M & A Law Prof Blog

Editor: Brian JM Quinn
Boston College Law School

Thursday, September 17, 2009

Gods at War

Steven Davidoff's book, Gods at War, will be coming out soon and is available for pre-order.  The NY Times adapted a portion of it in today's paper here.  In that selection The Deal Professor asks a relevant question: what the future of the deal will look like after the current dust settles.  If you what to know more, you'll have to buy the book.   Oh, I know this is a shameless plug, but it's my blog so sue me. 


September 17, 2009 in Books | Permalink | Comments (0) | TrackBack (0)

Be careful out there

Cautionary tales about catastrophic typos, due diligence errors and the like help focus the senses.  Here’s one from Law Shucks:

One of the primary responsibilities of junior M&A associates in due diligence is to review material contracts for assignability and change-of-control provisions.


Should be simple, right?
Lawyers at Cravath and/or Cahill Gordon misinterpreted an assignment, and it led to a $115 million reduction in purchase price.

Read the whole thing here.



September 17, 2009 in Contracts, Deals, Lawyers, Transactions | Permalink | Comments (0) | TrackBack (0)

Wednesday, September 16, 2009

CVS Gets Another Look

A number of members of Congress and pressure groups have apparently started pushing the FTC to give the CVS/Caremark merger from two years ago another look.  This reminds me of a question a student raised in my M&A class last year:  does pre-merger clearance create some sort of safe harbor that removes all post-closing antitrust risk from a transaction?"   The CVS/Caremark deal is a good reminder that the proper answer to that question is no.  One should not mistake pre-merger clearance for an anti-trust "get out of jaill free" card.  Although they don't go there very often, the FTC reserves the right to come back and examine the competitive (or anti-competitive) effects of mergers at any point in the future.


September 16, 2009 in Antitrust | Permalink | Comments (0) | TrackBack (0)

Laster Hearing Set

The Senate Executive Committee will meet to consider the nomination of Travis Laster at 1 p.m. hearing on September 22.   At 4:00pm following the nomination hearings, the full Senate will be called into session, presumably to vote on the nominations.  Now that's quick!



Update:  Link to Senate Executive Committee.

              Link to full Senate agenda for the 22nd.

September 16, 2009 in Delaware | Permalink | Comments (0) | TrackBack (0)

Monday, September 14, 2009

Top-Up Option Math

Just going over some older posts, and I ran across The Deal Professor’s excellent post on top up options.  I think it’s worth adding that if you’re going to counsel your clients that a top up option is “standard” in tender offers that you ask a junior associate for the cap table, first.  It’s important to make sure the target has enough authorized stock so that it’s possible to grant the option.  Although it doesn’t sound like a lot, in actuality the target will have to issue a lot of stock to move from say 88% to 90% and thus be in a position to conduct a short form merger. 

I was surprised how far short of the statutory 80% Apax fell in its tender for Bankrate. If it’s true that they got just over 50%, then Bankrate had to have the printing presses working overtime to issue all the new stock required to get Apax over the 80% line (I know, I know, no stock certificates were actually printed…).

In Bankrate’s case that turned out not to be a problem.  It had 100 million shares authorized, of which only 19,148,003 were issued and outstanding (see the cap rep).  Assuming the tender closed with 50% tendering their shares (957,400 shares), then Bankrate would have to issue an additional 28.7 million shares to increase the buyer’s holdings from 50% to the 80% required (in Maryland) to conduct a short-form merger.*  That’s a lot of stock.  Prior to the tender, Bankrate only had 19 million shares outstanding.  In order to get Apax in a position to conduct a short form merger, it would have to issue something like 150% of its outstanding shares.  In Bankrate’s case they had plenty of authorized but unissued stock, but that may not always be the case, so it’s worth pulling out a calculator and checking.

Of course, in issuing such a large block of stock you’ll blow through listing standards that require stockholder votes (on issuances equal to >20% of outstanding shares). But, I suppose if you are taking a company private such things as listing standards don’t prevent much of an obstacle.  I mean, what is the NYSE going to do?  Delist you?


* Assuming that Apax received 50% of the outstanding shares in the tender, the math goes something like this:  

(9,574,003 Apax tendered shares + 28,722,005 Apax option shares)/(19,148.003 old shares outstanding + 28,722,005 option shares) = 80.0%

September 14, 2009 in Merger Agreements | Permalink | Comments (1) | TrackBack (0)

Rakoff Rethinks Corporate Liability

 "It is not fair, first and foremost, because it does not comport with the most elementary notions of justice and morality, in that it proposes that the shareholders who were the victims of the Bank's alleged misconduct now pay the penalty for that misconduct." So says Judge Rakoff.

All this rethinking of M&A and corporate liability is making my dizzy.  Judge Rakoff is apparently outraged that shareholders would be asked to pay for the misconduct of the corporation.  He rejected BAC's settlement with the SEC today.  In part because, in effect, innocent shareholders are being forced to pay the fine.  One wonders how many shareholder class action lawsuits end up in front of Judge Rakoff.  Presumably not many.  

The Dealbook has kindly posted the order below:

September 14, 2009 in Cases | Permalink | Comments (0) | TrackBack (0)

Time to Rethink M&A?

"It's high time we stand back and completely revamp the basic terms of M&A papers, eliminating the boilerplate that is never relevant in the real world and advancing concepts that actually work when markets turn or expectations change. The technology for this -- reverse breakup fees, ticking fees, deposits and the like -- has been around for a while, but it is not used nearly as much as it should be or nearly as effectively as it could be."   So says Robert Profusek over at The Deal.


September 14, 2009 in Merger Agreements | Permalink | Comments (0) | TrackBack (0)

Sunday, September 13, 2009

Adams and Superfluous Recitals

Ken Adams -- name sound familiar? It should, because if you're like me a dog-eared copy of his Manual of  Style for Contract Drafting sits on a shelf in your office -- anyway, he has a good post on his drafting blog with an annotatation of the superfluous recitals in the Marvel/Disney deal that is worth reading.  


September 13, 2009 | Permalink | Comments (0) | TrackBack (0)

Business Law Prof Wanted - University of Florida

The University of Florida Fredric G. Levin College of Law seeks to fill up to three tenure track faculty positions.  The anticipated starting date is the Fall Term of 2010. At this time, we anticipate needs in the following areas:  Corporations/Business Organizations, Family Law, and International Business Transactions. 


Both entry level and lateral candidates will be considered.  Applicants for all of these positions should hold a J.D. or LL.B. degree from an accredited law school and have distinguished academic credentials, relevant legal experience, and a demonstrated commitment to outstanding research and scholarship. Rank and salary will be commensurate with qualifications and experience. Members of groups under represented in the legal profession including persons of color and women are particularly encouraged to apply. The University of Florida is responsive to the needs of dual-career couples.


To apply, go to:


Please include resume, transcript(s), and the names of three references. The University of Florida is an affirmative action/equal opportunity employer. If an accommodation due to a disability is needed to apply for this position, please call (352)392-4621 or TDD (352)392-7734.

September 13, 2009 in Academic Jobs | Permalink | Comments (0) | TrackBack (0)

Friday, September 11, 2009

It's worth remembering today.

September 11, 2009 | Permalink | Comments (0) | TrackBack (0)

Thursday, September 10, 2009

Davidoff on Selection of Governing Law

Steven Davidoff - The Deal Professor - has a new paper with Matthew Cain in which they evaluate the selection of choice of law provisions in merger agreements and find that Delaware dominates: Delaware's Competitive Reach (SSRN).

Abstract:   We evaluate the selection of governing law and forum clauses in merger agreements between public firms from 2004-2008. In contrast to prior research, we find that Delaware is the dominant choice among merging parties. During the sample period approximately 66.4% of agreements select Delaware for their governing law and 60% of agreements select Delaware as their choice of forum. This compares to 61.8% of targets during this time that are incorporated in Delaware, and 54.8% of acquirers that are similarly incorporated. Delaware’s attractiveness has increased in recent years in response to exogenous events, and is evidenced by the fact that top-tier legal advisors, foreign acquirers, transactions surrounded by greater financial uncertainty, and larger transactions tend to select Delaware’s forum over other venues. Results are robust to controls for simultaneity and endogeneity. Our results provide support for the theory that Delaware competes by providing quality governing law, and particularly, adjudicative services. They also highlight the contestability of Delaware’s dominance; parties adjust their choices of law and forum during our sample time period in response to legal and other events. We conclude that Delaware competes strongly in other legal products beyond its primary one, the public company charter.


September 10, 2009 | Permalink | Comments (0) | TrackBack (0)

Wednesday, September 9, 2009

Hummer fails to get Chinese approval

Believe me, I'm all for the Chinese central bank reducing its huge foreign exchange surplus by permitting Chinese companies to buy esssentially worthless US assets.  That said, I'm not really surprised by this report.


September 9, 2009 in Asia | Permalink | Comments (0) | TrackBack (0)

Cuomo taking a run at BAC?

The WSJ has an article on C1 today suggesting that New York will soon be charging BAC with state securities law violations in connection with its acquisition of Merrill Lynch last year.   The article includes a link to a letter from the head of the Investor Protection Bureau in which Cuomo's office makes it clear that they are nearing "charging decisions" with respect to this case and asks for more information and a waiver of attorney-client privilege.  Apparently, BAC's defense consists solely of 'after speaking with our lawyers we decided not to disclose ML's losses to shareholders in advance of a vote. Oh, and we're not going to tell you what our lawyers told us.  Now go away.'   

Hmm. That's a pretty weak defense.  Did your lawyers tell you that a $21 billion losss was material and needed to be disclosed?  Or, did they advise you that the amounts involved weren't material and not necessarily the kind of information a reasonable investor would want to know? It matters, no?

Now, Ken Lewis has offered up a more interesting defense elsewhere -- the Fed basically ordered him to commit securities fraud.  That's more like it.  This defense has the added benefit of possibly being true - remember where we were about a year ago.  On the one hand, your lawyers say the amounts are material and need to be disclosed.  On the other, the Fed tells you that if you disclose the losses and the deal goes down the tubes, the whole economy will go with it.  No wonder the SEC took such a  meek stance with respect to its BAC litigation- so meek, in fact, that Judge Jed Rakoff refused to approve BAC's settlement

No doubt, Cuomo's more aggressive posture in this case is motivated by the fact that he doesn't have to walk on egg-shells the same way his counterparts in the Federal government have to - and because we are three or four steps away from the edge of the abyss by now.  

Presumably, Cuomo is considering charging BAC under the Martin Act (NY's anti-fraud secruties statute).  While many feel that the Martin Act is essentially a carte blanche for New York state to meddle in what should be the regulatory purview of the SEC and the DOJ, I'm a little more sanguine about it.  Where was Harvey Pitt's SEC after Enron, Worldcom, Tyco, et al?  If it wasn't for the NY AG's office there would have been almost no accountability at the federal level.  And where is the SEC now?  

For a summary of the issues leading up to the BAC-ML shareholder vote, William Cohan (House of Cards) has recently published a very good essay on the last days of Merrill in The Atlantic Monthly.   It's definitely worth reading. 


Update:  The Dealbook posts a response from BAC to the NY AG letter in which BAC says it is not asserting an advice of counsel defense. 

September 9, 2009 | Permalink | Comments (0) | TrackBack (0)

Tuesday, September 8, 2009

Stapled Financing in Poor Credit Markets

Foulds, a clerk for Vice Chancellor Parsons, has a paper on conflicts of interest in stapled financing.  Stapled financing is a practice in which the seller's advisor offers potential acquirors financing to undertake an acquisition.  Of course this is a practice where there are serious potential conflicts of interest because in a competitive setting a seller's advisor has an incentive to favor a buyer who will take the financing over a buyer who won't.   The Delaware Chancery Courts have looked warily at the practice and it's been the subject of some discussion by practitioners.  Hey, I've even got stapled financing on my list of "to do" papers.   

Foulds puts an interesting twist on the stapled financing debate by suggesting that in poor credit markets the presence of stapled financing will make a deal more likely to close.  Why?  Foulds argues that the conflict of interest is doing all the work and keeping the financing available in conditions when any other normal provider of credit would have long walked away.  It's an interesting argument.  It doesn't necessarily resolve the question of whether the presence of stapled financing has an influence on the competitive sale, but it's an interesting approach.  

The paper, My Banker's Conflicted and I Couldn't Be Happier: The Curious Durability of Staple Financing, is appearing in the Delaware Journal of Corporate Law.


September 8, 2009 in Investment Banks | Permalink | Comments (0) | TrackBack (0)

Sunday, September 6, 2009

Tinker Bell has her Say on SEC Shareholder Access Proposal

On Friday, The Dealbook helpfully linked to some of the comments submitted in response to the SEC's "shareholder access" proposal.  There are lots of comments and they cover a wide variety of issues related to the access proposal.  A general line of argument submitted by many is one, I think, that makes a lot of sense.  While more shareholder access is good, the SEC's proposal may be moving too quickly.  

OK, I know that's hard to imagine that an issue like this that has been floating around for years in one form or another is "moving too quickly", but Delaware just amended its code to permit shareholders to adopt bylaws requiring the corporation to include sharheolder nominees on the ballot and bylaws requiring reimbursement of shareholder expenses in connection with such nominations.  

The comments from the Delaware Bar Association provide a nice summary of the issues related to DGCL 112 and 113 and the proposed rule 14a-11.  As the comments from Wachtell and O'Melveny point out, after 2006 when Delaware adopted amendments permitting the adoption of majority voting proviions, there has been a flood of private ordering in that area.  My sense is that while O'Melveny is neutral on that outcome, Wachtell is predictably less happy.  

In any event, rather than move forward now on a "one-size-fits-all" shareholder access proposal, why not wait some more and see what the impact of the DGCL amendments is?  The response by shareholders following the majority voting amendments has been significant. There's no reason to believe that there won't a similar response by shareholders in the wake of the 2009 DGCL amendments with respect to shareholder access - all that without additional moves by the SEC.  If the SEC is serious about allowing shareholders more power, then it seems obvious that they should sit back and wait before adopting 14a-11. 

OK, let's put the serious issues aside during this holiday weekend.  What I find most intriguing are some of the other commenters.  I mean, who knew that Tinker Bell had an opinion on shareholder access?  Or that she's got a 401(k) with Disney?!  I'm also impressed that Thomas Paine made his way back to give an opinion on latter-day tyrranny. 


September 6, 2009 in Delaware, SEC | Permalink | Comments (0) | TrackBack (0)

Friday, September 4, 2009

Deals and Two-Sided Markets

Marc Rysman at BU has a nice introductory paper on two-sided markets (The Economics of Two-Sided Markets) appearing in the current Journal of Economic Perspectives. Two-sided markets are relatively common and often involve some level of network exteranality.  They are interesting from a "deals" perspective because it can be extremely difficult to structure transactions involving two-sided markets.  These transactions often involve joint ventures to develop the intermediary - Mastercard and Visa are classic examples of two-sided markets.  They have been a big success.  But, @Home Corporation (cable-based Internet provider) and Irridium (satellite phone service) are less successful examples.  While economists have recently started studying two-sided markets, legal academics are lagging behind.  That's too bad, because these are interesting markets where there's a lot of complicated structuring going on.

Abstract:  Broadly speaking, a two-sided market is one in which 1) two sets of agents interact through an intermediary or platform, and 2) the decisions of each set of agents affects the outcomes of the other set of agents, typically through an externality. In the case of a video game system, for instance PlayStation, the intermediary is the console producer -- Sony -- while the two sets of agents are consumers and video game developers. Neither consumers nor game developers will be interested in the PlayStation if the other party is not. Similarly, a successful payment card requires both consumer usage and merchant acceptance, where both consumers and merchants value each others' participation. Many more products fit into this paradigm, such as search engines, newspapers, and almost any advertiser-supported media (examples in which consumers typically negatively value, rather than positively value, the participation of the other side), as well as most software or title-based operating systems and consumer electronics. This paper seeks to explain what two-sided markets are and why they interest economists.  


September 4, 2009 in Deals | Permalink | Comments (0) | TrackBack (0)

Thursday, September 3, 2009

China Pre-merger Clearance paper

Mitnick, Yang and Emch have a recent paper assessing China's pre-merger clearance regime, The Dragon Rises: China's Merger Control Regime One Year On.  

Abstract: During the first year of existence of China’s Anti-Monopoly Law, much has been accomplished but much remains to be developed. In particular, draft regulations in the merger clearance field remain to be finalized, and draft regulations implementing non-merger aspects of the AML have only recently been proposed or have not yet been proposed at all. Moreover, early merger clearance decisions appear to rest on familiar antitrust principles, yet the application of those principles by the Ministry of Commerce (MOFCOM) may be out of step with some merger control regimes around the world. For example, MOFCOM relied in part on the theory of 'monopoly leveraging' to block the proposed Coca-Cola/Huiyuan transaction. In contrast, the U.S. Supreme Court has largely repudiated that theory in the Sherman Act context, and it has not been the used to block transactions under the Clayton Act. Nevertheless, in both substance and procedure, the Chinese antitrust regime continues to mature and, in most respects, to converge with the mainstream of worldwide antitrust enforcement programs.


September 3, 2009 in Antitrust, Asia | Permalink | Comments (0) | TrackBack (0)

Tuesday, September 1, 2009

Marvel Lawsuit

According to Bloomberg, a suit has been filed ("POW") challenging Disney's acquisition of Marvel ("KABOOM").  The basic claim appears to be that Marvel's directors failed to meet their obligation under Revlon to cinduct a sales process that resulted in the highest price reasonably available to shareholders ("SLAM").  But, if Lyondell v Ryan teaches us anything, the directors of Marvel would have had to have a near collapse for this suit to succeed ("ZZZZ").  


September 1, 2009 in Cases | Permalink | Comments (1) | TrackBack (0)