Saturday, May 23, 2009
Friday, May 22, 2009
The growing use of derivatives in the market for corporate control has taken what was once a simple calculation about control and ownership and made it much more complicated. Henry Hu and Bernie Black's paper on empty voting a couple of years ago brought this issue into the foreground. The Mylan Labs transaction highlighted the difficulties presented by derivatives in the market for corporate control. That case even generated a Harvard Business School case-study highlighting the issue. Needless to say the corporate law has been struggling to catch up. This last term, the Delaware legislature passed an amendment - section 213(a) - in an attempt to help boards deal with this issue. The new 213(a) will permit boards to set record dates for stockholders entitled to vote different from notice dates. The effect will be to reduce to possibility of voting by parties who do not hold an economic interest in the stock. Chancellor Chandler's ruling (made from the bench) brings the chancery court into the picture with respect derivatives and the poison pill. It's hard to imagine that he could have come out any other way. Had he ruled that the language of the rights plan was too vague, it would have opened the door for potential to emasculate all the pills out there. Given the reliance that corporate planners have placed in the pill, that's not an outcome that would have gone over very well at all.
Thursday, May 21, 2009
The SEC has announced proposed rules to amend Exchange Act Rule 14a-8(i)(8). Video of Chaiman Schapiro 's opening statement is here. This amendment will allow certain shareholders to use the corporate proxy machinery to nominate directors. Shareholders who hold their shares for more than 1 year and hold more than 1% of a reporting company's outstanding shares may nominate one director (or no more than 25% of the board) provided such a nomination does not violate state law. Nominations pursuant to this proposed rule will come on a new Schedule 14N. Shareholders submitting nominations via the Sched 14N will have to certiify that they are not seeking a change in control of the corporation.
Wednesday, May 20, 2009
Lawyers at Gibson, Dunn examined the 70 U.S. deals identified by Thomson Reuters' as"withdrawn" in 2008. The two largest causes of the busted deals? No surprise here: (1) almost 40% of the deals fell apart because of a deterioration in the condition of one or more of the parties and (2) another 21% failed due to the buyer's inability to obtain financing. You can read the full report here.
The on-again-off-again deal between Porsche and VW is apparently back on again. Both sides agreed to get back to negotiating a deal after having temporarily called the whole thing off just a couple of days ago (here).
Tuesday, May 19, 2009
A new report out of Europe notes that 17% of transactions announced in the fourth quarter of 2008 -- a period of great instability included earnout provisions. Earnouts are a very tricky business. Vic Goldberg at Columbia has looked at the earnout problem in the context of a reinterpretation of the old Bloor v Falstaff case (here). On the one hand, ernouts can be under-engineered, leaving many gaping holes in the interpretation of how parties should act after the merger closes. What exactly does best efforts, or best commerically reasonable efforts mean, anyway? On the other hand, they can also be over-specified thus leaving parties with little flexibility in reacting to changing circumstances. My guess is that extreme volatility in the marketplace during the fall left parties looking to transactions willing to punt on valuations. Now that the market has stabilized one wonders whether parties to these agreements (buyers and sellers) are having second looks at whether they, in fact, got a good deal.
The current financial crisis will no doubt give rise to a host of new regulations that will affect corporate law, securities law, M&A, etc. It's worth taking a second to think about the last financial crisis of this magnitude and regulatory changes that followed. Most of us assume that the Crash of 29 was the impetus for the 33 and 34 Acts. That's probably true, but it overlooks the characters of the time who were the face of the collapse and the face of securities fraud. Frank Partnoy recently released his book, The Match King, introducing us to one of the great characters of all time: Ivar Kreuger. Charles Pnozi and Bernie Madoff have nothing on this guy. Not only did Kreuger finance governments all over Europe during the 1920s, but he was also at the center of one the largest securities frauds of all time. He forged the siugnature of Mussolini on bonds, made up accounting statements off the top of his head, created a web of interlocking companies and subs and used dual-class stock and non-voiting shares to control corporations at the expernse of minority stockholders. In the same way that Madoff seems to have become the face of the recent financial crisis, Krueger was able to motivate a host of politicians to act. Not long after his fraud collapse, the US put in place the securities regulatory structure we have today.
|The Daily Show With Jon Stewart||M - Th 11p / 10c|
Monday, May 18, 2009
In her first public remarks as chief antitrust enforcer, the newly installed Assistant AG, Christine Varney, announced that the Antitrust Division is reversing the prior administration’s policy with respect to enforcement of Section 2 of the Sherman Act. Varney said that under the prior policy of "inadequate antitrust oversight" with respect to dominant firm conduct, markets have failed to self-police and that as a result, we now see numerous markets distorted. She also said that "vigorous antitrust enforcement must play a significant role in the Government’s response to economic crises to ensure that markets remain competitive." Specifically, Varney said that vigorous enforcement of Section 2 of the Sherman Act will be part of the Division’s contribution to the Government’s multifaceted response to the current market conditions. Here's my firm's client alert on the change. MAW
In her first public remarks as chief antitrust enforcer, the newly installed Assistant AG, Christine Varney, announced that the Antitrust Division is reversing the prior administration’s policy with respect to enforcement of Section 2 of the Sherman Act. Varney said that under the prior policy of "inadequate antitrust oversight" with respect to dominant firm conduct, markets have failed to self-police and that as a result, we now see numerous markets distorted. She also said that "vigorous antitrust enforcement must play a significant role in the Government’s response to economic crises to ensure that markets remain competitive." Specifically, Varney said that vigorous enforcement of Section 2 of the Sherman Act will be part of the Division’s contribution to the Government’s multifaceted response to the current market conditions.
Here's my firm's client alert on the change.
That the credit crisis has created a challenging deal environment is an understatement. Firms that might otherwise have been in the market as a acquirers are unable to secure the credit necessary to make deals happen. Potential sellers are sitting on very low valuations and, rightfully, are not willing to sell. Enter contingent value rights. A recent Reuters piece noted the increasing use of contingent value rights as a way to help cross the divide between lack of financing and the valuation problem (here). In theory, contingent value rights, like earnouts, are elegant solutions to these problems, but in practice at least they can also be the source of more than a little bit of legal hassle. One wonders how transactions with CVRs that have been structured in these bad times will play out over time. I'll keep my eye out and will report back to be sure.
This blog has been silent for a few months now, but silent in a good way. Steve Davidoff, who got this blog going, has gone on to much bigger and better things and now reaches a very broad audience through his "Deal Professor" blog over at the NY Times' Dealbook. Starting today, I'll be taking over this blog together with Mike Woronoff, who I hope will drop in later today to introduce himself. Me? I'm an assistant professor at Boston College Law School. I teach Corporations, Mergers & Acquisitions, as well as a Deals course. I expect to be sharing my thoughts on a number of areas of perhaps mutual interest as they relate to corporate law, teaching, and research in the corporate and M&A space. Also, given my teaching interests I'll also be writing some on "deals".