Friday, September 11, 2009
Thursday, September 10, 2009
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).
Wednesday, September 9, 2009
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.
Tuesday, September 8, 2009
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.
Sunday, September 6, 2009
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.