occupation among inside traders is top executive with 107 people. Of these, 24 are board members and the rest are officers. There are 55 mid-level corporate managers and 59 lower-level employees in the sample, including 8 secretaries, 11 information technology specialists, and a few nurses, waiters, and a kindergarten teacher. There are 61 people who work in the “sell side” of Wall Street including 13 accountants, 24 attorneys, 4 investment bankers, and 3 sell side analysts. I divide the “buy side” into two groups by rank in investment firms: there are 60 portfolio and hedge fund managers and 65 lower-level buy side analysts and traders. Small business owners and real estate professionals account for 39 people in the sample and 38 people have specialized occupations, including 16 consultants, 13 doctors, and 9 engineers. There are 135 people for which I cannot identify an occupation.

As a final set of summary statistics, I compare inside traders to their neighbors. For the 448 inside traders that I can identify in the LNPRD [date set], I randomly pick a neighbor of the same gender as the insider. Neighbors are literally next-door-neighbors, as I choose the person that lives on the same street as the insider with the street number as close to the insider’s street number as possible. ... Choosing a comparison sample from the same neighborhood and of the same gender helps to control for wealth, age, and occupation, and highlights the remaining differences between insiders and non-insiders. ... 

Insiders are statistically different than their neighbors in many ways. Insiders have a higher likelihood of owning residential real estate, are more likely to be accountants and attorneys, and significantly less likely to be registered as a Democrat, compared to their neighbors. ... [I]nside traders are less likely to declare bankruptcy, but are about twice as likely to have liens and judgments filed against them, compared to their neighbors. ... [I]nsiders are considerably more likely to have a criminal record compared to their neighbors (53.7% versus 12.8%).

And then, there's this: an analysis of the ethnic surnames of the tipper/tippees.  The message?  Inside traders like to keep their tips within their ethnic group or as currency to buy their way into the dominant 'inside' group. 

Topper-Tippee Dominant

 

Very interesting paper.  Download it now!

-bjmq

October 21, 2014 in Insider Trading | Permalink | Comments (0) | TrackBack (0)

Thursday, October 16, 2014

Rural Metro and joint liability

VC Laster handed down an opinion on damages in the Rural Metro case. You'll remember in Rural Metro, RBC was found liable for aiding and abetting director violations of their fiduciary duties in connection with the sale of the corporation to Warburg Pincus.  RBC worked hard to structure the deal so that it might be able to benefit from providing financing to eventual buyer.  Worst case for RBC - it didn't get the financing business and its shenanigans later came to light in a courtroom.  Not a good look.

The recent opinion set damages at $91 million and assigned $76 million in damages to RBC.   The opinion is interesting for those of us who have forgotten that remedies class all those years ago.  RBC sought to reduce its potential liability by arguing that others should bear more of the cots of the damages and that RBC should be liable for only its pro rata share.  The opinion reminds us that tort feasors are jointly and severally liable for damages.  

In this case that means that RBC is on the hook for the entire damages amount with the right to seek contribution from other co-defendants.  However, that's not enough. Merely being jointly culpable as other defendant directors were is not sufficient, in order to seek contribution, those co-defendants must also be joint liable.

That's where section 102(b)(7) wreaked havoc on RBC's argument. The exculpated directors were not jointly liable, so damages cannot be reduced by the amount of their potential liability.  That left the damages to be shared among RBC and the three non-exculpated directors. 

For advisors who might be held liable for aiding and abetting director violations of their fiduciary duties, this point about joint liability and the right to contribution is important because where 102(b)(7) is in the mix, advisers may find themselves all alone when it's time to pay. 

-bjmq

 

 

October 16, 2014 | Permalink | Comments (0) | TrackBack (0)

Wednesday, October 15, 2014

AbbVie reconsiders

Another high profile inversion deal may be heading towards termination.  The AbbVie board is apparently reconsidering whether to continue its inversion deal with Shire now that Treasury has reduced the economic incentives to do the deal. That's good news for Treasury. This is precisely what Treasury hoped would happen when they announced their new rules.  Of course, it's not over, yet. Shire is urging the AbbVie board not to give up. From their statement:

The Board of Shire believes that AbbVie should proceed with the recommended offer on the agreed terms in accordance with the Cooperation Agreement.

The Board will meet to consider the current situation and a further announcement will be made in due course.  

The Board of Shire notes that, in the event that the AbbVie Board adversely changes its recommendation and AbbVie stockholder approval is not obtained (or another triggering event occurs), a break fee of approximately $1.635 billion would be payable by AbbVie to Shire.

-bjmq

October 15, 2014 | Permalink | Comments (0) | TrackBack (0)

Wednesday, October 8, 2014

Vaughn confirmation today

Delaware's state senate is scheduled to convene this afternoon to confirm the nomination of James Vaughn to the Supreme Court.  My guess is that - if it's anything like other recent confirmation hearings -  it will be a quick affair with perfunctory questions followed by a rapid confirmation vote.  

-bjmq

October 8, 2014 | Permalink | Comments (0) | TrackBack (0)

Tuesday, October 7, 2014

WhatsApp Merger Agreement

The EU Competition Commission approved Facebook's acquisition of WhatsApp last week,m and yesterday Facebook closed the deal:

On October 6, 2014, Facebook, Inc. (the "Company") completed its previously announced acquisition of WhatsApp Inc., a Delaware corporation ("WhatsApp"), pursuant to the terms of an Agreement and Plan of Merger and Reorganization (as amended, the "Merger Agreement") dated as of February 19, 2014, with Rhodium Acquisition Sub II, Inc., a Delaware corporation and wholly owned (in part directly and in part indirectly) subsidiary of the Company ("Acquirer"), Rhodium Merger Sub, Inc., a Delaware corporation, a direct wholly owned subsidiary of Acquirer ("Merger Sub"), WhatsApp, and Fortis Advisors LLC, as the stockholders' agent.
 
The acquisition was accomplished by the merger of Merger Sub with and into WhatsApp (the "First Merger"), and upon consummation of the First Merger, Merger Sub ceased to exist and WhatsApp became a wholly owned subsidiary of Acquirer. The surviving corporation of the First Merger then merged with and into Acquirer, which will continue to exist as a wholly owned (in part directly and in part indirectly) subsidiary of the Company. At the closing, all outstanding shares of WhatsApp capital stock and options to purchase WhatsApp capital stock were cancelled in exchange for an aggregate of 177,760,669 shares of the Company's Class A common stock and approximately $4.59 billion in cash to existing WhatsApp securityholders. A portion of the aggregate consideration is being held in escrow to secure the indemnification obligations of the WhatsApp securityholders. In addition, the Company awarded 45,941,775 restricted stock units ("RSUs") to WhatsApp employees. On the closing date, Jan Koum, WhatsApp's co-founder and CEO, became a member of the Company's Board of Directors (the "Board").
A copy of the merger agreement was filed as an exhibit to Facebook's 10-Q and you can find it here.  Private company deal agreements rarely make it into the public square, so it's worth pulling this one and adding it to your stack of deal documents.  
 
-bjmq

October 7, 2014 | Permalink | Comments (0) | TrackBack (0)

Monday, October 6, 2014

WhatsApp approved in Europe

Facebook announced its acquisition of WhatsApp last February.  After a lengthy review process in the EU Competition Commission approved the transaction late last week.  In approving the deal, the Commission came to the following conclusion:

The Commission found that Facebook Messenger and WhatsApp are not close competitors. Indeed, despite the fact that Facebook Messenger is a standalone app, the user experience is specific given its integration with the Facebook social network. For WhatsApp, access to the service is provided through phone numbers while for Facebook Messenger, a Facebook profile is required. Users seem to use the two apps in different ways and many of them use the two apps simultaneously on the same mobile handset. Furthermore, this is a very dynamic market with several competing apps available on the market, such as Line, Viber, iMessage, Telegram, WeChat and Google Hangouts.

Interesting how they decided that WhatsApp and Facebook Messenger are in different markets.  

-bjmq

October 6, 2014 | Permalink | Comments (0) | TrackBack (0)

Key Employees in the Merger Agreement

 In this most recent look at the merger agreement, Rick Climan and Keith Flaum think about the "Key Employee" closing condition.  These simulated negotiations are always a great way to think about approaching the merger agreement and Keith and Rick do a great job:

-bjmq

October 6, 2014 | Permalink | Comments (0) | TrackBack (0)

Friday, October 3, 2014

Tax inversion deal collapses

Most of the recent tax inversion deals announced over the past summer include closing conditions that permit parties to walk away - often without paying a termination fee - in the event laws or rules are changed to impede the economic value of the inversion structure.  Recently, Treasury adopted rules to reduce the economic incentives to pursue inversion transactions.  And now, at least one deal has cratered as a result of that change. According to CNBC

A planned $2.7 billion deal between pharma companies Salix and Cosmo, motivated in part by the opportunity to do a tax inversion, has fallen through.

"There has been a change in the environment after we struck the deal," Alessandro Della Cha, chief executive of Cosmo, told CNBC in a phone call.

"The (U.S.) administration has taken steps to make inversions more difficult and to make it harder to extract the benefits."

 In this case, Salix will pay Cosmo a $25 million termination fee to walk away.  All is not lost for Salix, of course.  You'll remember that in the Allergan/Valeant saga, Allergan is pursuing Salix in hopes that by acquiring Salix, Allergan can deter Valeant from attempting to acquire the combined corporation. 

 -bjmq

 

October 3, 2014 | Permalink | Comments (0) | TrackBack (0)

Wednesday, October 1, 2014

Kremlinology and the Delaware Supreme Court

Some insider-ish analysis on what led to the nomination of Jim Vaughn to the Delaware Supreme Court from the Delaware Grapevine and the Delaware Law Weekely.  Both sources suggest some old-school geographic politics might be at least partly responsible.  Vaughn, you see, is from Kent County and getting a representative from Kent County on the court was apparently important.  What's interesting about Delaware and its judiciary, if this bit of Kremlinology is true is just how hard Delaware works to create a representative court -- constitutionally mandated political balance and at least implicit geographic balancing.  With a nod to now retired Justice Berger, it's worth noting that the court is still not exactly representative. Lots of work to do, still.

-bjmq

October 1, 2014 in Delaware | Permalink | Comments (0) | TrackBack (0)

Friday, September 26, 2014

The Joe Frazier left hook

I'm a big fan of sports metaphors. With that, I present Samuel Thompson's New Inversions, the 'Joe Frazier Left Hook,' the IRS Notice, and Pfizer:

Abstract: This article discusses the “New Inversions” many U.S. firms are engaging in, as illustrated by the acquisition by a newly formed Irish holding company of the stock of (1) Endo, a U.S. firm and the real acquirer, and (2) Paladin, a Canadian firm and the real target. The article shows how these transactions are rendering a “Joe Frazier Left Hook” to the Treasury’s “Killer B” regulations even after the issuance by the IRS of Notice 2014-32 on April 25, 2014. The article then explores how “Ali” (a.k.a. Treasury) and the Congress can punch back against these transactions.

-bjmq

September 26, 2014 | Permalink | Comments (0) | TrackBack (0)

Tuesday, September 23, 2014

Vaughn gets the nod

According to the Delaware Law Weekly, Gov. Markell has nominated Superior Court President Judge James T. Vaughn Jr. to replace retired Justice Carolyn Berger on the Delaware Supreme Court.

-bjmq

September 23, 2014 in Delaware | Permalink | Comments (0) | TrackBack (0)

DG launches proxy contest in FDO

Last week Dollar General  started soliciting "Gold" proxies (like golden tickets?) from Family Dollar shareholders in its campaign to vote down to have FDO shareholders vote down the Dollar Tree deal and accept its tender for Family Dollar.  Dollar General is seeking proxies to vote against the Dollar Tree merger, against the transaction related compensation for managers, as well as against a proposal to adjourn the meeting.  

Why might management's adjournment proposal be important?  If it turns out that the merger vote is going against management, the ability of managers to adjourn a meeting and extend the voting gives managers more time to twist arms and convince shareholders to go their way is an extremely powerful tool.  Dollar General is seeking to take that tool away by forcing the meeting - and thus the voting - to end on date certain. Proxy

Ultimately, the vote on the Dollar Tree merger agreement will be the critical point for Dollar General.  No surprise then that they are putting in effort to win a proxy fight.

-bjmq

September 23, 2014 in Hostiles, Proxy | Permalink | Comments (0) | TrackBack (0)

Treasury moves on Inversions

Sure as Fall has followed Summer, now Treasury is seeking to end the Summer of the Inversion by adopting rules to reduce incentives to pursue such deals.  If there is going to be any policy action to shut down inversions, it can only happen through Treasury because Congress has done what Congress does, which is gone home.  Treasury is tightening up its treatment of "hopscotch loans".  From the FAQ:

Prevent inverted companies from accessing a foreign subsidiary’s earnings while deferring U.S. tax through the use of creative loans, which are known as “hopscotch” loans (Action under section 956(e) of the code)

o   Under current law, U.S. multinationals owe U.S. tax on the profits of their controlled foreign corporations (CFCs) although they don’t usually have to pay this tax until those profits are repatriated (that is, paid to the U.S. parent firm as a dividend). Profits that have not yet been repatriated are known as deferred earnings.
 
o   Under current law, if a CFC, tries to avoid this dividend tax by investing in certain U.S. property—such as by making a loan to, or investing in stock of its U.S. parent or one of its domestic affiliates—the U.S. parent is treated as if it received a taxable dividend from the CFC.
 
o   However, some inverted companies get around this rule by having the CFC make the loan to the new foreign parent, instead of its U.S. parent. This “hopscotch” loan is not currently considered U.S. property and is therefore not taxed as a dividend.
 
o   Today’s notice removes benefits of these “hopscotch” loans by providing that such loans are considered “U.S. property” for purposes of applying the anti-avoidance rule. The same dividend rules will now apply as if the CFC had made a loan to the U.S. parent prior to the inversion.

Applying the anti-avoidance rules to hopscotch loans seems like both the minimum and the maximum that can be done absent some Congressional action on this issue.  

-bjmq

September 23, 2014 | Permalink | Comments (0) | TrackBack (0)

Sunday, September 14, 2014

Boston College Law is hiring

Boston College is looking to hire this year.  Here's the announcement:

BOSTON COLLEGE LAW SCHOOL seeks a full-time faculty member interested in establishing and teaching in a transactional clinic that emphasizes entrepreneurship, technology, and the innovation economy. The successful applicant will be expected to expand the offerings of one of our existing clinics or develop a new program, which may include hybrid arrangements with outside institutions such as incubators, corporations or law firms, and may include simulation as a method of instruction. The focus of teaching should be business formation, business transactions, taxation, or intellectual property. The successful applicant will play a major role in determining the clinic’s specific emphasis and operation. 

JD or equivalent law degree and significant experience in practice or in a clinical teaching environment are required. Candidates must also possess an entrepreneurial spirit and substantial organizational and management skills. Boston College is an Affirmative Action and Equal Opportunity Employer. We strongly encourage women, minorities and others who would enrich the diversity of our academic community to apply. Boston College, a Jesuit, Catholic university, is located in Newton, Massachusetts, just outside of Boston. Interested applicants should contact: Renée Jones, Chair, Appointments Committee at lawappts@bc.edu or at Boston College Law School, 885 Centre Street, Newton, MA 02459.

-bjmq

September 14, 2014 in Academic Jobs | Permalink | Comments (0) | TrackBack (0)

Friday, September 12, 2014

4 Names to Replace Berger

According to the Delaware Law Weekly, Delaware's Judicial Nominating Committee has sent four names to the governor's office to consider as replacements for the now retired Justice Carolyn Berger:

The candidates are said to be Superior Court President Judge James T. Vaughn Jr.; Superior Court Judge Jan R. Jurden; Joseph R. Slights III, former Superior Court judge and current Morris James partner; and Morris, Nichols, Arsht & Tunnell partner Frederick H. Alexander.

-bjmq

September 12, 2014 in Delaware | Permalink | Comments (0) | TrackBack (0)

Evidence Based Corporate Law

Vice Chancellor Laster has posted a 3 page comment titled Evidence Based Corporate Law on SSRN (also appearing in the Del J Corp Law). Here's the abstract: 

Abstract: John Maynard Keynes is said to have observed, "When the facts change, I change my mind. What do you do, sir?" In Delaware's Choice, Professor Subramanian argues that the facts underlying the constitutionality of Section 203 have changed. Assuming his facts are correct, and the Professor says that no one has challenged his account to date, then they have implications for more than Section 203. They potentially extend to Delaware's jurisprudence regarding a board's ability to maintain a stockholder rights plan, which becomes a preclusive defense if a bidder cannot wage a proxy contest for control of the target board with a realistic possibility of success. Professor Subramanian's facts may call for rethinking not only the constitutionality of Section 203, but also the extent of a board's ability to maintain a rights plan.

I know a lot of people who would be very interested in the prospect of the Delaware Supreme Court actually revisiting the question of the viability of the poison pill under Unocal.  

-bjmq

September 12, 2014 in Takeover Defenses | Permalink | Comments (0) | TrackBack (0)

Wednesday, September 10, 2014

Hostile Dollars

After warning yesterday that they might do it, Dollar General has gone hostile this morning with a tender offer at $80/share subject to the following conditions:

(i)  at least a majority of the outstanding shares tender, 
(ii) termination of the Amended Dollar Tree merger agreement and the voting support agreements,
(iii) entry into a merger agreement with Dollar General (in form and substance satisfactory to Dollar General in its reasonable discretion), including a second step 251(h) short form merger,
(iv) entry into  definitive tender and support agreements by certain Family Dollar shareholders,
(v) approval of the transaction under Section 203,
(vi) redemption of the Family Dollar Board poison pill, and 
(vii) approval by antitrust authorities.

All those reasonable questions that the Faily Dollar board has about the Dollar General bid are still out there.  Only now, Dollar General is going straight to the shareholders and asking them to make the decision.  Family Dollar does not have a staggered board so, in effect, the scheduled Family Dollar shareholder meeting that will be called this fall to vote yes/no on the Dollar Tree offer should be the referendum on the pair of transactions.  Between now and then, expect quite a bit of noise on both sides as they each make their case. 

-bjmq

September 10, 2014 in Antitrust, Hostiles | Permalink | Comments (0) | TrackBack (0)

AALS Call for Papers

The AALS Section on Business Associations is pleased to announce that it is sponsoring a Call for Papers for its program on Sunday, January 4th at the AALS 2015 Annual Meeting in Washington, DC. 

The topic of the program and call for papers is “The Future of the Corporate Board.” 

How will boards adapt to recent changes and challenges in the business, legal, and social environment in which corporations operate?  The recent global financial crisis and the continuing need for many corporations to compete internationally mean that today’s boards face economic pressures that their predecessors did not.  This pressure is heightened by the rise of activist investors, many of whom aggressively push for changes to corporate management and governance. On the legal front, new regulations, such as Dodd-Frank, impose heightened compliance and other burdens on many companies and boards.  And on the social front, pressures for socially responsible corporate behavior and greater racial and gender diversity on boards continues.  Our program seeks to examine the ways in which boards have, and will in the future, respond to these challenges.    

Form and length of submission

Eligible law faculty are invited to submit manuscripts or abstracts that address any of the foregoing topics. Abstracts should be comprehensive enough to allow the review committee to meaningfully evaluate the aims and likely content of papers they propose. Papers may be accepted for publication but must not be published prior to the Annual Meeting.  Untenured faculty members are particularly encouraged to submit manuscripts or abstracts.  

The initial review of the papers will be blind.  Accordingly the author should submit a cover letter with the paper.  However, the paper itself, including the title page and footnotes must not contain any references identifying the author or the author’s school.  The submitting author is responsible for taking any steps necessary to redact self-identifying text or footnotes. 

Deadline and submission method

To be considered, papers must be submitted electronically to Kim Krawiec at krawiec@law.duke.edu.  The deadline for submission is SEPTEMBER 122014

Papers will be selected after review by members of the section’s Executive Committee.  The authors of the selected papers will be notified by September 28, 2014. 

The Call for Paper participants will be responsible for paying their annual meeting registration fee and travel expenses.

Eligibility

Full-time faculty members of AALS member law schools are eligible to submit papers.  The following are ineligible to submit: foreign, visiting (without a full-time position at an AALS member law school) and adjunct faculty members, graduate students, fellows, non-law school faculty, and faculty at fee-paid non-member schools. Papers co-authored with a person ineligible to submit on their own may be submitted by the eligible co-author.

Please forward this Call for Papers to any eligible faculty who might be interested.

September 10, 2014 | Permalink | Comments (0) | TrackBack (0)