October 10, 2009
Vice Chancellor Laster Interview
October 9, 2009
SEC Charges Insider in EMC-DOCX Deal
Here's the SEC's complaint.
Yeah, you know what's coming next...
DOCX executives asked Xie in late November 2007 to participate in a meeting with EMC representatives concerning a plan to further extend the pre-existing partnership between EMC and DOCX. DOCX executives asked Xie to compile information about DOCX’s source code and other documents in anticipation of the meeting with EMC. Xie also worked on the project with a due diligence firm hired by EMC.
On December 7, 2007 at a meeting between EMC and DOCX employees in Oakland, Xie made a presentation and answered related questions. After the meeting, Xie asked his DOCX supervisor what would happen if someone were to buy DOCX shares in a time period when they thought something was going to happen to that company. Xie’s supervisor told Xie that would be a bad thing to do, that it could be traced, and that it was prohibited and illegal. As late as December 19, 2007, Xie continued to work with EMC and EMC’s due diligence firm.
Xie began acquiring shares of DOCX common stock prior to the December 7th meeting, while preparing due diligence materials for EMC. These initial purchases of 6,892 shares were made at prices ranging from $8.39 to $8.68. Despite the warning from his supervisor on December 7th, Xie continued to acquire DOCX common stock up to the day before the merger announcement, purchasing an additional 3,607 shares. In total, between December 3, 2007 and December 26, 2007, Xie purchased 10,499 DOCX common shares for prices ranging from $8.10 to $8.81.
Social Networks and Vertical Integration in the Laundry Business
In the category of "deals"-like things to read, here's a new paper on social networks and vertical integration in the laundry business - Airing Your Dirty Laundry. I love these kinds of papers mostly because they use a framework that's familiar to anyone who's taken a "Deals" class in analyzing the structure of an industry and why participants in that sector organize themselves the way they do.
Abstract: This article explores the relationship between an ethnic-based social network and vertical integration decisions in the laundry services industry. We find that stores in the social network are significantly less likely to vertically integrate than nonmember stores. This has three primary implications. First, the social network may be lowering the costs of using the market more than facilitating in-house production. This implies better outsourcing opportunities in a social network and may explain a documented relationship between social networks and firm economic performance. Second, institutional details of our example and the estimated relationship suggest a role for opportunism and reputation as determinants of the boundaries of the firm in a setting without asset specificity. Finally, although we provide evidence that better access to credit can increase the likelihood of vertical integration, we show that better outsourcing opportunities have a dominant effect of the social network in this particular setting.
October 8, 2009
UK Competition Commission Rules Against Ticketmaster-Live Nation Deal
Apparently, The Boss has fans in the UK. According to the WSJ, the Competition Commission, the UK antitrust regulators, are moving to hold up the Ticketmaster-Live Nation transaction. The Competition Commission issued a statement today ruling against the merger:
Ticketmaster Entertainment, Inc and Live Nation, Inc will limit the development of competition in the market for live music ticket retailing.
In its provisional findings published today, the CC has concluded that the merger could severely inhibit the entry of a major new competitor (CTS Eventim) into the UK ticketing market. Prior to the announcement of the merger, Live Nation had signed an agreement with CTS to provide ticketing services for its live music events and venues in the UK. The CC believes that this agreement with Live Nation would have provided CTS with a foothold in the UK market from which it would have grown, increasing significantly the degree of competition in a market which is currently dominated by Ticketmaster and one other large ticketing agent.The CC believes that, if the merger were to proceed, Live Nation would have the incentive to impede CTS’s entry into the UK ticketing market, in particular by minimizing the supply of its tickets to CTS, and thereby frustrate CTS from becoming an additional effective competitor to Ticketmaster. This could lead to higher net prices (eg due to lower rebates to promoters and venues) and/or lower service quality and/or less innovation in the market than would otherwise be the case.
Hamermesh and Wachter on Rationalizing Appraisal Standards
October 7, 2009
DGCL 220 Books and Records Action
In City of Westmoreland Police & Fire Retirement System v. Axcelis, Inc. the plaintiffs attempted to use a section 220 books and records demand to get Axcelis' board to turn over board minutes and materials relating to the board's decision to turn down an unsolicited acquisition proposal (HT: Morris James, LLP).
This case is interesting for a couple of reasons. First, the Delaware Supreme Court is always encouraging plaintiffs to use the "tools at hand" (i.e. Sec. 220 actions) in conducting pre-suit investigation of suspected mismanagement or corporate waste. So, it's worthwhile looking at a case where the plaintiffs try the avenue that the court recommended to see how successful they are.
Second, this case is an attempt to use the "tools at hand" to gain more information about director deliberations with respect to an unsolicited takeover proposal that the board ultimately decided not to pursue. While that's neither obviously mismanagement nor waste at play here, theirs is a common enough complaint. Following Lyondell though, there isn't much question left how a court will rule on this kind of claim, but the Sec. 220 action keeps the plaintiffs in the game for a little while longer.
Sec. 220(b) defines "proper purpose" as "a purpose reasonably related to such person's interest as a stockholder." In Westmoreland, the court lays out the procedural requirements for securing books and records via Sec. 220, including a discussion of "proper purpose" that adds more gloss to what kind of purpose is reasonably related to a stockholder's interest.
Our courts have recognized that investigation of suspected wrongdoing on the part of a corporation’s management or board is a proper purpose for inspection of the corporation’s books and records. Yet, a plaintiff must do more than simply state its suspicion of wrongdoing; a Section 220 demand made merely on the basis of suspicion or curiosity is insufficient. Rather, the plaintiff must present “some evidence to suggest a credible basis from which [this Court] can infer that mismanagement, waste, or wrongdoing may have occurred.” This “credible basis” standard has been described as “‘the lowest possible burden of proof’ in Delaware jurisprudence.” The plaintiff may make a credible showing that legitimate issues of wrongdoing might exist “through documents, logic, testimony or otherwise,” and is not required to prove any wrongdoing actually occurred.
October 6, 2009
If you've not dropped by there yet, the Dealbook Dialogue's discussion of the financial crisis is worth reading this week - Steven Davidoff, Gary Gorton, Vice Chancellor Leo Strine, Howard Marks, so far with more to come.
October 5, 2009
World Markets and M&A
Continuing the international M&A theme from last week, here's an interesting new paper from the National Bureau of Economic Research by Is
Flip This House: PE Edition
It's post-bust stories like that of Simmons in today's NY Times that really make one want to rethink how we do things. The CEO walks away from this bankrupt private equity invested company with $40 million in cash, while employees lose their jobs and retirees can't even get the only retirement perk the company apparently offered - a mattress.
October 4, 2009
Federal Judge Reviewing Diebold Sale
Early last month Diebold announced that it had sold its Premier Election Solutions, Inc. sub to Election Systems & Software (links are to their respective press releases announcing that the transaction had closed). The sale was small - $5 million plus 70% of receivables from sales as of August 31, 2009. Given that the sale was well under the HSR filing thresholds, the parties likely did not seek pre-merger approval from the FTC. Now comes word that ES&S's competitors are seeking an injunction from a federal judge in NJ to "unscramble the eggs" and order ES&S to undo the transaction. McClatchy reports:
A federal judge in Camden, N.J., agreed late Friday to hear a request for an emergency injuction that could halt Election Systems & Software's announced acquisition of Diebold Inc.'s Premier Election Solutions.
The quietly arranged shotgun wedding between the two voting-machine giants would give ES&S control of election systems in use in almost 70 percent of the nation's voting precincts. Federal Judge Robert Kugler agreed to hear Tuesday the request for immediate injunction brought by a small competitorm, Hart InterCivic Inc. The basic contention is that ES&S did a "stealth" transaction - as if by not voluntarily making an HSR filing one might impute some sort of bad faith. That's a tough bet. I wouldn't take it. In any event, it's worth noting that ES&S's competitors - and not local governments (customers) - are the ones seeking the injunction. This might well color the outcome. -bjmq
The quietly arranged shotgun wedding between the two voting-machine giants would give ES&S control of election systems in use in almost 70 percent of the nation's voting precincts. Federal Judge Robert Kugler agreed to hear Tuesday the request for immediate injunction brought by a small competitorm, Hart InterCivic Inc.
The basic contention is that ES&S did a "stealth" transaction - as if by not voluntarily making an HSR filing one might impute some sort of bad faith. That's a tough bet. I wouldn't take it. In any event, it's worth noting that ES&S's competitors - and not local governments (customers) - are the ones seeking the injunction. This might well color the outcome.