November 20, 2009
eBay announced on Thursday that it closed its sale of Skype.
The buyer, who will control an approximately 70 percent stake, is an investor group led by Silver Lake and includes Joltid Limited and certain affiliated parties, the Canada Pension Plan Investment Board and Andreessen Horowitz.
eBay received approximately $1.9 billion in cash and a note from the buyer in the principal amount of $125 million [valuing the business at 2.75 billion]. The company retained an approximately 30 percent equity investment in Skype. The company also purchased senior debt securities with a face value of $50 million as part of a Skype debt financing.
eBay purchased Skype in September 2005 for $2.6 billion in cash and stock plus the mother-of-all-earnouts (up to $1.5billion). In the end, Skype was a dud for Bay - though personally, I'm a big fan of the technology. It just wasn't right for eBay. Why would you want to talk to people selling stuff on eBay anyway? Also, more generically, the earnout didn't live up to its potential as an incentive device and only about a third of it was reportedly paid out. As we've noted here in the past, earnouts seem like an elegant way to bridge a valuation gap, but they're really, really hard.
Insider Trading in India
Here's a relatively recent empirical study of insider trading in India in advance of merger announcements, Merger Announcements and Insider Trading in India: An Empirical Investigation. Shorter version: insider trading is rampant. Don't be surprised. It's apparently rampant here. Why shouldn't it be in India as well?
Abstract: Insider trading activity is investigated prior to merger announcement in Indian capital market. An attempt is made to check it out whether trading takes place on the basis of asymmetric and private information. For examining the behaviour of stock prices a modified market model is used to estimate the parameters for the estimation window. These estimates are used to compute average return and cumulative average returns for the event window, which are measures of abnormal returns. Besides price run-ups, it is also common to see unusually high levels of share trading volume before public announcement of merger. Daily trading volume pattern of the target companies is also investigated. The analysis carried out in this study is based on a sample of 42 companies for which merger announcement date was announced during the period of 1996-1999. Based on the analysis for each company individually, we recommend investigation in six companies for existence of possible insider trading.
November 19, 2009
On Tuesday the board of Barnes and Noble adopted a shareholder rights plan -- or a poison pill. From the board's announcement:
The Board adopted the Rights Plan in response to the recent rapid accumulation of a significant portion of Barnes & Noble’s outstanding common stock. The Rights Plan is intended to protect the Company and its stockholders from efforts to obtain control of the Company that are inconsistent with the best interests of the Company and its stockholders.
Consistent with Barnes & Noble’s commitment to good corporate governance, the rights will expire in three years and the Company intends to submit the Rights Plan for stockholder ratification within 12 months.Under the terms of the Rights Plan, the rights will expire on November 17, 2012. The rights will be exercisable if a person or group, without Board approval, acquires 20% or more of Barnes & Noble’s common stock or announces a tender offer which results in the ownership of 20% or more of Barnes & Noble’s common stock. The rights also will be exercisable if a person or group that already owns 20% or more of Barnes & Noble common stock, without Board approval, acquires any additional shares (other than pursuant to Barnes & Noble’s compensation or benefit plans). If the rights become exercisable, all rights holders (other than the person triggering the rights) will be entitled to acquire Barnes & Noble’s common stock at a 50% discount.
Finally, this plan was adopted quickly by the board in response to a rapid accumulation of stock by an unidentified buyer in the marketplace. (The WSJ thinks it's Ron Burkle of Yucaipa.) The fact that it was adopted quickly by board resolution in response to changes in the marketplace makes its clear why so many of those finance papers out there that attempt to place a value/cost on a shareholder rights plan are off-base. In too many of them, the researchers download a database and then run regressions on poison pill dummy without realizing that any company can have a pill in place in a few minutes time. The data is therefore meaningless. To top it off, to the extent ISS' corporate governance quotient dings boards for having pills in place, there's a disincentive to keep a shareholder rights plan lying on the books if you don't need it. Consequently, we're left with Just-In-Time pills like the one adopted by Barnes. OK, off my soap-box.
November 18, 2009
Google Scholar (Legal)
Google Scholar has just gotten better. It now includes legal opinions and law review articles.
November 17, 2009
Internal Poison Pills
Abstract: This Article offers a novel idea for governing the tension between majority and minority shareholders: an “internal poison pill.” Borrowing conceptually from the famous shareholder rights plans created in the 1980s to address bullying external bidders, I show how an analogous (though economically distinct) financial instrument might be used by shareholders to navigate the twin internal governance tensions of holdout and expropriation. Two key features of this proposal distinguish it from alternative reforms: (1) It focuses on a privately enacted solution with room for contextual customization; and (2) it uses embedded option theory to construct an intermediate legal entitlement (as opposed to an extreme property or liability rule) for both majority and minority shareholders. If successfully scoped and swallowed, these internal poison pills could facilitate efficient freezeouts, chill coercive ones, supplant the awkward remedy of appraisal, and, ultimately, increase the ex ante value of firms by mitigating agency problems between majority and minority shareholders.
AOL Spinoff Approved, Set for Dec 9
Our long, national deal-nightmare is over. AOL amended its Form 10 again, inserting dates into all the agreements. The record date for the spin off is now set for November 27, 2009. Here's the letter to Time Warner shareholders:
We are pleased to inform you that on November 16, 2009, the board of directors of Time Warner Inc. approved the spin-off of AOL Holdings LLC, a wholly owned subsidiary of Time Warner, which will be converted into a corporation and renamed AOL Inc. prior to the spin-off. Upon completion of the spin-off, Time Warner shareholders will own 100% of the outstanding shares of common stock of AOL. We believe that this separation into two independent, publicly-traded companies is in the best interests of both Time Warner and AOL.
The spin-off will be completed by way of a pro rata dividend of AOL shares held by Time Warner to our shareholders of record as of 5:00 p.m., New York City time, on November 27, 2009, the spin-off record date. Time Warner shareholders will be entitled to receive one share of AOL common stock for every eleven shares of Time Warner common stock they hold on the record date. The dividend will be issued in book-entry form only, which means that no physical stock certificates will be issued. No fractional shares of AOL common stock will be issued. If you would have been entitled to a fractional share of AOL common stock in the distribution, you will receive the net cash proceeds of such fractional share instead.
The distribution date for the shareholders of record will be on December 9, 2009 according to the Time Warner press release:
Shares of Time Warner common stock will continue to trade "regular way" on the New York Stock Exchange ("NYSE") under the symbol "TWX" through the distribution date of December 9, 2009, and thereafter. Any holders of shares of Time Warner common stock who sell Time Warner shares regular way on or before December 9, 2009, will also be selling their right to receive shares of AOL common stock. Investors are encouraged to consult with their financial advisers regarding the specific implications of buying or selling Time Warner common stock on or before the distribution date.
AOL common stock will begin trading on a "when-issued" basis on the NYSE under the symbol "AOL WI" beginning on November 24, 2009. On December 10, 2009, when-issued trading of AOL common stock will end and "regular-way" trading under the symbol "AOL" will begin. The CUSIP number for the AOL common stock will be 00184X 105 when regular-way trading begins.
You know what they say ... it's not a real deal unless there's a lawsuit. Well, the 3Com/HP deal has its first lawsuit. The $2.7 billion all cash deal was announced last week. Here's the merger agreement. Given that it's an all cash deal, the complaint alleges that the board failed to meet its fiduciary duties by not getting the highest price reasonably available to shareholders when it agreed to sell the company to HP. That's a Revlon complaint. I used to think that meant something, but following Lyondell, I now know that unless there's a claim of fraud or misrepresentation, short of an "utter failure" by the board to attempt to meet its duties, this kind of complaint is going nowhere. Since the only question is price, then it appears the only available remedy for those who think the company got sold for less than its fair value is appraisal under Sec 262 of the DGCL.
(c) Statutory Rights of Appraisal.(i) Notwithstanding anything to the contrary set forth in this Agreement, all shares of Company Common Stock that are issued and outstanding immediately prior to the Effective Time and held by Company Stockholders who shall have neither voted in favor of the Merger nor consented thereto in writing and who shall have properly and validly perfected their statutory rights of appraisal in respect of such shares of Company Common Stock in accordance with Section 262 of the DGCL (collectively, “Dissenting Company Shares”) shall not be converted into, or represent the right to receive, the Per Share Price pursuant to Section 2.7(a). Such Company Stockholders shall be entitled to receive payment of the consideration that is deemed to be due for such Dissenting Company Shares in accordance with the provisions of Section 262 of the DGCL, except that all Dissenting Company Shares held by Company Stockholders who shall have failed to perfect or who shall have effectively withdrawn or lost their rights to appraisal of such Dissenting Company Shares under such Section 262 of the DGCL shall no longer be considered to be Dissenting Shares and shall thereupon be deemed to have been converted into, and to have become exchangeable for, as of the Effective Time, the right to receive the Per Share Price, without interest thereon, upon surrender of the certificate or certificates that formerly evidenced such shares of Company Common Stock in the manner provided in Section 2.8.(ii) The Company shall give Parent (A) prompt notice of any demands for appraisal received by the Company, withdrawals of such demands, and any other instruments received by the Company in respect of Dissenting Company Shares and (B) the opportunity to control all negotiations and proceedings with respect to demands for appraisal in respect of Dissenting Company Shares. The Company shall not, except with the prior written consent of Parent, voluntarily make any payment with respect to any demands for appraisal, or settle or offer to settle any such demands for payment, in respect of Dissenting Company Shares.
November 16, 2009
Reimbursement Policies for Shareholder Proxy Nominations
HealthSouth Corp. recently announced a policy to reimburse shareholder initiatives relating to shareholder nominations for the election of directors:
Board of Directors has authorized the Company to amend its bylaws to adopt procedures relating to shareholder nominations for the election of directors. At its October 22, 2009 regular meeting, the Board approved the general terms of an amendment to the Company's Bylaws that will provide for reimbursement of shareholder expenses in connection with a proxy solicitation campaign, subject to certain conditions including the Board's determination that reimbursement is consistent with its fiduciary duties. The Board expects to adopt the final form of this Bylaw amendment this week. The final amendment will be included in a Form 8-K to be filed with the Securities and Exchange Commission when approved.