Wednesday, October 10, 2007
The New York Times yesterday had a story on the Acxiom deal termination (I'm quoted in it using the articulate word "really"). According to the Times:
WHEN Acxiom, the information services company, announced last week that its proposed buyers had backed out of their $2.25 billion deal to take it private, the company said that the two firms — ValueAct Capital Partners and Silver Lake Partners — had paid it $65 million, or half of the original $130 million breakup fee. But one important fact was left unsaid: Half of that $65 million fee would be paid by Morgan Stanley and UBS, two of the investment banks that had agreed to finance the deal and stood to lose tens of millions of dollars if the deal were completed because they would have to sell the debt at a discount from what they paid for it, according to people involved in the negotiations.
[NB. The $130 million "break-up" fee above is actually $111.25 million and is what Acxiom would term a damages cap -- see my other post Acxiom Coda Part II)]
The Times then proceeds to note a very interesting fact: Bank of America, a third bank which had agreed to finance the transaction, refused to share their part of the fee and is now in a dispute with ValueAct and Silver Lake who "have threatened to sever their longtime ties with Bank of America." Apparently, Bank of America's justification for not paying the claim is legal exposure to a claim for "tortious interference with contract".
BofA surely knows that the mere invocation of possible liability for this tort is likely to send shivers down an M&A lawyers spine. In the seminal case of Pennzoil v. Texaco, Pennzoil had an alleged informal, binding contract with the Getty Oil company to purchase the company. Texaco intervened with its own proposal and in a San Antonio, Texas court Pennzoil won a $10.53 billion judgement from Texaco on a tortious interference claim. Texaco was forced to declare bankruptcy and eventually payed a lower negotiated amount of $3 billion.
So, clearly BofA is invoking demons here. The question is if they have purchase. A likely case for tortious interference would be sited in Arkansas, headquarters of Acxiom. There, the elements of a claim for tortious interference of contract are:
(1) the existence of a valid contractual relationship or business expectancy; (2) knowledge of the relationship or expectancy on the part of the interferor; (3) intentional and improper interference inducing or causing a breach or termination of the relationship or expectancy; and (4) resulting damage to the party whose relationship or expectancy has been disrupted.
Mason v. Funderburk, 247 Ark. 521, 446 S.W.2d 543 (1969). In determining whether the conduct is improper, Arkansas has identified seven factors to be evaluated: (1) the nature of the conduct, (2) the proximity of remoteness of the conduct to the interference, (3) the motive of the alleged tortfeasor, (4) the relations between the parties, (5) the interests advanced by the tortfeasor, (6) the interests of the victim to be protected, and (7) societal interests in balancing freedom of action by one party with the contractual interests of the other party. Mason v. Wal-Mart Stores, Inc. 333 Ark. 3, 969 S.W.2d 160 (1998).
As an initial matter, the party who would bring this claim would have to be Acxiom or the buyers. But they have all signed a settlement agreement which presumably releases all of the parties from liability on any grounds arising from the terminated merger. So, the question is who could bring this claim? Hypothetically, an Acxiom shareholder might, but I do not think they would get very far particularly since the merger agreement has a no third party beneficiary clause. Even if there was a plaintiff, BofA could claim it was merely exercising it contractual rights under its financing commitment letters. Courts have repeatedly found that a valid exercise of contract rights is not an "improper" action to sustain a tortious interference claim. Ultimately, there is always uncertainty in litigation, but Bof A does not appear to have a good position here. The inherent uncertainty of American litigation, though, is clearly a benefit to them to the tune of about ten million dollars -- or at least enough to sustain a position that they do not need to pay it. Here, the victim is Silver Lake, ValueAct and the other two banks; whether BofA would take the same position with KKR or Blackstone -- two much bigger clients -- is for another day, though, I have my bets.