M & A Law Prof Blog

Editor: Brian JM Quinn
Boston College Law School

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Friday, May 11, 2007

Friday Culture: Barbarians at the Gate

As the private equity boom continues to thunder, this weeks' Friday culture selection is from a similar, yet different, time:  Barbarians at the Gate:  The Fall of RJR Nabisco.  The book, penned by two Wall Street Journal reporters, tells Kohlberg, Kravis & Roberts' victorious 1988 battle for the RJR Nabisco Corporation.  At the time, it was the largest buy-out ever valued at $25 billion.  The book is a classic.  And it is still the best book out there on Wall Street and the workings of the private equity buy-out game.  Ahh the 80's . . . . who could forget the days when you could stand outside the offices of Skadden Arps to discern from the building incomings and outgoings who was to be the next big buy-out target?  Enjoy.

May 11, 2007 | Permalink | Comments (0) | TrackBack (0)

SEC Proxy Round Table and the M&A Problem

The SEC held a round-table this past Monday to discuss the state of the proxy rules.  The webcast has now been posted.  Professor Ribstein over at Ideoblog was a participant, and has a nice post on his participation (see also a Reuters article about the roundtable here). 

Not discussed was the structural timing advantage tender offers have over proxy solicitations in takeover transactions.  Tender offers currently have a minimum offer period of twenty business days; this compares with a two- to three-month minimum period to complete a merger/proxy solicitation.  A main reason for this disparity is that, under Rule 14a-6 of the Exchange Act, a definitive proxy statement together with a proxy cannot be mailed until cleared by the SEC. While a 1992 rule change permits a preliminary proxy to be mailed so long as a proxy card is not included, no acquirer in practice does so, due to the continuing possibility of SEC review and comment. The obvious cure is for the SEC to revise the Exchange Act and reconsider its preclearance procedures for proxy statements before mailing and solicitation of proxies.  This would not cure the problem altogether as there are other timing rules under stock exchange and state law which would need to be curtailed, but SEC action would be an impetus for change.  It would also be a step in the right direction:  there is no longer any reason for a timing distinction between the two structures, and shareholders should have transaction information on a comparable timing basis no matter the structure of the transaction. 

May 11, 2007 | Permalink | Comments (0) | TrackBack (0)

The Big Oak that Could

The Wall Street Journal reported yesterday that Oaktree Capital Management LLC, an alternative investment firm, was circulating an offering memorandum to sell a 13% interest in itself for $700 million.  Oaktree is the latest firm to attempt to cash in on the private equity/hedge fund boom and follows in the heels of Fortress Investment Group's successful public offering and Blackstone's pending one. 

The Oaktree offering, though, has a slight twist.  The shares will not be publicly traded, but the units will trade in a private market developed by Goldman, "GS Tradable Unregistered Equity OTC Market" with the catchy acronym GSTrUE. The offering will be limited to investors who would otherwise be able to invest in hedge fund investments (i.e., high net worth individuals and funds).  Oaktree is actually 50% bigger than Fortress.  Fortress has about $35 billion of assets under management and at its current stock price and market valuation ($12 billion) is valued at a lofty 34% of assets under management.  So, Oaktree is valuing itself at a much lower price for this offering.  I playfully wonder if this is because sophisticated investors have a greater realizaion of the risks involved in these investments. 

The structure of the deal appears to be similar to the Fortress one in that the units will not carry voting rights.  The documents are private so we can't see if the shareholder disenfranchisement arises to the level of Fortress and Blackstone, but it will also be interesting to see if investors privately demand more rights.  Moreover, the liquidity provided by GSTrUE is likely to be low.   Not an optimal investment.  But Oaktree likely followed this path due to its desire to avoid the public disclosure and scrutiny necessitated by a public offering as well as the likely requirement to abide by the Investment Adviser Act if a public offering is made (for more on these regulatory issues in the context of Oaktree and the new GSTrUE market in particular see here). 

May 11, 2007 | Permalink | Comments (0) | TrackBack (0)

Thursday, May 10, 2007

Magna's Latest Gambit

The papers are abuzz today concerning the announcement of an agreement for Basic Element, the Russian industrial conglomerate owned by oligarch Oleg Deripask, to invest US$1.54 billion in Magna International, the Canadian auto parts maker. The speculation is that this investment is equity capital to fund Magna's acquisition of Chrysler.  Papers have reported that Magna is in the front-running in the Chrysler auction. 

I've blogged before about Chrysler's $16.5 billion in underfunded pension and health care liabilities.  The approval of the Pension Benefits Guaranty Board is therefore likely for any sale of Chrysler, and Daimler will likely have to contribute or take responsibility for these billions in pension liabilities to make such a sale happen.  But Daimler desperately wants a clean break from Chrysler, and is unlikely to agree to assume these significant additional liabilities.  Because of this, I believe the auction is likely for show and will not happen. 

Moreover, the speculation that Magna would take an investment at this point in anticipation of a Chrysler bid makes no sense.  The outcome of the Chrysler auction is uncertain and it would be irresponsible for Magna to undertake such a large capital raising on speculation.  Moreover, Deripask has all sorts of political baggage that would make a Chrysler acquisition that much harder.  Magna itself suggests the investment is to fund entry-way into the Russian car market.  Or perhaps it is to pay the $84 million Magna spent last year buying two country clubs from its controlling shareholders, according to its 2006 Annual Report.  The clubs are the Magna Golf Club located in Aurora, Ontario  and the Fontana Golf and Sports Club located in Oberwaltersdorf, Austria.  They are supposedly quite nice. 

May 10, 2007 | Permalink | Comments (0) | TrackBack (0)

Wednesday, May 9, 2007

Fortress Rides the Railroad

Yesterday, Florida East Coast Industries announced an agreement to be acquired by alternative investment fund operator Fortress Investment Group in an all cash deal valued at approximately $3.5 billion.  In the transaction, FECI will pay a special cash dividend of $21.50 per share and shareholders will receive $62.50 in cash for each share of FECI they hold. 

FECI is a Florida real estate developer and operates a railroad -- reports say it is the railroad Fortress is interested in -- Fortress also recently acquired RailAmerica in a transaction valued at $1.1 billion.  And Fortress, which itself recently went public (your chance to cash in on the private equity/hedge fund bubble), is also viewed as some of the smartest money on the street.  So, I read the merger agreement this afternoon hoping to find some clever things to write about that Fortress and its excellent counsel, Skadden, Arps, Slate, Meagher & Flom LLP, had managed to slip in. 

To my disappointment, I found nothing.  A slightly high but still seemingly permissible $100 million break fee; no financing contingency (Fortress actually has executed financing commitments from Citigroup Global Markets Inc. and Bear, Stearns & Co. Inc.); and no management involvement.  The only red herring I saw were the questions analysts raised on yesterday's conference call about a possibly rushed sale process.  Other than that, the other interesting thing I discovered is that the deal provides for a trust arrangement for the railroad operations if the necessary approval for the sale from the Surface Transportation Board is not obtained prior to the satisfaction of the other closing conditions.   

So maybe the deal is interesting because it is so plain vanilla for a cutting-edge shop like Fortress?  Or maybe it was that relatively-low 13% percent premium?  Stay-tuned.      

May 9, 2007 in Private Equity, Takeovers | Permalink | Comments (0) | TrackBack (0)

Thomson/Reuters' Dual Listed Company Structure

Yesterday, Reuters and Thomson issued a press release outlining the terms of a possible $17 billion transaction.  The first heading of the press release caught my eye; it stated that the combination could be:

effected by the creation of a Dual Listed Company structure by means of an equalisation agreement with both companies’ primary listings being maintained. The structure is expected to facilitate retention of the existing equity index inclusions of the two companies.

A dual listed company structure is a virtual merger structure utilized in cross-border transactions.  The companies do not actually effect an acquisition of one another, but instead enter into an unbelievably complex set of agreements in which they agree to equalize their shares, run their operations collectively and share equally in profits, losses, dividends and any liquidation.  Examples of these arrangements are BHP/Billiton (BHP an Australian company and Billiton an English Company), Carnival (an English and Panamanian company), and Rio Tinto Group (an Australian and English company).

The structure is usually characterized by the parties as a true merger of equals since there is no acquiring company.  It is a way for companies in different jurisdictions to preserve beneficial dividend treatment (e.g., the franking credit in Australia) and inclusion in their home country indexes.  It is also a mechanism to stem flow-back into one country or another as the shares in one company are not exchangeable for the other.  Finally, because no company actually takes over the other and each remains domiciled in their home country, it is one way to salve issues of nationality or national security.  Often, the arrangements are viewed a stepping stone to a full merger (as was the case of Brambles which unwound in 2005).  But these arrangements are unwieldy and governance of multiple boards and nationalities sometimes a problem.  This was why Unilever (the Anglo-Dutch DLC) unwound its structure in 2005.  After Unilever, these structures fell out of favor -- viewed by practitioners as too unwieldy, though this appears to be no longer the case.  And finally, there can be some bizarre results -- it is rumored that BHP/Billiton will make a bid for Rio Tinto Group; if it does so, the BHP English company would likely make a bid for RT's English pair; the BHP Australian company for RT's Australian pair.  How the mechanics of each jurisdiction would work to accommodate this bid is uncertain.   

The Reuters/Thomson transaction is likely moving towards a DLC structure in order to preserve the inclusion of the combines company in the FTSE 100 among other reasons.  I am not aware of any prior Canadian/English DLC.  So the complex tax, accounting and legal aspects of a DLC structure will no doubt perplex Thomson's and Reuters' attorneys and accountants for awhile.  And for that matter there is still no true U.S. DLC.  BP came close in 1998 with Amoco, but the SEC refused to allow pooling accounting and so it was at the last minute converted into a true acquisition.  But Carnival is pretty close, the Panamanian company has equivalent U.S. corporate governance provisions and is treated as a U.S. tax-domiciled entity.  Legal geeks should note that the SEC recently revised its position on the requirement to register the shares of newly-formed DLCs.  Historically, the SEC did not require a new registration statement to be filed as the shares of both companies remained outstanding and there was no triggering offering.  But, with the Carnival DLC the SEC took the position that the changes in the character of the securities of the company were so fundamental that a registration statement is now required with respect to both sets of shares of the DLC.  More ways for U.S. lawyers to earn money.

May 9, 2007 | Permalink | Comments (1) | TrackBack (0)

The Bloomin' Onion

Steak is in the news.  Yesterday, I blogged about the private equity buy-out of Smith & Wollensky Restaurant Group.  Today, OSI Restaurant Group, owner of the Outback Steakhouse and Cheeseburger in Paradise restaurant chains, is the story.  OSI yesterday announced that it had postponed the special meeting of its stockholders regarding its proposed $3.2 billion acquisition by an investor group consisting of Bain Capital Partners, LLC, Catterton Management Company, LLC, OSI's founders and its executive management.  According to OSI, the meeting was postponed to May 15, 2007 in order to solicit additional votes.

The postponement is yet another sign of shareholder resistance to management/private equity buy-outs at perceived bargain prices.  In the past month, shareholders of Clear Channel Communications and Qantas Airways have struck up successful resistance to such acquisition proposals.  The OSI buy-out was also notable for wide-spread participation of OSI management, including its founders, CEO, COO, CFO and Chief Legal Officer.  According to the proxy, these executives waived $17 million in change of control compensation in connection with the acquisition proposal.  Their participation and financial subsidy put any competing bid at a substantial handicap.  And not surprisingly, this was yet another example where a 50 day go-shop negotiated by Wachtell failed to find any competing bids (for the potential problems with these provisions see my blog here).

In connection with the postponement, the Wall Street Journal reported that OSI was forced to cancel a $550 million bond sale, underwritten by J.P. Morgan and Bank of America, and made on April 26, 2007 to finance the buy-out.  OSI was forced to cancel the sale since the first settlement day for the bonds was today, and the bond sale was conditional on shareholder approval of the acquisition.  The bond sale will be unwound, but OSI is now in a position where it will have to refinance the deal and incur yet additional underwriting fees for an acquisition proposal which shareholders appear to feel lukewarm about.  If the acquisiton is voted down, these shareholders will also be saddled with these expenses.  The drop-dead date for the merger agreement was April 30, 2007, and either party can now terminate the deal.  Given the position of OSI's shareholders, the commitment of OSI's board to postpone the date for the meeting without an increase in the consideration paid is a dubious one, though a permissible exercise of judgment under its fiduciary duties. 

May 9, 2007 | Permalink | Comments (0) | TrackBack (0)

The Truth in U.S. Antitrust Policy

Thom Lambert over at Truth on the Market has a very nice commentary on an interview in Antitrust, the ABA antitrust section magazine, with Senator Herb Kohl (D-WI), the new chairman of the Judiciary Committee’s Antitrust Subcommittee.   Senator Kohl is apparently quite opposed to AirTrans' unsolicited bid for Midwest Airlines, a Milwaukee based airline, and has been doing everything in is power to stop it.  Professor Lambert has an extensive critique of the interview.  He ably reveals the deep misunderstanding of antitrust law by one of our chief policy-makers.  To quote Lambert:  Kohl's "remarks demonstrate almost no understanding of antitrust’s role and purpose and instead treat antitrust as a just another tool for protectionism."  It's worth a read. 

May 9, 2007 | Permalink | Comments (0) | TrackBack (0)

Tuesday, May 8, 2007

Mmmm . . . . Steak

The bidding war for Smith & Wollensky Restaurant Group reached another milestone yesterday when a consortium consisting of Nick Valenti and Joachim Splichal, and the private equity firm of Bunker Hill Capital, L.P. (known as the Patina Restaurant Group) raised their offer to $11 per share, or approximately $95 million.  The new offer beats a competing bid from Landry's Restaurant Inc., owner of the Rain Forest Cafe among other restaurants, by $1.25 per share and is $15 million more in value than the Patina group's original offer in February of $79.6 million, or $9.25 per share.  S&W, on the recommendation of their board special committee, has accepted the revised offer and the parties have amended their pending merger agreement to incorporate these terms. 

S&W Chief Executive Alan Stillman and owner of 16.6% of the company has agreed to vote in favor of the consortium offer.  He will, in connection with the purchase, also acquire two of S&W's New York City restaurants -- Quality Meats and Park Avenue Café, and enter into management contracts for the S&W steakhouse on Third Ave. down the street from Shearman & Sterling and Simpson Thacher, the Post House and Maloney & Porcelli (the last is home of the Crackling Pork Shank).  Interestingly, the Third Avenue restaurant is not owned by S&W and has always been held by an independent partnership.  Mr. Stillman will pay approximately $6.8 million for the two restaurants and assume debt.  The amount is approximately $1.5 million more than in the original Patina agreement.

The deal proves the proposition that the smaller the deal, the more complicated it is.  It's also muddied by Stillman's involvement -- and again highlights the possible perils of management buy-outs.  The proxy for the consortium deal still hasn't been filed so Stillman's exact pay-out with respect to the acquisition is still an unknown.  Still S&W hasn't been doing that great and growth prospects are low according to this recent New York Observer article. Its stock has fallen 41 percent according to the Houston Chronicle and it has had five consecutive years of losses.  In fact, it has never been profitable since selling shares to the public in 2001.  So, it appears to be a good offer.  According to the Chronicle, Landry's is still in the running for a potential counter-bid, so it may get even better.

Note to Landry's when considering your counter-bid:  The amended Patina agreement has not yet been filed but the old agreement had a $2,464,600 termination fee plus reimbursement of expenses up to a maximum of $600,000.

May 8, 2007 | Permalink | Comments (0) | TrackBack (0)

In re: Appraisal of Transkaryotic Therapies, Inc.

On May 2, 2007, Chancellor William B. Chandler of the Delaware Chancery Court issued an opinion  in the appraisal rights proceeding arising from Transkaryotic Therapies' acquisition by Shire Pharmaceuticals (see a news report here).  Approximately 34.6 percent of Transkaryotic shareholders have sought such appraisal rights.  The issue before the court was "whether under 8 Del. C § 262 [Ed. Note: the Delaware appraisal statute] a beneficial owner, who acquires shares after the record date, must prove that each of its specific shares for which it seeks appraisal was not voted in favor of the merger?"  After a short analysis, the court answered the question in the negative.  It stated, "under the literal terms of the statutory text and under longstanding Delaware Supreme Court precedent, only a record holder, as defined in the DGCL, may claim and perfect appraisal rights.  Thus, it necessarily follows that the record holder’s actions determine perfection of the right to seek appraisal."  Accordingly, TKT's attempts to "examine relationships between Cede (the record holder) and certain non-registered, beneficial holders in order to determine the existence of appraisal rights" were inappropriate as a matter of law.  Chancellor Chandler stated that, "[a] corporation need not and should not delve into the intricacies of the relationship between the record holder and the beneficial holder and, instead, must rely on its records as the sole determinant of membership in the context of appraisal."

Applying the holding to the facts of the case here, Cede was the record holder of 29,720,074 shares of TKT.  It voted 12,882,000 shares in favor of the merger and 16,838,074 against, abstained, or not voted in connection with the merger.  The court stated that it was uncontested that "Cede otherwise properly perfected appraisal rights as to all of the 10,972,650 shares that petitioners own and for which appraisal is now sought." Accordingly, the court held that since the "actions of the beneficial holders are irrelevant in appraisal matters, the inquiry ends here."  The decision means that the appraisal rights proceeding will proceed and Shire will continue to have substantial liability exposure due to the high number of dissenting shareholders here. 

Over at the Harvard Law School Corporate Governance Blog, Lawrence Hamermesh, a well-known professor at Widener University School of Law, has some nice commentary on the decision.  In a post worth quoting from extensively, Professor Hamermesh states:

The Chancellor acknowledges the policy concern expressed by TKT: namely, that this reading of the law would “pervert the goals of the appraisal statute by allowing it to be used as an investment tool for arbitrageurs as opposed to a statutory safety net for objecting stockholders.”  As to this objection, the Chancellor embraced a conservative view of the judicial role: he invited legislative attention to “the evil, if it is an evil.”

How “evil” or “good” this ruling proves to be may depend in significant part on the ultimate resolution of the valuation issue.  At this point, I’m not deeply troubled.  As Michael Wachter and I noted in The Short and Puzzling Life of the “Implicit Minority Discount” in Delaware Appraisal Law (at pages 44-45, forthcoming in the University of Pennsylvania Law Review), one would ordinarily expect the purchase price in an arm’s-length acquisition to exceed the “fair value” to be awarded in appraisal litigation--in which “fair value” must, according to settled judicial interpretation of 8 Del. C. § 262(h),  exclude synergistic merger gains.

Accordingly, there should ordinarily be no incentive for arbitrageurs to use the appraisal remedy “as an investment tool,” since those who seek appraisal under Delaware law have to refrain from receiving even the merger price itself until the conclusion of the appraisal proceeding. 

May 8, 2007 | Permalink | Comments (0) | TrackBack (0)

Shareholder Power!

Today on bloomberg.com there is a nice article on investment funds' increasingly vocal voice in negotiating private/equity leveraged buy-outs (a topic I blogged on last week in the context of the Clear Channel deal).  The article states:

Disgruntled investors are ``saber-rattling to get the price up,'' said Steven Kaplan, a professor at the University of Chicago who studies buyouts. They're also wary of company managers who ally with private-equity firms in exchange for promises of bonuses and promotions following an LBO. Some shareholders consider it a conflict of interest.

I couldn't agree more. 

May 8, 2007 | Permalink | Comments (0) | TrackBack (0)

Dow Jones, Dual Class Stock and Public Trusts

Peter Kann, the retired chairman of Dow Jones & Co., yesterday sent a letter to the Bancroft family.  In the letter he states he admires them "for doing what is right," in rejecting News Corp.'s $5 billion offer for the company.  He further states: 

I clearly can understand that in rejecting a takeover offer you are foregoing some financial benefit. To that I can only say that you are not alone in seeing other and even higher priorities. There are many people in our larger society who make career and other decisions that do not always maximize financial benefit. . . . . Rather, they devoted their careers, and they still do, to something more important -- to pursuing a form of public service in a company that has seen itself as a public trust and that has been protected by a family that shares that commitment.

Kann's letter is a follow-up to the letter sent over the weekend by James H. Ottaway Jr., holder of 6.2% of Dow Jones.  In that letter Ottaway also cited the public trust doctrine to justify the Bancrofts' refusal to sell:

The Bancroft family has treated Dow Jones as a public trust, not for personal or political interests, or maximum enhancement of family wealth by sale to a high bidder. The family has respected its inheritance as a responsibility to protect an important national institution that plays a major role in American democracy and debates of public issues because of its editorial independence and high news quality standards.

Dow Jones has a dual-class stock structure which provides the Bancroft family voting control of the company without an equivalent economic interest.  Though I am against dual class stock due to the agency problem, I'm not terribly sympathetic to the minority shareholders here who are foreclosed from this acquisition opportunity due to their relative disenfranchisement.  They bought their shares with full knowledge of this arrangement.  To complain now strikes of hypocrisy (Bainbridge agrees with me in the context of the dispute over a similar share structure at the New York Times). 

Still, I'm not sure that the shareholders of Dow Jones thought they were buying into a public trust, that is a company run for purposes other than profit.  Moreover, while the family can (almost) certainly refuse to sell for any reason they choose, the board of directors of Dow Jones cannot run the company as it is currently structured as a public trust under Delaware and other law (remember the old Michigan case Dodge v. Ford which held that Henry Ford owed a fiduciary duty to his minority shareholders to operate Ford Motor Co. for profitable rather than charitable purposes.).  The purpose of a for-profit company is to be run for profit.  If Dow Jones' controlling shareholders want to run a public trust they can do so without resort to public shareholder financing.  They can buy their minority out and perhaps then donate the shares to a true public trust.  Until then, Dow Jones' board of directors have fiduciary duties to their minority shareholders which make public trust notions, at least in their purest sense, inappropriate. 

May 8, 2007 | Permalink | Comments (0) | TrackBack (0)

Monday, May 7, 2007

Clear Channel (The Deal That Just Wouldn't Die)

Clear Channel announced today that it had yet again delayed its shareholder meeting to vote on the agreement to be acquired by a private equity consortium led by Bain Capital Partners, LLC and Thomas H. Lee Partners, L.P. in a deal worth $26 billion.  The new date for the meeting is Tuesday, May 22, 2007, at 1:00 p.m., Central Daylight Savings Time.

Interestingly, the delay is to reconsider the proposal of the consortium previously made and rejected by the board on May 3rd.  Clear Channel's press release states:

Since that time, a number of shareholders of Clear Channel, including some of its largest shareholders, have contacted members of the board or its financial advisor and asked the board to delay the date of the special meeting in order to provide them an opportunity to consult with the board on the proposed change in structure and terms.

According to Clear Channel, the proposal as it currently stands contemplates:

(i) an increase in the merger consideration to be paid to all shareholders from $39.00 to $39.20 per share and (ii) the opportunity for each unaffiliated shareholder to elect between cash and stock in the surviving corporation in the merger (up to an aggregate cap equivalent to 30% of the outstanding shares immediately following the merger (or approximately 6% before the merger)).

I previously blogged before on Clear Channel's Lessons, one of which was the emerging voice of hedge funds for shareholders in private equity/management buy-outs.  Looks like this voice is getting stronger. 

May 7, 2007 | Permalink | Comments (0) | TrackBack (0)

Alcoa's Canadian Bear Hug

Alcoa today announced that it had delivered a letter from its CEO to the CEO of Alcan, the Canadian aluminum company, notifying it that Alcoa intended to offer to acquire all of the outstanding common shares of Alcan Inc. for US$58.60 in cash and 0.4108 of a share of Alcoa common stock per Alcan share in a transaction valued at $33 billion.  Alcoa expects to commence its offer tomorrow.  alcan's response is here.  Alcoa, with a market capitalization of approximately $34 billion is roughly the same size as Alcan.  The bid comes after two years of fruitless talks reports Marketwatch.  In a boon to the French Canadians, Alcoa announced that the combined company will have dual head offices in Montréal (where Alcan is currently headquartered) and New York. Montréal would also be the headquarters for Alcoa's global primary products business.  Alcoa stated that they did not expect any major antitrust impediment to the transaction, but did expect to have to make asset dispositions to satisfy regulators.

The bid comes on the heels of a prior major consolidation in the aluminum industry in March when the Russian aluminum producers RUSAL and SUAL joined and acquired Glencore’s alumina assets to become United Company RUSAL, the world’s largest aluminum producer.   Alcoa's measure could also be viewed as a takeover defense maneuver against rumors that Alcoa itself would be acquired by a consortium of BHP Billiton and Rio Tinto.

Alcan is listed on the Toronto Stock Exchange and the New York Stock Exchange.  The bid will be governed by both U.S. and Canadian law.  Notably, the bid will be governed by the Quebec securities regulator and the Quebec Securities Act.  The laws on takeover defenses under Quebec law are different than the United States.  Alcan has a poison pill, and though these are permitted under Canadian law, the Canadian securities commissions have been willing to force companies to terminate their poison pill if the activities of the board of directors of the target company to improve the bid or to develop other alternatives have reached a point where they are simply denying shareholders the opportunity to accept the bid. In prior cases, this period has been in the range of 35 to 50 days.  But, these cases largely arise from Ontario, not Quebec.  Given the prominence of Alcan in Quebec and traditional nationalism among the French Canadians and indeed Canadians themselves, it will be interesting to see if the Quebec Securities Commission is as quick to act if Alcan decides to resist the bid (For more on Canadian nationalism and the deal see the Deal Book post here). 

May 7, 2007 | Permalink | Comments (1) | TrackBack (0)

ABN Amro's Self-Inflicted Wounds

The Management and Supervisory Board of ABN Amro today announced that they had rejected the RBS-led consortium's $24 billion dollar bid for LaSalle Bank.  The boards refused to deem it a Superior Proposal under ABN Amro's current agreement to sell LaSalle Bank for $21 billion to Bank of America.  Under that agreement, an alternative bidder had the opportunity to execute a definitive agreement for LaSalle Bank if it made a Superior Proposal, one that was for cash and not subject to a financing condition (see my earlier post fully setting out these terms here). The 14 day "go shop" period expired on 6 May 2007.  Accordingly, the sale of LaSalle will now be decided by ABN Amro's shareholders in a court-ordered shareholder vote. 

Under normal circumstances, the rejection may have been justified due to the conditionality in the RBS's groups bid.  It was inter-conditional on the consortium's bid for all of ABN Amro and required shareholder approval by the consortium members' shareholders.  ABN Amro also attempted to assert today that the bid was conditional on financing although that is not entirely clear. 

But this is not normal circumstances.  ABN Amro has made a hash of this sale process through its favoritism of Barclays and Bank of America.  ABN Amro's attempt to clinch a sale of itself to Barclays through a crown-jewel sale of LaSalle Bank to BofA has potentially ruined a higher bid for the entire company, and has led them into potentially ruinous litigation both in Dutch and American courts (though I am a bit skeptical of an American court actually interceding here to trump a Dutch form of an injunction).  Shareholders of ABN Amro should be rightly angered, though they may have few remedies under Dutch law. 

Update:  ABN Amro also stated today that it would not recommend the hostile $96.4 billion mostly cash takeover offer from the RBS-led consortium.  Instead, ABN Amro stated it would let shareholders decide between that bid and the previously recommended all-share bid by Barclays PLC of approximately $87.1 billion.  ABN Amro asserted it could not recommend the RBS offer because it was "subject to numerous further conditions." In response, I link to an AP report which states: 

Kempen & Co. analyst Ryan Palecek told Dow Jones Newswires that ABN's rejection of the RBS-led bid for LaSalle could be a sign that ABN Amro is still trying to obstruct the consortium.

"The points in the consortium's offer which supposedly lack clarity ... appear to be" routine details, Palecek said . . . .

May 7, 2007 | Permalink | Comments (0) | TrackBack (0)