July 13, 2010
Yucaipa v Barnes & Noble (day 4)
B&N's outside counsel from Cravath, Scott Barshay is back on the stand. Says that the "family transfer provisions" that got Burkle so upset early on weren't the idea of anyone in the company and that it all came from Cravath. Barshay is walking through the process of adoption of the rights plan and its amendments. And very quickly the defense is done.
Barshay is now on cross examination.
- "Mr. Barshay, isn't it a fact that the first time you met any members of the board was five minutes before the pill was adopted?"
Five minutes? Ouch.
Counsel is trying to tag Barshay for immediately considering adoption of a rights plan once Burkle surfaced. There's an objection. Strine steps in to calm the children, noting that considering the adoption of a pill would not be an altogether uncommon response.
Pushing Barshay again on his knowledge of the board before he met them for the first time. It sounds like he had no idea who was going to be in the room or the background of anyone on the board. How is that possible? He certainly didn't give a lot of push back on that line of questioning.
Lots of questions regarding the presentations on the rights plan that Barshay prepared for Daniels (24 pages) and the 2 page presentation for the board. Seems like a pretty standard overview of how pills work. Hope B&N didn't pay too much for it. I could have told them the same for less.
Shoutout for Chuck Nathan! An article by Chuck Nathan gets commended to the viewing audience. I guess that's me. I suppose I should find out which article they are talking about.
"Does the pill as it stands does not prevent Riggio and his family from acquiring more stock. Is that correct?"
Because Riggio's adult children aren't living with him, they are not affiliates and don't trigger the beneficial ownership definition under the pill. Barshay tries to push back by pointing to the 13D group requirements, but concedes the defense's general point. Tries to argue that Burkle's kids could buy stock and not trigger the beneficial ownership rules. Defense counsel corrects him by noting that Burkle's kids live with him so, no. Now working through some pill math. Counsel makes the point that the board can accumulate stock without triggering the rights plan while Yucaipa's acquisition of stock would trigger the plan. Cross examination is done.
On re-direct - discussion of whether or not a pill can impede a proxy contest. Barshay's view is that a pill is not triggered by a proxy contest. Indeed, notes that no pill as ever been triggered by a proxy contest.
Strine asking some questions regarding setting of the trigger for the pill at 20%.
Mr. Barshay is excused. B&N lead director Michael Del Giudice is called.
Lots of questions regarding Del Giudice's background and how he came to the board. Everybody - including Strine - is reliving the unfortunate Dukakis presidential campaign and the "tank" incident for which Del Giudice disclaims any responsibility.
Back from the morning break and the plaintiffs object to agreement that has not been produced. The agreement disclaims Del Giudice's financial interest accruing to Rockland that result from any Riggio investment in Rockland. Strine doesn't appear happy that the document hasn't been produced and rules as such.
OK, back to direct testimony. Discussion of the board meeting at which the pill was adopted. Interesting, but not surprising - Riskmetrics' reaction to a pill adoption was a topic of conversation in the boardroom and that the pill was designed in order to be as "Riskmetrics friendly" as possible.
Now on cross, plaintiff's counsel is all geared up for a "Law & Order" gotcha moment, but technical difficulties screw it up. That, and the fact that Del Giudice immediately offers up that he was wrong in his deposition that mistated that Zivaly was not an independent director. You could almost see plaintiff's counsel say - not so soon! I'm not there yet!
I suspect the next couple of minutes will be anticlimatic.
Why are they dragging up the ghost of the Dukakis campaign again? Do they have to ask whether Dukakis won 10 states? Really, where does that get us? Painting Del Giudice as a political fund raiser and Riggio as one of his "go-to" money guys in NY Democratic circles. Don't think that'll go far. Plaintiff's counsel have moved on to describe the various investments that Riggio has made in Del Giudice's Rockland entities. This might have more legs. Riggio made a $20 million investment in Rockland.
I think plaintiffs might be confusing (or obfuscating) good corporate governance with the corporate law. Plaintiffs seem to be implying that because the B&N board is waiting for the SEC to implement rules with respect to independent compensation consultants before it changes its own policy that there is some sort of conflict. That's a weak argument.
Q: If stockholders got together and voted to pull the pill, would that trigger the pill?
A: If there is an arrangement or understanding to vote against the pill, that would trigger the pill.
That seems like the wrong answer. What good is stockholder approval of the pill if stockholders can't organized to vote against it? This question is better asked of the Cravath lawyer. Del Giudice isn't a legal expert and shouldn't be permitted to provide a legal opinion on the mechanics of the pill. Del Giudice has clearly moved beyond his level of knowledge and he knows it.
Break for lunch.
Back from lunch. Couple of questions about whether a group of stockholders representing 20% of all the shares might be required to pay a premium to vote their shares for a director. I'm not sure what that's supposed to mean, but whatever. Plaintiffs are done.
Del Giudice is now on re-direct. Turns out Riggio's $20 million investment is not yet funded.
Del Giudice is excused and defense rests. Various motions regarding admission of evidence.
Strine is venting (for the benefit of the viewing audience apparently) about the lack of tabs and readability of post-trial briefs.
Look at this thing -- no tabs!
Strine is now riffing on the European takeover directive and creeping takeovers. The pill here is being used in a somewhat unusual circumstance. Now you have two block-holders and how to do you deal with them? Eichler and Aletheia seems a mystery to Strine. Why do they refuse to vote their shares? He thinks they may have their own fiduciary issues. He's giving hints for post-trial briefs.
There is skepticism factor that Yucaipa will face in a proxy contest because they are unwilling to make an offer or go on the board.
Snooki?! Yes, Snooki is a character on that Jersey show. How did Snooki make an appearance in Strine's comments? Anyway.
The 20% threshold is sticking in his mind - because Riskmetrics will focus on it - that why the board went for that number. What's not sticking in his mind is whether the board considered or should have considered a larger trigger because of the Riggio block already in place.
It's clear that the differential trigger has gotten Strine's attention - and not in a good way.
Yucaipa needs to sharpen what it wants in this trial - do you want to acquire more shares? Do you just want to feel love? Compares Yucaipa to an adolescent who wants to ask a girl out, but only if she will say yes...
And thus ends Strine's rambling. Briefs are due on Friday evening and then answering briefs on Monday evening. Post-trial arguments will occur late next week.
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