M & A Law Prof Blog

Editor: Brian JM Quinn
Boston College Law School

Wednesday, April 28, 2010

Adams on Drafting M&A Contracts

Ken Adams has new booklet on drafting M&A contracts in the works.  Here's his post describing the project.  It will go online sometime in the next couple of months. I'm sure it will be a worthy addition to your library.  


April 28, 2010 | Permalink | Comments (0) | TrackBack (0)

Tuesday, April 27, 2010

K&E on Purchase Price Adjustments

As we've noted before, purchase agreements relating to the acquisition of a private target often contain one or more post-closing purchase price adjustments  (for example a working capital adjustment). As this K&E M&A update notes

While the appeal of  purchase price adjustments is indisputable, they are often subject to postclosing disputes. One of the drivers of these disputes is inattention to the details of drafting the adjustment provisions, often exacerbated by the fact that these clauses straddle the realm controlled by the legal practitioners and that managed by the financial and accounting experts.

The update offers a plethora of tips on drafting these provisions properly.


April 27, 2010 in Asset Transactions, Contracts, Deals, Merger Agreements, Private Transactions, Transactions | Permalink | Comments (0) | TrackBack (0)

Michigan's New Anti-takeover Law

I thought we had moved beyond much of this silliness.  I guess I was wrong.  According to the Detroit News, the Michigan legislature is "rushing to pass a bill that would require two-thirds of a Michigan insurance company's shareholders to approve its hostile acquisition by another firm."  

 The bill (Senate Bill 1174) requires that any acquisition of a domestic (Michigan) insurer with less than 200 employees would require the "approval " of at least 66.67% of the shareholders if the proposed transaction is not approved by the board of directors.  Initial query - how is it that shareholders are supposed to "approve" an acquisition agreement that has not been approved by the board?  Unless the new law includes a requirement that board sign merger agreements that they don't approve of, the only way for shareholders to "approve" of a hostile transaction is by tendering their shares.  Oh ... and the bill purports to make it illegal for any person to make a tender offer for the shares of a domestic insurance company if such tender would result in a change of control!  Thanks always for the small things: the House version of this bill sunsets the legislation on May 1, 2012.

My problem with these kinds of efforts, other than them being vanity pieces, is that they are often touted as pro-employment/pro-community laws and supported by both labor and community leaders.  The truth is, though, they are not.  You know - the buyer will lay everyone off and give nothing back to the community - that kind of thing.  For example – here’s a letter to the editor of the Detroit News making just that argument with respect to this bill.  

But nothing in the law requires the board to do anything for labor or the community.  Indeed, I suspect that at the right price the board of a target Michigan firm subject to this law might be happy to do a deal.  But, there is no requirement in the law that the board in doing a transaction seek guarantees of employment for labor or seek commitments from the buyer that it remain in the community.  In effect, all these legislative efforts really do is give managers an additional lever to negotiate a better deal for shareholders.  

If legislators think they are passing these laws to protect local communities and jobs, they should guess again.  America’s Rust Belt is littered with efforts like these


April 27, 2010 in Hostiles, State Takeover Laws | Permalink | Comments (0) | TrackBack (0)

Monday, April 26, 2010

BAC-ML Case Study

Robert Rhee has posted a Case Study of the Bank of America and Merrill Lynch Merger.  It has a nice tick-tock of events and could be a useful teaching tool, bringing together questions of corporate law and ethics.   I'd only quibble with one conclusion he draws that BAC's decision to acquire ML was not informed and thus a violation of the BAC board's duty of care.  While there are issues with respect to the transaction, I don't think a care violation on the part of the BAC board is one of them.  The courts are highly sensitive to facts and circumstances analysis.  The process adopted when the world is in crisis is not going to be the same when directors believe they have all the time in the world.  I doubt that a court would or should go so far as to pin care violation on the BAC board. 

Abstract: This is a case study of the Bank of America and Merrill Lynch merger.  It is based on the article, Fiduciary Exemption for Public Necessity: Shareholder Profit, Public Good, and the Hobson’s Choice during a National Crisis, 17 Geo. Mason L. Rev. 661 (2010). The case study analyzes the controversial events occurring between the merger signing and closing. It reviews in depth the circumstances under the federal government threatened to fire the board and management of Bank of America unless it consummated the Merrill Lynch acquisition. Among other issues, this case study raises the questions: (1) what is the role of a private firm during a public crisis? (2) what are the responsibilities of the board? (3) what is the role of government and how should it treat private firms? This case study can be used in corporate ethics classes in business schools, or business associations classes in law schools.


April 26, 2010 in Cases | Permalink | Comments (0) | TrackBack (0)

Sunday, April 25, 2010

Summer Reading: Anglo-American Securities Regulation

Martin Wolf at the FT has started a series of columns in which he is thinking about the future of the financial markets.  In his take on the goings-on at Goldman in the wake of the Financial Crisis he made the following observation: 

Financial systems are important servants of the economy, but poor masters. A large part of the activity of the financial sector seems to be a machine to transfer income and wealth from outsiders to insiders, while increasing the fragility of the economy as a whole. Given the extent of the government-induced distortions in the system, even the fiercest free marketeer should accept this. It is hard to see any substantial benefit from the massive leveraging up of the economy and, above all, the real estate sector, that we saw recently. This just created illusory gains on the way up and real pain on the way down.

All true.  But hasn't Wall Street been an insiders v. outsiders game for as long as it's been around? I'm sure Wolf would agree.  Indeed, populist anger at the insiders for fleecing a naive public isn't a new phenomena at all.  Take for example the South Seath Bubble of the 18th century.  Jonathan Swift's poem, The South Sea Project, about sums it up.

But, I affirm, 'tis false in fact,
   Directors better knew their tools;
 We see the nation's credit crack'd,
   Each knave has made a thousand fools.

One fool may from another win,
   And then get off with money stored;
 But, if a sharper once comes in,
   He throws it all, and sweeps the board.

As fishes on each other prey,
   The great ones swallowing up the small,
 So fares it in the Southern Sea;
    The whale directors eat up all. ...

While some build castles in the air,
   Directors build them in the seas;
 Subscribers plainly see them there,
   For fools will see as wise men please. ...

Directors, thrown into the sea,
   Recover strength and vigour there;
But may be tamed another way,
   Suspended for a while in air.

One of the books on my summer reading list is Anglo-American Securities Regulation: Cultural and Political Roots, 1690-1860 by Stuart Banner.  A colleague of mine noticing that I had the book with me remarked that it’s funny how these books get published, move on into obscurity and then following a series of fortuitous events get pushed out in paperback.  Well, I’m glad the publishers decided to put it out in paper back.  So far (I’m just a third in), Banner’s book is a wonderful description of the tensions between insiders and outsiders in early securities markets. 

It seems that “sharpers” have been taking advantage of gullible and optimistic “investors” for as long as people have been trading securities.  Notwithstanding the shocking nature of recent revelations, there isn’t much new in what is now coming out in the papers.  If you read the fine print on page 8 of the boilerplate section of Goldman’s ABACUS flip-book, it says quite clearly that Goldman is not in a fiduciary relationship with its “client”.  Indeed, that same section says:

Goldman is currently and may be from time to time in the future active on both sides of the market and have long or short positions in [the securities that are subject of this offer].  Goldman Sachs may have conflicts of interest due to present or future relationships between Goldman Sachs and any Collateral, the Issuer thereof, any Reference Entity, or any obligation of any Reference Entity.

You’re on your own is the message.  Same as it ever was, I suppose.  


"Big Short": The Musical 

Bet Against the American Dream from Alexander Hotz on Vimeo.

April 25, 2010 in Books | Permalink | Comments (0) | TrackBack (0)

Wednesday, April 21, 2010

Revised Horizontal Merger Guidelines

The FTC and the  DOJ's Antitrust Division have just released their draft revised horizontal merger guidelines for public comment.  The draft is available on the joint FTC/DOJ webpage.   These revised guidelines are the result of a series of workshops that the FTC and DOJ conducted in the Fall and Winter.  According to the press release major differences between the current and proposed Guidelines are as follows:

  • The proposed guidelines clarify that merger analysis does not use a single methodology, but is a fact-specific process through which the agencies use a variety of tools to analyze the evidence to determine whether a merger may substantially lessen competition.
  • The proposed guidelines introduce a new section on “Evidence of Adverse Competitive Effects.”  This section discusses several categories and sources of evidence that the agencies, in their experience, have found informative in predicting the likely competitive effects of mergers.
  • The proposed guidelines explain that market definition is not an end itself or a necessary starting point of merger analysis, but instead a tool that is useful to the extent it illuminates the merger’s likely competitive effects.
  • The proposed guidelines provide an updated explanation of the hypothetical monopolist test used to define relevant antitrust markets and how the agencies implement that test in practice.
  • The concentration levels that are likely to warrant either further scrutiny or challenge from the agencies are updated in the proposed guidelines. 
  • The proposed guidelines provide an expanded discussion of how the agencies evaluate unilateral competitive effects, including effects on innovation. 
  • The proposed guidelines provide an updated section on coordinated effects.  They clarify that coordinated effects, like unilateral effects, include conduct not otherwise condemned by the antitrust laws.
  • The proposed guidelines provide a simplified discussion of how the agencies evaluate whether entry into the relevant market is so easy that a merger is not likely to enhance market power. 
  • The proposed guidelines add new sections on powerful buyers, mergers between competing buyers, and partial acquisitions.  


April 21, 2010 in Antitrust | Permalink | Comments (0) | TrackBack (0)

Tuesday, April 20, 2010

Sporting News

I've been following the developing battle for control over the UK soccer, I mean, football club Arsenal during the past few months.  At last check, US real-estate and sports mogul Stan Kroenke was just a handful of shares (7 shares, apparently) short of being required under the Takeover Panel to make a mandatory bid on all of the outstanding shares of the club.  On the other side is Russian steel magnate Alisher Usamanov, holder of 26.3% of Arsenal's stock.  He is said to covet the soccer club as a prize.   Then there's Lady Bracewell-Smith, holder of 15.9% of Arsenal's shares.  She is set to auction off her stake, apparently in a bid to avoid having to decide between Kroenke or Usamanov.  So much intrigue.

Now, it becomes more complicated.  Kroenke has other sports industry interests, including a 40% share of the St. Louis Rams of the NFL.  The Rams majority holder, the Rosenbloom family, has been looking to exit for some time now and recently identified a potential buyer:  Urbana, IL auto-parts manufacturer Shahid Khan.  Comes word that last week Kroenke exercised his right of first refusal to buy out the balance of the Rams' shares that he doesn't own at the price offered by Khan.  This after Kroenke and Khan had negotiated with Kroenke, according to reports, demanding a $50-99 million 'go-away' fee - a payment to prevent him from exercising his ROFR.   Now that's hardball!   We see rights of first refusal pop up a lot in the context of close company acquisitions.  Here Kroenke appears to have tried to use the right to extract additional rents from potential acquirer.  That's a little unconventional, but not altogether surprising.  

Kroenke's bid for the Rams is complicated by the NFL's cross-ownership rules, which prevent cross-ownership across professional sports of sporting teams outside the owners home markets or in other markets with NFL franchises.  Kroenke also has ownership interests in the NHL's Colorado Avalanche and the NBA's Denver Nuggets.  In order to complete the Rams purchase, he'll have to seek a waiver of those rules or rid himself of other assets.  One report suggests that Kroenke may seek to "sell" the Avalanche and Nuggets to his wife, Ann Walton (of Wal-Mart fame), in order to get around those rules.

And, so what about Arsenal?  Presumably, Kroenke's acquisition of the Rams takes Arsenal off the table for the moment.  I suppose this might be good news for those in the UK suddenly worried about acquisitions of the UK's most storied brands by big American interests.  Then again, it creates an opening for Usamanov. 



April 20, 2010 in Europe, Sports | Permalink | Comments (0) | TrackBack (0)

Monday, April 19, 2010

This is "God's Work"?

About a year ago, Lloyd Blankfein tried to burnish Goldman Sachs' post-financial crisis image by arguing in an interview with the Times of London that Goldman was performing God's work by bringing buyers and sellers together to do deals and safeguarding the interests of shareholders.  Whatever.  Last Friday, the SEC provided a different view when it charged Goldman Sachs with securities fraud.  Here's the complaint. The SEC Alleges that Goldman was playing both sides by assisting investor John Paulson in shorting the subprime market (through a CDS on a subprime CDO) on the one hand, and selling those shorted bonds to investors on the other hand.  The details of this trade were documented in Gregory Zuckerman's The Greatest Trade Ever, but the SEC's 22 page complaint is a quicker, if not more compelling, read.   

Goldman, the SEC alleges, disclosed neither its nor Paulson's role in shorting the same bonds its was selling.  Was that lack of disclosure material?  I don't know.  But, if some Goldman trader called me  and in the process of pitching these bonds to me let it drop that one of Goldman's most important institutional investors was shorting the same bonds that they were trying to sell me and that Goldman had arranged the short, I probably wouldn't invest.  But, hey, that's just me.   

 Last Friday, just as fraud charges were released, I opened Michael Lewis' The Big Short.  It's a really quick read and after I finished it I picked up the SEC's complaint.  Given that I had just finished Lewis' book describing how all this went down - though not at Goldman - the SEC's complaint wasn't all that original.  My first thought on all this is that there will be more lawsuits.  

Sure, the SEC went after Bernie Madoff, but the Financial Crisis of 2008 was not about Madoff.  He was just a symptom.  Leverage and the housing bubble were at the center of the crisis. During a rational bubble it becomes a game of who is the last to get off.  It's clear that Goldman got off first.  With this litigation the SEC is using its enforcement powers to send a message of sorts to Wall Street - that "ripping the faces of your clients" is not the way business should run.  That's probably a message that should have been sent many years ago. 

In any event, with all that's going on, it should make you happy that you're an M&A lawyer!  


Update: Janet Tavakoli on the fraud complaint against Goldman Sachs.


April 19, 2010 | Permalink | Comments (0) | TrackBack (0)

Saturday, April 17, 2010

Kabletown Buys NBC

... or something like that.  I don't know, I just saw it on the TV.  

Happy Patriot's Day (that's a holiday here in Massachusetts).


April 17, 2010 in Friday Culture | Permalink | Comments (0) | TrackBack (0)

Friday, April 16, 2010

A Cadbury Law for the UK?

The FT's Neil Buckley discusses how Kraft's acquisition of Cadbury has moved to the center of the campaign in the UK.


April 16, 2010 | Permalink | Comments (0) | TrackBack (0)

Speed-dating and the Return of Irrational Deals?

It’s been a good April for deal junkies.  There are predictions of a pickup in deal-making (although some question whether these predictions are just that).  If the last few months spate of both friendly and hostile deals are a good indication, then predictions that “The next two quarters will probably be defined as a very aggressive period of speed-dating, where companies will try out different combinations to see if they make strategic sense and are actionable,” (by Paul G. Parker, head of global mergers and acquisitions for Barclays Capital) may likely come to fruition.  Obviously there are a lot of pluses to more deals being done (especially for those of us who study deals and deal-making).  As I asked in my post earlier this week, one of the big questions will be whether deal technology like reverse termination fees (RTFs) will persist in 2010 and if so in what form.  This was hot topic at the M&A panel held this week at the Tulane University’s Corporate Law Institute. I for one hope and expect to see the continuing complexity of RTFs where buyers and sellers actually take into account deal risk, such as financing risk, rather than a return to the problematic option-style RTF structure of the private equity deals of 2004-2007.  But then again, you never know…
Chancellor Strine joked at Tulane that “We need to get past point at which boards prudently take into account risk. We need to get them to do irrational deals” since "Those are the deals that make this conference fun.”
I guess you could say that those are the deals that make my job fun as well ;-)

- AA

April 16, 2010 in Break Fees, Deals, Merger Agreements, Transactions | Permalink | Comments (1) | TrackBack (0)

M&A in Hong Kong

Norton Rose has a memo on the in's and out's of M&A in Hong Kong.  Transactions involving Hong Kong companies are governed by the Codes on Takeovers and Mergers and Share Repurchases.   The Hong Kong takeover code is similar in many respects to the UK Takeover Code.  The Norton Rose memo notes:

Although the Code does not have the force of law, compliance with the Code is, in practice, mandatory because the Panel can impose sanctions on market participants considered to be acting in breach of the Code.  These sanctions can include: reprimand (both private and public); and "cold-shouldering" (prohibitions on certain persons from acting for the offending entity).  In addition, any breach of the Code by a listed company will constitute a breach of the Listing Rules by that company.

The Hong Kong Takeover Panel website is here.


April 16, 2010 in Asia | Permalink | Comments (0) | TrackBack (0)

Thursday, April 15, 2010

Do ATP's Harm Stockholders?

Straska and Waller have a paper forthcoming in the Journal of Corporate Finance, Do Antitakeover Protections Harm Shareholders?  They think not. 

AbstractWe reexamine the negative relation between firm value and the number of antitakeover provisions a firm has in place. We document that firms with characteristics indicating low power to bargain for favorable terms in a takeover, but also indicating high potential agency costs, have more antitakeover provisions in place. We also find that for these firms, Tobin’s Q increases in the number of adopted provisions. These findings are robust to several methods that control for endogeneity. Our evidence suggests that adopting more antitakeover provisions is beneficial for certain firms and challenges the commonplace view that antitakeover provisions are universally harmful for shareholders.

April 15, 2010 in Takeover Defenses | Permalink | Comments (0) | TrackBack (0)

Wednesday, April 14, 2010

What is going on with reverse termination fees?

We at the M&A Law Prof blog are somewhat enamored of reverse termination fees (RTFs).  I have a draft paper (Transforming the Allocation of Deal Risk Through Reverse Termination Fees) coming out this fall in the Vanderbilt Law Review and Brian has a paper (Optionality in Merger Agreements) coming out in the Delaware Journal of Corporate Law.  Brian’s paper examines whether reverse termination fees are “a symmetrical response to the seller’s judicially-mandated fiduciary put and whether such fees represent an efficient transactional term.”  Brian’s paper is terrific, so I encourage you to read it (and no, he isn’t paying me to tell you this). For those interested in learning more about the history of the use of RTFs, take a look at Elizabeth Nowicki's nifty empirical account of "reverse termination fee clauses in acquisition agreements for deals announced from 1997 through 2007, using a data set of 2,024 observations."

My paper is an account of the use of RTFs in strategic transactions.  The abstract gives a summary:

ABSTRACT: Buyers and sellers in strategic acquisition transactions are fundamentally shifting the way they allocate deal risk through their use of reverse termination fees (RTFs). Once relatively obscure in strategic transactions, RTFs have emerged as one of the most significant provisions in agreements that govern multi-million and multi-billion dollar deals. Despite their recent surge in acquisition agreements, RTFs have yet to be examined in any systematic way. This Article presents the first empirical study of RTFs in strategic transactions, demonstrating that these provisions are on the rise. More significantly, this study reveals the changing and increasingly complex nature of RTF provisions and how parties are using them to transform the allocation of deal risk. By exploring the evolution of the use of RTF provisions, this study explicates differing models for structuring deal risk and yields greater insights into how parties use complex contractual provisions not only to shift the allocation of risk, but also to engage in contractual innovation.

My study only spans deals announced before mid-2009, so I am thinking about a part 2 of this paper that looks at the use of RTF structures in deals after mid-2009.  My question is whether, and if so how and why, RTF provisions have changed now that they have become a somewhat more mature provision in acquisition agreements and in light of predictions that happy days may be here again for dealmakers.  If you have any comments on this paper, they are especially welcome before the end of April but even after that I may be able to make some minor tweaks, so please send me your thoughts.

- AA

April 14, 2010 in Break Fees, Deals, Merger Agreements, Transactions | Permalink | Comments (0) | TrackBack (0)

Laster's Moment

In case you haven't already seen it, here's a link to a feature article about  J. Travis Laster that appeared in last week's The Deal, Laster's Moment.  It provides some interesting insight into how Delaware's newest Vice Chancellor approaches his work.  

I'd be remiss if I didn't also express my thanks to Vice Chancellor Laster for traveling up to Boston last week to generously spend time with our students and faculty here at BC Law and lecturing in my M&A class.  


April 14, 2010 | Permalink | Comments (0) | TrackBack (0)

Tuesday, April 13, 2010

Regulating Risk Conference

If you happen to find yourself in Hartford this Friday morning, you might consider stopping by the Regulating Risk Conference sponsored by the Connecticut Insurance Law Journal at UConn Law.   They've put together what looks like a great series of panels on the question risk, moral hazard, how to think about regulating risk in the post-Financial Crisis era. 

In addition to Steven Davidoff, Chuck Whitehead (Cornell), Jeff Gordon (Columbia), Tom Baker (UPenn), Lawrence Cunningham (GW), Claire Hill (Minnesota), David Zaring (Wharton School), Paul Okamoto (Drexel), Paul Rose (Ohio State), and Patricia McCoy (UConn), among others.  William Cohan (author: House of Cards) will deliver a keynote address.  Looks like this conference will be a lot of fun.


April 13, 2010 | Permalink | Comments (0) | TrackBack (0)

Monday, April 12, 2010

More on Whether a Secured Creditor May Foreclose on Substantially All the Assets of a Debtor without Stockholder Approval

From a reader:


I was fortunate enough to recently be asked to research the very question you posted on the M&A Law Prof Blog on July 3, 2009 -- whether a creditor may foreclose on substantially all the assets of a debtor without stockholder approval.

[In] a transcript ruling in Gunnerman v. Talisman . . . dismissing the 271 claim [V.C..] Strine states: 


"I think the -- the Delaware General Corporation Law clearly makes a distinction between financing transactions, mortgage transactions, collateral transactions, and sales of assets. And I don't think you can have a situation where there's the original financing transaction that pledges the collateral is outside 271's reach and then say when the creditor exercises rights under that that are within the four corners or arguably a lesser -- lesser-included option, that that somehow then triggers a stockholder vote. I think that would be bad for -- frankly, for equity investors in general, because I think it would raise the cost of capital, because it would -- it would create sort of a highjack situation that you sometimes see in new bankruptcies where it appears that everybody has to get something simply because they're present."


Hope this is helpful to you and all others who, like me, visit the M&A Law Prof Blog regularly to stay on top of developments in corporate law and practice.


Best Regards,

Marcus E. Montejo


Of course, we still have my other question, what if, instead of foreclosing, the Creditor works out a negotiated settlement with the Debtor pursuant to which the loan is satisfied by delivery of substantially all the assets? 



April 12, 2010 in Asset Transactions | Permalink | Comments (0) | TrackBack (0)

Wednesday, April 7, 2010

The Death of a FUN Deal

As predicted by our friend the Deal Professor, Apollo Management’s proposed $2.4 billion leveraged buyout of Cedar Fair, the amusement park operator, has died. This deal and its death are important for two reasons.  One, it's yet another confirmation that the LBO market is going to continue to be slow at least in the next year.  Second, the deal represents the dangers that boards face in moving forward with M&A transactions. The two sides terminated the deal, with Cedar Fair agreeing to pay Apollo $6.5 million for its expenses, in advance of a scheduled April 8th unitholders meeting since it was clear that the deal would be voted down by Cedar Fair’s unhappy investors.  This is a big blow to the Cedar Fair board that just months ago unanimously approved the transaction and even got two fairness opinions (for which they paid $3 million in total) to support their recommendation.  Knowing that the company is now in a vulnerable position, in connection with terminating the Apollo deal, the board also adopted a 3 year poison pill with a 20% trigger. 

The next few months will likely not be FUN for the Cedar Fair board and management.  The company has a heavy debt load which it will need to refinance.  In addition, the company’s next scheduled unitholders meeting is on June 7th.  The company’s investors, some of whom tried to hold a meeting on the street when the company postponed the initial meeting to vote on the Apollo deal, are really unhappy with the board and management.  I expect that there will be a big push to replace at least some of these people.  The Cedar Fair board and management should brace themselves for a wild ride in the next few months.  I suspect that the Cedar Fair investors are not going to be distracted by all the fun they can have on the company’s two new roller coasters, the Intimidator305, a 305-foot-tall roller coaster at Kings Dominion, and Intimidator, a 232-foot-tall roller coaster at Carowinds.

In the meantime, I look forward to following the fallout from this deal.  Busted deals may not be fun for the players, but they do provide some amusement for law profs.

- AA

April 7, 2010 in Deals, Leveraged Buy-Outs, Private Equity, Takeover Defenses | Permalink | Comments (0) | TrackBack (0)

Parliamentary Report on Cadbury Acquisition

The UK Parliament's Committee on Business Innovation and Skills has just released its report on Kraft's acquisition of Cadbury (here).  The report criticizes Kraft for what it calls Kraft's "cynical ploy" in promising to keep UK manufacturing facilities during the bidding and then immediately announcing their closure upon completion of the deal.  The report also laments the reported role of institutional (or short-term) investors in deciding the outcome of the contested sale and makes a number of recommendations in line with Lord Mandelson's earlier recommendations.,  These include: 

• Raising the voting threshold for securing a change of ownership to two-thirds;

• Lowering the requirement of disclosure of share ownership during a bid from 1% to 0.5% so companies can see who is building stakes on the register;

• Giving bidders less time to “put up or shut up” so that the phoney takeover war ends more quickly and properly evidenced bids must be tabled;

• Requiring bidders to set out publicly how they intend to finance their bids not just on day one, but over the long term, and their plans for the acquired company, including details of how they intend to make cost savings;

• Requiring greater transparency on advisors’ fees and incentives; and 

• Requiring all companies making significant bids in this country to put their plans to their own shareholders for scrutiny.

The Takeover Panel's consultation on reform of its rules is expected to be completed on May 21, 2010.


April 7, 2010 in Europe | Permalink | Comments (0) | TrackBack (0)

Monday, April 5, 2010

Arbitration in Delaware

In the last couple of days there have been a couple of pieces on line (like this one) that suggest that arbitration proceedings in Delaware will be the end of the world for corporate law.   I'll admit, my first thought when I saw that Delaware was instituting voluntary arbitration was that perhaps too many litigants would take their disputes private, thus depriving the Delaware courts of the judicial oxygen required to keep the Delaware common law alive. Thinking about it now, I think that fear is over-stated for a couple of important reasons.  

First, it's voluntary.  Plaintiff cases may derive higher settlement values by staying public - if a director thinks that embarrassing testimony would be presented at trial, he may be more interesting in avoiding a trial.  If the  process is private, no one will know that you were a bad director, so there may be greater incentive to fight.  If I can figure that out, plaintiffs can as well.  So there's an incentive for them to resist agreeing to take cases dark.  

Second, the arbitration process only involves cases where the claim is one for a monetary remedy.  There are precious few of those cases out there.  Why?  If a plaintiff brings a derivative suit alleging some violation of the duty of care (in the takeover context) and the only claim is for monetary damages, that case will be quickly shown the door (BJR, 102(b)(7), ...).  The smart plaintiff attorney simply doesn't bring those cases.  Their cases always have some claim for injunctive relief in an attempt to survive a motion to dismiss. 

More likely than not, arbitration in Delaware will be limited to commercial disputes and not include many shareholder/corporate law actions.  That's my guess.  If we are worried about the common law atrophying I'd be more worried about the trend spotted by Armour, Black, and Cheffins noted (see below).  


April 5, 2010 in Delaware | Permalink | Comments (0) | TrackBack (0)