M & A Law Prof Blog

Editor: Brian JM Quinn
Boston College Law School

Friday, May 28, 2010

Richards Layton on Freeze-outs

Richards Layton just released this client alert on In re CNX Gas Corp. Shareholders Litigation, in which the Delaware Chancery Court attempts to clarify the standard applicable to controlling stockholder freeze-outs (a first-step tender offer followed by a second-step short-form merger).  In short, the Court held that the presumption of the business judgment rule applies to a controlling stockholder freeze out only if the first-step tender offer is both

(i) negotiated and recommended by a special committee of independent directors and

(ii) conditioned on a majority-of-the-minority tender or vote.


May 28, 2010 in Deals, Delaware, Going-Privates, Leveraged Buy-Outs, Litigation, Management Buy-Outs, Mergers, Takeovers, Tender Offer, Transactions | Permalink | Comments (0) | TrackBack (0)


Congratulations to all my students who are graduating today! 


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

Thursday, May 27, 2010

Idiot Inside Traders

This week the FBI arrested the administrative assistant to a high-level Disney executive and her boyfriend.  Turns out they were not the smartest couple of inside traders out there.  The SEC’s complaint speaks for itself:

The Plan

9. Beginning in early March 2010, various hedge funds, including several in New York, received letters from an anonymous sender claiming to be able to obtain pre-release access to Disney’s 2Q-2010 quarterly earnings report and offering to share such information prior to its public release for a fee. The letters, post-marked from Los Angeles, California, stated:

Hi, I have access to Disney’s (DIS) quarterly earnings report before its release on 05/03/10 [sic]. I am willing to share this information for a fee that we can determine later. I am sorry but I can’t disclose my identity for confidentiality reasons but we can correspond by email if you would like to discuss it. My email is eilatcap@gmail.com. I count on your discretion as you can count on mine. Thank you and I look forward to talking to you.

10. At least twenty hedge funds, including funds based in several U.S. states and European countries, received the same or substantially the same letter

 Discretion.  Right.  Randomly sending letters out to hedgefunds advertizing an offer to engage in insider trading ahead of earnings calls – that’s discretion?  Of course multiple hedge funds forwarded this letter on to the FBI and they promptly set up a sting operation.  The substance of the negotiation between the hapless boyfriend and the FBI went something like this:

•  “First of all, i am not a fed, I have no way to prove it at this point but i am not asking you to disclose your identity not i will disclose mine. It is up to you to determine if this is worth the risk as i did. I work for Disney, that is all i can tell you.”

 But did he ask them if the guys on the other end of the e-mail were Feds?  Apparently not.

• As i said in my letter, i am able to get the earnings report of Disney 3 to 4 days before they are out. I will be happy to email them to you for a fee that you can pay after you close your trades. Let me know if you are interested and how much i will get from you for this transaction. Also, i am looking to build a relationship for future earnings and other insider news.”

• I am not asking for any payment up front, i will email you the earnings report and you can pay me after. I was thinking that $20000 is a fair compensation but you are free to make an offer.”

• I am very serious and i will show you that very soon. $15k sounds great and $30k even better as i hope you will make a killing from Q2 earnings. I promise i will keep you informed of any unanticipated event, i keep my ears wide open here.”

And just how profitable was this alleged scheme for the administrative assistant who apparently risked her career and may end up going to jail?  She allegedly did it for a handbag and shoes.

[Bonnie] Hoxie stated “here is the bag that you are going to get for me – thank [sic],” and attached a link to a picture of an expensive Stella McCartney designer handbag available for $700 at Neiman Marcus, an upscale department store. Sebbag replied that he would get Hoxie the bag “next week.” Anticipating that they would receive substantial compensation from the Putative Traders, Sebbag stated “I may be able to [buy] u 2 of them, lol.” Hoxie responded via email, “In that case, i also love love these shoes” and attached a link to a picture of expensive Stella McCartney shoes also sold at Neiman Marcus.



May 27, 2010 in Insider Trading | Permalink | Comments (2) | TrackBack (0)

Continuing Problems with Prudential’s Plans to Purchase AIG’s Asian Assets

Back in March, Prudential announced a $35.5 billion purchase of American International Assurance, the Asian arm of A.I.G. (for more info see this prior post).  The deal hit some snags early on because of regulator concern about Prudential's capital.  Prudential is also encountering serious resistance from investors as it tries to complete a $21 billion rights offering in order to finance the deal.  The offering requires a shareholder vote (a whopping 75% of the shares that are voted) and the Prudential shareholder meeting is scheduled for June 7th.  The economist magazine has come out in favor of the deal, seeing it as more about "uniting competitors in Hong Kong and Singapore, which comprise about half of the activities in Asia of both AIA and Prudential" than about destiny and empire building.  But now RiskMetrics has now entered the fray and recommended a vote against the deal.  The concern is that Prudential may be overpaying for this deal, and that post-acquisition many of AIA’s people may leave to join the company’s rivals.

Prudential's management has not done an amazing job selling this rather expensive deal to their shareholders.  Will this be another big deal that goes bust?


May 27, 2010 in Asia, Current Events, Deals, Europe | Permalink | Comments (0) | TrackBack (0)

Help Wanted - Business Law Clinic Prof

The University of New Mexico School of Law invites applications for a faculty position beginning in the fall of 2011, teaching in UNM's Business and Tax Clinic. The Business and Tax Clinic is part of UNM's nationally-ranked clinical law program. This Clinic teaches students to practice law in a commercial setting, specifically assisting individuals, small businesses and non-profit corporations with a variety of transactional and dispute resolution issues, as well as clients with consumer, debtor-creditor, tax, and home mortgage issues. It emphasizes economic development issues and collaborates with our other clinics. The position is full-time and may be probationary leading to a tenure decision, tenured, or visiting. Salary and terms of employment will depend upon the qualifications of the successful candidate.


For best consideration, applicants should apply by June 30th, 2010. The position will remain open until filled. Applicants should attach their cover letter and CV to their online application via the UNMJobs website:


The position is listed as posting number 0806253.


May 27, 2010 in Academic Jobs | Permalink | Comments (1) | TrackBack (0)

Wednesday, May 26, 2010

More On Reverse Termination Fees and Merger Agreement Remedies

I’ve mentioned reverse termination fees previously on this blog.  For those of you who attended the ABA Business Law Section’s meetings in April, you’ll know that the Practical Law Company has put together an analysis of RTFs and other remedies "available to target companies in public merger agreements for a buyer's failure to close the transaction because of a willful breach or a financing failure."  The PLC study is a sophisticated analysis of RTFs and specific performance remedies in public deals announced between Q1 2009 and Q1 2010.  I highly recommend taking a look. The study can be found here

- AA

May 26, 2010 in Merger Agreements, Research | Permalink | Comments (0) | TrackBack (0)

Losing Standing after a Merger

In the vein of life mimicking possible exam questions - Morris James points out a recent case in the Delaware Chancery Court, Arkansas Teacher Retirement System v Caiaf a ("TRS").  The issue relates to whether a plaintiff may maintain standing in a derivative suit following a merger.  The answer is generally no.

Other than in instances of fraud or reorganization, a plaintiff loses standing to maintain a derivative suit where the corporation, in which the plaintiff holds stock, merges with another company (Lewis v. Anderson, 477 A.2d 1040, 1049 (Del. 1984)).  A stockholder may maintain his post-merger suit “if the merger itself is the subject of a claim of fraud, being perpetrated merely to deprive stockholders of the standing to bring a derivative action."

This is just another reason why injunctive relief plays such an important role in merger-related litigation.  If the plaintiffs don't seek an injunction to prevent the merger from going forward they risk having their claim extinguished as soon as the transaction closes.  The only exception to this is, as TRS  points outs, when the plaintiffs plead that the merger is a fraud merely to deprive the shareholders of standing.


May 26, 2010 | Permalink | Comments (0) | TrackBack (0)

Tuesday, May 25, 2010

Rams and the Right of First Refusal

First, my apologies for recent paucity of posts. I've come down with a common seasonal affliction - exams, grading, and then graduation.  It's an odd time of year when all my normal routines go out the window and I find myself buried under piles of exams.  I'm almost better.  I should be back to normal by Monday next week. 

In the meantime, I'm fascinated by the ongoing intrigue over at the St. Louis Rams.  When we last checked in, the Rosenblooms had negotiated to sell their stake to Illinois businessman Shahid Khan.   Rams' minority owner, Stan Kroenke, then exercised his right of first refusal to purchase the 60% of the Rams owned by the Rosenberg family.  Kroenke's attempt to exercise his right of first refusal has run into an obstacle - 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.  Apparently, Kroenke has been trying to creatively figure out a way to have his cake and eat it too.  According to St.Louistoday.com Kroenke may by attempting to substitute his wife, Anne, for himself in his bid for the Rams in order to avoid having to sell his positions in his basketball and hockey teams.  That might work by Kroenke simply assigning his right to match to a group headed by his wife, or by making a bid himself and then immediately turning around and then selling his position to his wife's group.   It's hard to imagine that the Rams limited partnership agreement would permit the transfer of a right of first refusal, but we'll see. 

The NFL owners are meeting today in Dallas and will discuss the Rams sale among other issues.


May 25, 2010 | Permalink | Comments (0) | TrackBack (0)