Wednesday, December 19, 2007
So, here is what I believe to be a good timeline of the negotiating history pieced together from Swedenburg's testimony:
- July 12: The lawyers meet, go through the merger agreement page by page, and state their positions. Nothing major is resolved, or was intended to be resolved. Essentially, the purpose of the meeting was to compile a list of open issues. The most important open issue, aside from price (which the lawyers didn't discuss), was the extent of Cerberus's liability.
- July 13-14: The principals meet, discuss the open issues, apparently resolved a few minor ones, but make no progress on Cerberus's liability, essentially restating their original positions. It's not an acrimonious meeting, though, and when they part, Cerberus has conveyed a general sense (reading between the lines here) that it is willing to make some concessions on this issue.
- Late night July 15 - Lowenstein sends its mark-up, in which it has made the changes to section 8.2(e) and 9.10 that have become the subject of this controversy. Reading between the lines again, Lowenstein likely thought this language had the same substantive effect as their previous proposal (i.e., deleting the second clause of the specific performance provision altogether), but that by redrafting the language, they were signaling their willingness to negotiate about this point. The peculiar form of the redraft suggests that they had some particular destination in mind for the negotiations, although we don't yet know what that end-point was.
- Early morning July 16: Swedenburg gets the July 15 draft and decides that it works for him. He parses the language carefully and concludes that URI can enforce Cerberus's equity commitment through RAM's specific performance obligation. Swedenburg tells his client that Cerberus has conceded this point, and he explains how the specific performance provisions will work. (This explanation is what URI is claiming attorney-client privilege for).
- July 16-18: The lawyers and the principals talk several times, but the subject of Cerberus's liability is never discussed. Cerberus and Lowenstein allude to it a few times, but URI and Swedenburg don't pick up on the allusion because they are satisfied with what they think is Cerberus's current proposal. Swedenburg tells Lowenstein that their draft is fine, subject to some "wordsmithing." Because Lowenstein doesn't realize the way their own language works, they assume Swedenburg means that URI is conceding the point about Cerberus's liability.
- Early July 18: In his return markup on July 18, Swedenburg makes what he thinks are two minor changes to Lowenstein's draft, correcting an erroneous cross-reference and deleting the words "seek specific performance or" from Section 8.2(e). He thinks these changes merely clarify his understanding of how the merger agreement's specific performance provision is intended to work. He also makes some changes to Lowenstein's draft of the limited guarantee, again to confirm the way that he thinks specific performance is supposed to work.
- Late July 18: Lowenstein gets Swedenburg's markup. They think he is trying to trick them and retrade the deal by inserting language that will allow URI to impose liability on Cerberus indirectly through RAM, when they believe URI has already agreed that Cerberus won't have liability beyond the guarantee amount. Lowenstein puts this item on the agenda to be discussed at the scheduled July 19 meeting between principals.
- July 19: Here is where things get hazy and heavy speculation kicks in -- it appears that sometime during July 19, Swedenburg realizes that there has been a misunderstanding. Going into the meeting, he thought that the specific performance point had been agreed and there were no major issues outstanding. Now he realizes that there has actually been no meeting of the minds on the most important non-price point in the deal. Nobody else at the meeting understands this. So when the subject comes up, both during the main meeting between principals during the day and the drafting session among lawyers later that night, Swedenburg concedes the language point quickly and, choosing his words very carefully, steers everybody away from any discussion of the substantive issue. [Again this is speculation and should be discounted as such]
- July 21: This wasn't in Swedenburg's testimony, but appears in the other filings and testimony. Steven Mayer mentions casually to Cary Kochman that RAM is buying an "option." Kochman explodes and says there is no way that UBS is going to take an option deal to URI's board. Mayer backs down and makes soothing noises.
So here are the issues, as I see them (for background see my post earlier today):
- Applying the forthright negotiator rule, here it appears that eater 1) there was never a common understanding or 2) there was a common understanding because Cerberus through Lowenstein negotiated as such and URI through Simpson knew or should have known that was the agreement. Did URI through Simpson actually know or should have known. This is the focus of the trial at this point.
- In this vein, what are Lowenstein's lawyers going to testify to today? Did Lowenstein also realize that there was an ambiguity in the final language, but reach the opposite conclusion from Simpson via Swedenburg (i.e., that the specific performance provisions wouldn't work for URI)? If so, how does that affect the outcome?
- If Chandler concludes there is no meeting of the minds and neither party is unclean, should he simply enforce the contract according to what he believes is the best reading (likely favorable to URI)? Or should he weigh the equities (Cerberus is repudiating a deal but URI may have been a bit unclean also although very uncertain)? How will this be treated on appeal?
- What about the July 21 conversation between Mayer and Kochman? Did Mayer realize then (or should he have) that URI thought the contract didn't let Cerberus walk away for $100 million? Had Lowenstein explained the ambiguity to Mayer, and did he decide to let URI continue in its delusion? If so, how does that affect the equities?
This is great stuff.
Final note: This post is based on the contributions of a number of anonymous contributors.