Wednesday, May 5, 2010
There has been a lot of fun merger activity and news lately. Unfortunately for me, I’ve been bogged down in end of the semester exam angst. But there is a deal that has caught my attention (in my prior life, I was a Silicon Valley lawyer): HP’s proposed $1.2 billion acquisition of Palm. HP is certainly no stranger to large tech deals, and it’s no secret that Palm has been trying to find a suitor. There is some speculation about whether now that HP has stepped up other suitors will emerge given Palm’s valuable patent portfolio which some value at approximately $1.4 billion. Of course, the usual crowds have already started investigating whether the Palm board breached its fiduciary duty to its shareholders in agreeing to sell the company to HP. According to one plaintiff’s side firm “the deal is suspicious because it appears from a review of the Company's financial statements that the inherent value of the Company's stock is greater than $5.70 per share, because the share price was as high as $6.29 just this month prior to the announcement of the deal, because the share price has been as high as $13.58 just this year and also because it appears that the Company's Board of Directors failed to shop the Company to other potential buyers to assure that its shareholders would receive the best price possible for their shares.” For those of you familiar with Delaware case law on this type of acquisition, you know well that Palm’s sale to HP is a change of control transaction that implicates Revlon duties. But, this will likely be a tough case to win on fiduciary duty grounds as the Delaware courts have stated that "there are no legally prescribed steps that directors must follow to satisfy their Revlon duties." As we have noted many times on this blog, the Delaware Supreme Court’s recent decision in Lyondell Chemical Company v. Ryan seems to confirm that only an utter failure to attempt to secure maximum value will cause directors to run afoul of their obligations under Revlon. Moreover, the terms of the Palm-HP acquisition agreement give a lot of room for a higher bidder to emerge. The $33 million termination fee is fairly low (approximately 2.75% of the deal value) and Palm’s board has a typical fiduciary out. So will other suitors come knocking at Palm’s door?