M & A Law Prof Blog

GM: 0 for 4?

When GM came out of bankruptcy the plan was pretty simple.  It would shut a number of divisions and then shed four of others - Opel, Saturn, Saab and Hummer.   GM balked at the Opel sale after walking most of the way down the aisle.  The Saturn deal collapsed after Penske walked away.  GM then announced that it would shutter Saturn rather than try to find another buyer.  The proposed deal to sell Saab to Koenigsegg Group in Sweden, but that deal fell through.  Then, GM entered into discussions with Spyker Cars also in Sweden.  After those talks fell apart yesterday GM announced that Saab, too, would be shuttered. 

0 for 3 is a pretty poor batting average.  At least the Hummer sale went through, right?   Right?  I mean, GM announced the deal to sell the Hummer brand to some company no one ever heard of before not once, but twice.  So, that sale went through, didn't it?  Oh, that's right.  The deal was contingent upon getting approval from the Chinese government.   Guess who hasn't approved the deal, yet?   Don't hold your breath.  

-bjmq

2009 MAC Survey

Nixon Peabody's annual MAC Survey is out.  My only question - which are the 3% of transactions with a MAC, but no definition for what a MAC is?  I know MAC definitions can be frustratingly vague, but c'mon!

-bjmq

Bad Bidders Make Bad Targets

'Tis the season for papers on value destroying merger transactions!  Offenberg, Srtaska and Waller have a paper, Who Gains from Buying Bad Bidders?, that examines whether there are gains to be had from acquiring companies who have been bad acquirers themselves.  I guess the thought there is that two wrongs might make a right.  I don't know.  Who gains from buyer bad bidders?  Apparently not the buyer. Lesson here:  when a company has been laid low by its poor acquisition decisions, give it a wide berth as you pass up on the chance to pick up the pieces.

Abstract: This paper studies the value gains from corporate takeovers of firms that have a history of undertaking value-destroying acquisitions. We document that the larger the value loss from target’s prior acquisitions, the higher the takeover premium received by target shareholders, but also the higher the value loss to the acquiring shareholders at the announcement of the takeover. We find no evidence of synergy gains from these takeovers. Our findings challenge the notion that the market for corporate control is an effective mechanism for unlocking the value from firms that engaged in value destroying acquisition programs.

-bjmq

Exxon/XTO's Fracking MAE

There is a piece in today's WSJ on the Exxon/XTO deal.  The piece centers on the controversial practice of hydraulic "fracking" in the drilling process and whether the deal might be stopped in the event Congress moves legislation to ban or limit the practice or otherwise make the practice commercially impracticable.  It turns out that fracking is really central to this deal.  So central that if fracking were made impracticable Exxon would want to walk.  It's no real surprise.  Fracking is part of the reason we've enjoyed a boom in domestic natural gas supplies these last few years.  Take it away and there wouldn't be much left to pursue in the XTO deal I would imagine.  While the WSJ article doesn't come right out and say it, it doesn't take a genius to figure out how Exxon might have written in a "fracking" out.  It's right there in the definition of the MAE from the Exxon/XTO merger agreement.  

[1.01] ... “Company Material Adverse Effect” means a material adverse effect on  the financial condition, business, assets or results of operations of the Company and its Subsidiaries, taken as a whole, excluding any effect resulting from, arising out of or relating to (A) changes in the financial or securities markets or general economic or political conditions in the United States or elsewhere in the world, (B) other than with respect to changes to Applicable Laws related to hydraulic fracturing or similar processes that would reasonably be expected to have the effect of making illegal or commercially impracticable such hydraulic fracturing or similar processes (which changes may be taken into account in determining whether there has been a Company Material Adverse Effect), changes or conditions generally affecting the oil and gas exploration, development and/or production industry or industries (including changes in oil, gas or other commodity prices), (C) other than with respect to changes to Applicable Laws related to hydraulic fracturing or similar processes that would reasonably be expected to have the effect of making illegal or commercially impracticable such hydraulic fracturing or similar processes (which changes may be taken into account in determining whether there has been a Company Material Adverse Effect), any change in Applicable Law or the interpretation thereof or GAAP or the interpretation thereof, [italics mine] (D) the negotiation, execution, announcement or consummation of the transactions contemplated by this Agreement, including any adverse change in customer, distributor, supplier or similar relationships resulting therefrom, (E) acts of war, terrorism, earthquakes, hurricanes, tornados or other natural disasters, (F) any failure by the Company or any of its Subsidiaries to meet any internal or published industry analyst projections or forecasts or estimates of revenues or earnings for any period (it being understood and agreed that the facts and circumstances that may have given rise or contributed to such failure that are not otherwise excluded from the definition of a Company Material Adverse Effect may be taken into account in determining whether there has been a Company Material Adverse Effect), (G) any change in the price of the Company Stock on the NYSE (it being understood and agreed that the facts and circumstances that may have given rise or contributed to such change (but in no event changes in the trading price of Parent Stock) that are not otherwise excluded from the definition of a Company Material Adverse Effect may be taken into... 

Fracking appears not once but twice in the carve-outs to the carve-outs of the MAE - so important is it to the deal.  What the parties have done here is that they have taken the MAE definition, which is typically written to leave foreseeable risks with the buyer and unforeseeable risks with the seller and left a foreseeable and entirely likely risk with the seller.  So, in the event something freaky happens that no one could have foresee, the buyer is able to walk away.  On the other hand, if there is a foreseeable event, one that presumably the buyer could price into the transaction, then the buyer remains in the hook for close the transaction.  Now, a spokesman for Exxon says that the deal is subject to "a number of customary provisions for a transaction of this nature."  

True enough, but I dare say the fact that the parties foresee the risk of legislative changes specific to the business and have written them into the MAE is not quite customary.  It's more like the MAE we saw in the Sallie Mae deal of a couple years ago where parties carved-out from the carve-out legislative changes to educational lending.  The way the Exxon/XTO deal is written, if tomorrow Congress were to ban fracking, then Exxon would get a free option to walk from the deal.

-bjmq

Coast is Clear: Saks Pulls Its Pill

Last year Carlos Slim, Mexcian magnate and occasionally the richest man in the world, began accumulating an 18% position in Saks Fifth Avenue, which at that point was trading at al all time low (around $2.50/sh).  Almost immediately, the Saks board adopted a poison pill.  Now that Slim has moved on, the Saks board has filed an 8-K announcing that it has amended its poison pill (rights plan) to allow the rights to expire on Dec 14, 2009 rather than 2018 as the plan had originally envisioned.  

If you had invested in Saks two years ago, your investment would have lost approximately 60% in value -- even after the mini-run-up since this past summer.  Congratulations.  

- bjmq

eBay-Craigslist: When good deals go bad

In 2004 eBay and Craigslist announced a friendly deal in which eBay would take a minority position in the online classifieds business.  It seemed like a nice fit at the time - complementary in a way that Skype wasn't.  At the same time eBay's investment kept Yahoo! and Google at bay.  By 2008 it was clear that the party was over and perhaps eBay would have been better off acquiring Craigslist rather than accept the minority stake.  Craigslist sued eBay (Craigslist CA complaint) and eBay sued Craigslist (eBay Del. complaint) in competing lawsuits.  You can imagine the allegations -- loyalty breaches left and right.  It's been playing out in Chancellor Chandler's Delaware courtroom for the past week.   You can view the proceedings care of Courtroom View.  If nothing else, when we get a ruling, we can expect a nice restatement of Weinberger and entire fairness that will no doubt be quickly adopted into casebooks. 

I'm not going to review the factual allegations - the claims of dilution, corporate opportunity, misuse of confidential information, etc.  There are plenty of articles out there.  Start here.  However, yesterday's testimony from Craigslist CEO Jim Buckmaster is worthwhile.  He recounted a discussion with an eBay exec following the transaction in which the terrible truth was revealed...

"He said he needed to tell me there were two Meg Whitmans. We had met and reached an agreement with Good Meg. There was another Meg, an Evil Meg. We would be best served to know that Meg could be a monster when she got angry and frustrated," Buckmaster told a court in Georgetown, Delaware.

Among the many reasons why you rarely want your clients to end up in a courtroom is this -- goodness knows what might be said that could potentially sink your client's gubernatorial campaign.   The vision of an "evil Meg" can't be good.

-bjmq