December 19, 2009
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.
December 18, 2009
2009 MAC Survey
Bad Bidders Make Bad Targets
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.
December 17, 2009
Exxon/XTO's Fracking MAE
[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."
December 15, 2009
Coast is Clear: Saks Pulls Its Pill
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...
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.