Thursday, November 11, 2010
Former Vice Chancellor Lamb comments on the "unified standard" of review for freezeout transactions in the most recent Directorship:
... for the time being, the law in this area remains unsettled, and controlling stockholders who are considering a freezeout must continue to weigh the risk of entire-fairness review against the transactional uncertainty introduced by empowering a special committee to negotiate the controlling stockholder's proposal and even block any further acquisition of shares by it through the implementation of a poison pill.
Wednesday, November 10, 2010
Berkshire Hathaway just adopted an exclusive forum bylaw that would limit shareholder suits to the Chancery Court. Here's the new section 14 to their bylaws:
Forum for Adjudication of Disputes
14.1. Unless the corporation consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware shall be the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of the corporation, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of the corporation to the corporation or the corporation’s stockholders, (iii) any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law or the corporation’s certificate of incorporation or by-laws, or (iv) any other action asserting a claim governed by the internal affairs doctrine.
Along those lines, I've got a paper in the works that proposes an amendment of the corporate code to facilitate the adoption of exclusive forum provisions in corporate charters. Here's the abstract.
Tuesday, November 9, 2010
On Oct 11, 2010 Gymboree, a Delaware corporation, announced that it was to be acquired by Bain Capital. I asked how long before the first lawsuit would be filed. Not that long it turns out. On Oct 12, two complaints (Halliday complaint and Himmel complaint) were filed in the California state courts. The third was filed, also in California, on Oct 18 (Harris complaint).
The allegations in the various complaints can be summarized as follows:
Acting on their own self-interest, defendants utilized a defective sales process which was not designed to maximize shareholder value or protect the interests of Gymboree’s shareholders, but rather was designed to divert the Company’s valuable assets to Bain Capital. Each of the defendants has breached their fiduciary duties of loyalty, due care, independence, candor, good faith and fair dealing, and/or has aided and abetted such breaches. Rather than acting in the best interests of the Company’s shareholders, defendants spent substantial effort tailoring the structural terms of the Proposed Acquisition to aggrandize their own personal interests and to meet the specific needs of Bain Capital, which efforts will eliminate the majority of the equity interest of the Company’s shareholders.
In essence, the Proposed Acquisition is the product of a flawed process that was designed to ensure the sale of Gymboree to Bain Capital, on terms preferential to Bain Capital and defendants, and detrimental to plaintiff and the Company’s shareholders. Plaintiff seeks to enjoin the Proposed Acquisition.
No complaints were filed in the Delaware Chancery Court.
Sanofi and Genzyme have been exchanging letters. In the first one, Sanofi's CEO Christopher Viebacher sent a letter to Genzyme CEO Henri Termeer. In the letter Viebacher makes the following points:
First, you indicated that you believe that the Genzyme Board can, at any time, opt to immediately stagger the terms of its members, extending the terms of two‐thirds of Genzyme's current directors for an additional one to three years. ...
Second, you stated that the Genzyme Board retains the ability to adopt a "poison pill". As you are well aware, if adopted, the poison pill would prevent Sanofi-Aventis from acquiring Genzyme, regardless of your shareholders' support for a transaction.
Third, you indicated that the Genzyme Board may wield the Massachusetts anti-takeover statutes in a manner that would, as a practical matter, prevent Sanofi‐Aventis from acquiring Genzyme without the cooperation of Genzyme's Board, notwithstanding your shareholders' support of a transaction.
Since the stockholders destaggered the Genzyme board in 2006, presumably Genzyme would stagger the board through a bylaw amendment adopted by the board. In his letter, Viebacher suggests that taking these defensive actions would be inconsistent with "maximizing shareholder value." I suppose he wants Termeer to get concerned that he might violate his fiduciary duties as a director of a MA company should he not immediately agree to a sale of Genzyme to Sanofi. Well, Termeer has little to fear. As I've written before, MA companies are very management friendly and have written out of the law any of the pesky obligations put on boards by Delaware decisions like Revlon and Unocal. Just-say-no is alive and well in Massachusetts. Clearly, the Genzyme board is engaged and informed. That's basically going to be enough. The brush off letter from Termeer back to Viebacher seems to indicate that Termeer knows this, too.
Monday, November 8, 2010
Squire Sanders & Dempsey and Hammonds (UK) announced their merger this afternoon. Here's their release. For background on what is motivating law firm mega mergers like this one see Marc Galanter and William Henderson's 2008 paper on the transformation of the modern law firm published in the Stanford Law Review or Bruce Aronson's 2007 paper on elite law firm mergers.
The Star up in Canada defends the country's right to say no to foreign investment, but still worries that the fix might be in:
Yes, the Canadian government's actions last week sent a message to the rest of the world: that we are no longer willing to be the Boy Scouts of international finance.
If the Potash Corp. episode has taught us anything, it is that the Investment Canada process is far too opaque. When Industry Minister Tony Clement said the takeover of Potash Corp. did not meet the “net benefit” test under the Investment Canada Act, he was prevented by law from saying why. If Clement turns around after the 30-day appeal period and says BHP has improved its offer and now meets the test, how would we know?
Some looking at the situation with Potash seem to think that the Investment Canada Act and the current climate could prove the ultimate takeover defense for Research in Motion (Blackberry). Given the extremely competitive market for smart phones, that's some comfort for RIM's board, I suppose.
Thursday, November 4, 2010
Last week the Premier of Saskatchewan gave the thumbs down to the BHP bid for Potash. Yesterday afternoon, Canada's Industry Minister Tony Clement released a statement expressing a similar sentiment:
"I can confirm that I have sent a notice to BHP Billiton indicating that, at this time, I am not satisfied that the proposed transaction is likely to be of net benefit to Canada.
"I came to this decision after a careful and rigorous review of the proposed transaction. BHP Billiton has 30 days to make any additional representations and submit any undertakings.
"At the end of that period, I will make a final decision.
"The confidentiality provisions of the Investment Canada Act prohibit me from discussing specifics of an ongoing case.
"I can assure Canadians, however, that I will provide an explanation of the reasons behind my final decision at the time that decision is made, in accordance with the provisions of the Act.
"Canada has a long-standing reputation for welcoming foreign investment. The Government of Canada remains committed to maintaining an open climate for investment."
So the ball is now back in BHP's court. It looks like it's up to them to woo the government of Canada if they want this deal to happen.
Wednesday, November 3, 2010
The Airgas appeal before the Delaware Supreme Court gets underway in about 30 minutes (care of Courtroom View Network). In the meantime, Lucien Bebchuk and his co-authors put a post on the Harvard Corporate Governance Network blog describing their work on staggered boards that figured so prominently in Ted Mirvis argument before the Chancery Court. They highlight what they concluded, and, importantly, what they didn't conclude.
Back in 30 minutes when the fun starts.
The Supremes...sitting en banc.
Ted Mirvis is now making the argument for Airgas
"For over 100 years everyone has believed that the terms of a staggered board are three years."
Ridgley: Are you arguing that a year term must be exactly 365 days?
Mirvis: No, not exactly 12 months, but if there are situations where it is inadvisable to have a meeting exactly 12 months apart that's okay, but not without limits.
Redgley: But, what is the limit?
Mirvis: Should be worked out on a case by case basis.
Berger: Could directors move the annual meeting date by 6 months for business reasons?
Mirvis: If the directors wanted to do it, there would be no one to complain. Stockholders can't do it if it deprives a director of his/her term because the term is a creature of statute.
Mirvis is arguing that this is a question of statutory interpretation and not necessarily one of interpretation of the charter.
Holland, helping out Mirvis with friendly questions:
Essential Enterprises makes another appearance. You might as well read it.
Bebchuk et al's post gets a shout-out. You should read that, too.
Mirvis is done.
Air Products' counsel making his case:
Per 211, the time and place of the annual meeting should be set per the manner established in the bylaws. Now making a textual argument interpreting the charter in support of his position. If Airgas is right, then none of the words in the charter (contract) don't matter.
Chief Justice Steele:
Discussing the Seitz opinion in Essential Enterprises, again.
Berger asking questions that sound sympathetic to Airgas' position:
Discussions of the meaning of the ABA form book for public company charter docs.
Through all the back and forth, it's not exactly clear where the Supremes are in their thinking - whether they have latched onto Airgas' "it's all about the statute and common understanding" or with Air Products' "we're only doing a plain reading of the charter" argument. Then again ... they let Air Products' counsel make his argument almost unheeded for the last five minutes.
Mirvis is back now for a minute making the same common understanding argument. I think his argument that because Air Products has the same charter language as Airgas that it somehow disqualifies Air Products' interpretation of Airgas' charter isn't all that useful.
... and that's it!
Tuesday, November 2, 2010
McDermott's M&A Newsletter offers five traps in healthcare M&A. Down at number 5? Approval by the Pope! I'm not kidding:
A significant segment of nonprofit health care operations in the United States is affiliated with the Catholic Church. According to the Catholic Health Association, there are more than 600 Catholic hospitals and 1,400 long term care and other health care facilities operating in the United States. Health care entities affiliated with the Catholic Church must obtain the approval of the Holy See – the “headquarters” of the Catholic Church in Rome – before entering into certain transactions. This approval, called an “Indult,” is issued after the party selling or otherwise transferring property prepares an intricate application to the Holy See, usually under the guidance of an expert in Canon (church) law. Approval of Indult requests can take weeks or even months to obtain, potentially impacting the timing of a deal if not thought out in advance.
You'll remember that Airgas lost in the Chancery Court on the question whether or not the terms of its staggered board were for three calendar years or for that period of time required for three shareholder meetings to occur. The two turn out to be different. They've taken that issue to the Delaware Supreme Court where no doubt they will be making another version of the argument that the court should not interpret the plain language of the charter but rather a more ... common understanding. As I noted before, that's not an argument that will likely carry the day. Nevertheless, they are before the court this morning and, thanks to the crew over at Courtroom View Network, I'll be watching live.
Given that the board of Airgas has already begun "discussions" of a sort with Air Products one wonders why they are pursuing this appeal. I suppose if they win, they think they can just walk away from the talks about the talks.
Anyway, oral argument is scheduled for 10:00am.
Update: 10:00am - tomorrow, Nov. 3! That's what happens when you're on leave. The calendar becomes a blur.
Monday, November 1, 2010