Friday, July 10, 2009
Over at Akron Law Café, Professor Stefan Padfield blogs about my remarks on training transactional lawyers given at the AALS's midyear meeting focusing on business law. (Usha Rodrigues previously commented on these remarks over at TheConglomerate).
Unrelated to my remarks, there’s been a flurry of recent posts related to lawyer training and the utility of law schools. Several of these have been in reponse to this post by Paul Lippe. See here and here (same post, different comments), here, here and here. Gordon Smith has been thoughtfully commenting on the topic for quite some time (for a small sample, see here, here, here, here and here).
Many critics of the current law school model point to medical school as the way things should be done. I have to say, I don't find atempts to analogize law school to medical school persuasive. Among other things, to get into medical school, a student has to have already taken a significant number of substantive courses. For example, most medical schools require applicants to have completed at least one full year of each of Biology and Physics and two full years of Chemistry (including Organic Chemistry), together with associated lab work. In law school, many students are, in effect, starting from scratch, with no prior legal or business training or experience. As a result, more substantive training is necessary, leaving less time for practical training. In addition, those holding medical school up as a model of hands-on practical training often skip over the fact that medical school is four years, the first two of which are devoted to teaching substantive courses.
Thursday, July 9, 2009
Have you ever been at a meeting and need a provision of the DGCL with no statute at hand?
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In the Broadcom-Emulex battle that was before Vice Chancellor Strine earlier this week, Vice Chancellor Strine took Broadcom to task for “punking out” by walking away from the litigation and structuring its offer in a way that prevents the court from ruling on the just-say-no defense. Rather than make their offer conditioned on the board pulling the poison pill, Broadcom conditioned its offer on the board accepting a friendly deal. Those, as Strine noted in an office conference (transcript) among the parties are two different animals. The former being an interesting and live, judiciable question and the latter looking akin to “a TW Services or SWT? It’s always messed up, because one was the plaintiff. Right?”
Of course, there were more “Strine-isms” from the office conference. By this time, it’s clear that Broadcom got the Vice Chancellor’s nose out of joint for wasting the court’s time. The court is offering to allow defendants to continue their discovery even though Broadcom dropped out of the litigation after it completed its discovery.
Strine: Get me your subpoena. You guys come back to me if Broadcom changes its approach. We will take stock at the end of next week. I expect you all to speak with each other before you come back to me within the plaintiff camp. You know, talk seriously. Like I said, I am sensitive to the amount of time and effort on both sides that – of all the lawyers in the room, and the lost time with family, and lost sleep, and time spent in going through airport security, which is a brilliant thing. When are they going to end the liquid ban? I swear, I think you could get – if you could find a – somebody should run for president. The idea is like any person – any employee of the airlines can shoot somebody if they have more than four liquid containers on their tray and -- you could get elected on that. At least you would have a very high percentage vote among air travelers.
The Vice Chancellor offering his opinion on the incentives facing the named plaintiff in the case who owns exactly one share of Emulex stock:
Strine: … And that’s why I’m telling you all I’m more interested, terms of expedition, if we get past this, in the supermajority bylaw. But you want to be serious with yourselves and the clients. I’m not talking about Mr. Middleton. I’m not saying he doesn’t have, technically, standing, but in the room we – I could make him happy, you know, even with – I could take it.
Mr. Smith: A Happy Meal would make him happy.
Strine: I could – I could double the 11-dollar offer and make Mr. Middleton happy. And he would be – the Middleton Fund would have a great return for the year. And I mean – he could go to – I could recommend if he came here, he could go to Libby’s three days in a row, and he could eat well. But after that, he would be out of skin in the game.
For the record, given that Emulex adopted its pill and other defensive measures in response to early offers from Broadcom and not on a clear day, it’s possible that the Vice Chancellor could have ordered Emulex to pull its pill. But now we’ll never know.
The Deal Professor has a good run down of the legal issues in this case.
Update: Broadcom drops its bid and punks out completely.
Tuesday, July 7, 2009
On July 2, the FDIC released a Proposed Policy Statement on Qualifications for Failed Bank Acquisitions. The purpose of the release is to provide private investors, including private equity funds, with guidelines regarding the terms and conditions of investments or acquisitions of assets and liabilities of failed banks or thrifts.
Steven Davidoff over at the Deal Professor has been doing a great job following the in's and out's of the legal issues related to the ongoing NRG/Exelon battle so I haven't spent much time on this trasnaction (here, here, here, and here). Fortune magazine is pitching in with a a nice "inside the boardroom" view of the transaction as well. One thing appears clear from the Fortune piece is that both parties knew from the get go that the $8.5 billion poison put would be a factor from the very beginning. Nothwitstanding that potential roadblock, Exelon has pursued NRG relentlessly since last October. Now it is all coming to a head in a familiar dance. Exelon is purusing a proxy fight and seeking to oust the NRG board. NRG's board has been urging shareholders to resist Exelon's "inadequate" offer.
All of this has started me thinking about the hostile takeover. Just a year or two ago, people thought that the combination of staggered boards and the poison pill meant the end of the hostile takeover. However, now that market capitilizations have fallen 60% of the all-time highs, there is some life in the hostile acquisition model. The EMC/NetApp/Data Domain contest is an example as is the CF Industries/Agrium transaction. This new "mini-wave" of hostile acquisitions differs from the hostile activity of the 1980s, though. This time around the acquirers are strategic buyers with cash and not LBO funds. For the time being leverage appears to be dead. One wonders whether the nature of the buyers will affect the way these hostile transactions are received in the marketplace and by the courts.
Monday, July 6, 2009
I just posted the first draft of an edited version of my remarks given at the 2009 mid-year meeting of the AALS Conference on Business Associates. It's available for download here.
Here's the abstract:
Since at least the 1980’s, law schools have been chided for doing a poor job at teaching skills. This criticism has been accompanied by pressure to increase their emphasis on skills training. The pressure increased with the publication of the McCrate Report in 1992, and then again with the publication of the Carnegie Report in 2007. But is the underlying premise correct?
This article is an edited version of my remarks given at the 2009 mid-year meeting of the AALS Conference on Business Associates. In those remarks, I respond to the questions “Are law schools teaching students adequate transactional skills?” and “From the standpoint of preparing students for a transactional practice, what would you like to see law schools change?”
To answer these questions, I first examine what exactly people might mean when they refer to skills. After describing different categories of skills, I discuss which of these law schools can and should teach, and which should be left to law firms. Finally, I share some thoughts on how law schools can change to better prepare their students for a transactional practice.
Delaware's Judicial Nominating Committee recently posted a job opening for a Vice Chancellor to replace retiring Vice Chancellor Stephen P. Lamb (Huntsman v Hexion, San Antonio Fire & Police Pension Fund v. Amylin Pharmaceuticals, among many others) Delaware's courts are required to maintain political balance, so a successful applicant for this $174k job must be a member of the Republican Party.
The Federal bankruptcy court approved GM's petition to sell substantially all of its assets to New GM Co. in a 363 sale last night. The following documents were released by the court:
1. The Decision On Debtors Motion For Approval Of (1) Sale Of Assets To Vehicle Acquisition Holdings Llc; (2) Assumption And Assignment Of Related Executory Contracts; And (3) Entry Into UAW Retiree Settlement Agreement (95 pages);
2. Order Granting (I) Authorizing Sale Of Assets Pursuant To Amended And Restated Master Sale And Purchase Agreement With New GM Co, Inc., A U.S. Treasury-Sponsored Purchaser; (Ii) Authorizing Assumption And Assignment Of Certain Executory Contracts And Unexpired Leases In Connection With The Sale; And (Iii) Granting Related Relief (184 pages); and
3. Order Pursuant To Bankruptcy Code Sections 105(A), 361, 362, 363, 364 And 507 And Bankruptcy Rules 2002, 4001 And 6004 (A) Approving Amendment To DIP Credit Facility To Provide For Debtors Post-Petition Wind-Down Financing (84 pages).
Saturday, July 4, 2009
If the interlocking ownership structures that characterize the chaebol system didn’t already make it hard enough for the market for corporate control to operate in Korea, the Ministry of Justice is apparently moving quickly to legalize the use of shareholder rights plans as part of its fight against the economic downturn and provide yet more breathing space for management.
According to today’s Korean Herald:
The government will … introduce the "poison pill system," or the corporate protection measure to curb hostile takeover bids and allow companies to invest their reserve cash in investment activities.
The Korean Times quotes the Minister of Justice as saying:
"The business circle has strongly demanded introduction of measures for managerial rights protection, and the transition committee also demanded considering it. We will push for the introduction of devices that suit global standards after discussion with other ministries.”
Of course, while the domestic Korean business community is thrilled with the “poison pill system” a sample of Korean editorial opinion is less excited about the prospect of building yet more walls to entrench management of Korea’s Chaebol. The Hankyoreh suggests that the answer to Korea’s economic woes might lie in better managers and not more protection for failed managers. The Korea Times is skeptical that more protection of Chaebol control will result in more investment and employment.
To better put the proposed changes in context, it’s worth remembering the Asian Financial Crisis of 1997. Much of the Korean end of that crisis was blamed on poor corporate governance of the Chaebols. Since 1997, Korea has been struggling to find a way forward. Opening up its capital markets and freeing up the market for corporate control has been controversial and not popular locally. Kim’s paper on Corporate Governance in Korea provides a good overview of the issues that are in part motivating the introduction of the “poison pill system.”
Friday, July 3, 2009
Can Secured Creditor Foreclose on Substantially All the Assets of a Debtor without Stockholder Approval?
An interesting question appeared in my in-box a few days ago from the ABA’s Private Equity/Venture Capital Listserve. Here is a somewhat edited version (thanks to Peter Sugar for helping me refine the question):
Creditor makes a loan to Debtor. The loan is secured by the stock of a wholly owned subsidiary of Debtor. The stock constitutes substantially all of the assets of Debtor. So, under the terms of the loan, upon a default, Creditor can take 100% of the shares in the subsidiary.
The loan is in default and Creditor plans to exercise its rights to acquire 100% of the shares in the subsidiary. Under the relevant statute, the sale, lease, or exchange of all or substantially all of a company’s assets must be authorized by the affirmative vote of its stockholders.
Here's the question: Should any of this be put to a shareholders' vote?
I asked my partner Steven Weise what he thought (something I do quite often) and he pointed to Sections of the California and Delaware Corp. Codes:
California Corp Code § 1000:
"Any . . . pledge or other hypothecation of all or any part of the corporation's property, real or personal, for the purpose of securing the payment or performance of any contract or obligation may be approved by the board. Unless the articles otherwise provide, no approval of shareholders . . . shall be necessary for such action."
Delaware GCL § 272:
“The authorization or consent of stockholders to the mortgage or pledge of a corporation's property and assets shall not be necessary, except to the extent that the certificate of incorporation otherwise provides."
So if Debtor is a California or Delaware corporation, no stockholder vote is necessary to enter into the loan agreement or pledge the stock of the subsidiary.
He went on to say he thought that the foreclosure by the secured party should not require shareholder consent because such a requirement (i) would make these statutory provisions useless and (ii) a foreclosure is not a sale "by" the corporation.
But what if, instead of foreclosing, the Creditor works out a negotiated settlement with the Debtor pursuant to which the loan is satisfied by the stock of the subsidiary? Could you argue that (i) the right to enforce is inherent in the creation of the security interest and (ii) the reasonable anticipation of the parties when a security interest is created is that the secured loan will be paid and the security interest won't be enforced, so (iii) if there is a default, even in a settlement, it's still "involuntary" because of the threat of foreclosure?
Thoughts in the comments are welcome.
Thursday, July 2, 2009
In a previous post, Mike noted that US antitrust authorities have a adopted a more aggressive enforcement stance following the change of administrations. There's another example of the more vigorous enforcement attitude this morning. According to the WSJ, the DOJ has filed comments with the Department of Transportation objecting to a grant of blanket antitrust immunity with respect to United and Continental's plan to share pricing and scheduling information as part of the "Star Alliance." (Continental is leaving "SkyTeam" to join "Star Alliance." The 58 page comment letter outlining the DOJ's objections is summarized below:
Antitrust enforcement has played a vital role in bringing increased competition and consumer benefits to the deregulated airline industry. Accordingly, any exemptions from the antitrust laws should be strongly disfavored. To overcome the presumption against antitrust immunity, applicants must demonstrate that their collaboration will generate significant public benefits that outweigh any harm to competition, that they cannot achieve those benefits without immunity, and that they have narrowly tailored the requested immunity to achieve the benefits claimed.
For many past applications, the principal public interest benefit furthered by DOT's grant of immunity has been the negotiation of open skies agreements with the home country of the U.S. carriers' alliance partners. In the present matter, open skies agreements have been signed with the home countries of all the foreign applicants, and those foreign carriers will continue to be members of the immunized alliances whatever DOT decides here. Granting immunity for Continental to coordinate with Star ATI Alliance' members on U.S. to Latin American or Pacific routes is not likely to result in further liberalization discussions between the U.S. and countries with which we have not yet negotiated open skies, such as China or Brazil. Therefore, an expansion of immunity offers no open skies benefits for U.S. consumers.
Where an application does not directly promote open skies with its attendant consumer benefits, applicants bear a heavy burden to prove benefits specific to their alliance agreements that justify immunity. Where an application involves the presence of two major domestic competitors, the request for immunity warrants particularly close scrutiny.
Wednesday, July 1, 2009
According to Bloomberg, the SEC commissioners will meet today to consider proposing "Armstrong celebrity" director rules. The webcast of the meeting, set to start at 10AM (ET), is here. More disclosure about director nominees and their qualifications is probably a good thing - especially as we move toward increased shareholder access to the proxy.
However, I wonder how big a problem this really is. The SEC has been gradually tigtening the screws on director nominations and qualifications. SOX has placed added burdens on directors. If you're a celebrity, why would you want the hassle?
At the same time directorships appear to be a tight club -- take a look at the board of Apple if you don't believe me. If you're not CEO of another large corporation or former VP, then you're probably not going to get on the Apple board, even if you are Lance Armstrong. This does raise the question however, just how effective a monitor can one be if one is also CEO of a large company, like Avon. I'm sure Ms. Jung is a very capable CEO, but she's also on the board of GE as well as that of Apple. I wonder if the SEC might better spend their time thinking about limiting the number of board assignments that full-time CEOs take on. The new CEO job is supposed to be all encompassing, isn't it? How does that leave much time to monitor management and provide strategic advice to another company? Not to mention two or more. It might be worth the SEC giving some consideration to Ron Gilson and Reinier Kraakman's proposal.