Saturday, April 17, 2010
Friday, April 16, 2010
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 ;-)
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.
Thursday, April 15, 2010
Straska and Waller have a paper forthcoming in the Journal of Corporate Finance, Do Antitakeover Protections Harm Shareholders? They think not.
Abstract: We 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.-bjmq
Wednesday, April 14, 2010
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.
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.
Tuesday, April 13, 2010
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.
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.
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?