June 4, 2010
Australians Hate Termination Fees
Apparently, Australians hate termination fees. That's the word at least from an Australian research firm.
More than 60 per cent [of respondents] said their companies should not agree to either break fees with an acquirer or success-based fees for investment bank advisers who are retained to help in the negotiations. ''Success'' in this context can mean an adviser helping a company fend off an unwanted takeover.Now remember that the Australian Takeovers Panel generally limits termination fees in merger agreements to no more than 1% of transaction value, so termination fees are already pretty small when compared to Delaware's more generous levels.
I suppose it's all in the way you ask the question. The survey asked if respondents approved of "break fees, or financial penalties." If someone asked me that, I probably say no, too. If they asked, on the other hand, if I approved of "break fees to compensate bidders for their search costs in the event the target walked away to take a better deal" I'd say yes.
June 3, 2010
A cobbler knows an awl.
Ken Adams proposes to resolve the ambiguity of what constitutes the consummation of a transaction in his forthcoming booklet on drafting M&A agreements. Me? I'm generally with Vice Chancellor Laster:
That said, I'm also a big fan of clear, unambiguous language in merger agreements and Ken provides some of that in his resolution of this question. No reason to tax the judiciary any further!
As a corporate and business practitioner prior to joining the Court, I start with the general observation that "consummate the transactions contemplated hereby" is language that refers to closing. The use of "transactions" in the plural recognizes that a series of things have to be accomplished at closing, particularly in an asset deal. That is what the phrase means. A cobbler knows an awl.
Go-Shops Back Again?
Since the beginning of the year there have been 15 announced transactions that include go-shop provisions. The go-shop is a creature of the last PE bubble that arose to address a perceived fiduciary challenge: Can a board meet its obligations under Revlon without conducting a pre-signing market check? The go-shop gets around that by permitting a board to essentially attempt to run a post-signing auction. One might have thought that following Lyondell that a board would worry less about perceived risks of running afoul of Revlon, but that doesn't seem to be the case. The persistence of the go-shop provision in merger agreement post-bubble suggests that seller's counsel are making fiduciary duty arguments in negotiations and they are winning them.
There's also some evidence that go-shops have now "crossed over" to the strategic side. Whereas during the bubble, go-shops were used almost exclusively when PE buyers were on the scene that has changed dramatically. Of the 15 transactions with go-shops announced this year, 9 of them can be found in transactions with strategic buyers. This is interesting. I'm going to think about it some more, but I'm wondering whether the shift from financial buyers (common value bidders) to strategic buyers (private value bidders) means anything with respect to the likelihood that a second bidder will want to put in a topping bid.
June 2, 2010
Rushing to get my bid in...
Takeover Panel Consultation Paper Released
The Takeover Panel has just released its consultation paper undertaken in the wake of the Kraft acquisition of Cadbury and the ensuing political storm. You can find it here. The good news – that although there is pressure on the Panel to adopt a Delaware styled approach, or at least raise barriers to acquisitions, the Panel appears hesitant to move in that direction.
Whilst [the Takeover Panel] seeks to provide an orderly framework in which takeover bids must be made, the Panel does not take, and has never taken, a view on the advantages and disadvantages of takeovers generally or on the commercial or financial merits of particular offers or types of offer. …
However, it’s clear that the Panel is open to the possibility of moving forward on some of the more controversial areas and is seeking additional discussion and comment before making a final determination.
Given the significance and nature of the issues that have been raised, the Code Committee has chosen to break with its usual practice of setting out specific proposals and proposing drafting amendments to the Code. Instead, on this occasion, the Code Committee is seeking to provide a forum in which suggestions for possible change may be debated.
The Panel’s consultation paper lays out a number of areas in which the Panel wants to continue to receive comment. And they are:
1) the 50% plus acceptance condition versus something higher, like 60%;
2) disenfranchisement of short term shareholders;
3) reducing the early warning disclosure threshold from 1% to 0.5%
4) whether buyers should be required to disclosed sources of finance and future plans;
5) whether shareholders should have access to advice independent of the board with respect to whether or not to accept an offer;
6) whether to extend the same protections to shareholders of the buyer;
7) reexamination of the value of the “put up of shut up” regime;
8) reconsideration of the use of deal protection measures; and
9) whether safeguards against the substantial acquisition of shares be reintroduced.
The Panel is accepting further comment on these issues until July 27, 2010.
June 1, 2010
Call For Papers: 2010 Conglomerate Junior Scholars Workshop
The fifth annual Conglomerate Junior Scholars Workshop is underway and open to untenured scholars in the general area of business law.
During the virtual workshop, the Conglomerate will link to your paper and provide a forum for you to receive feedback before you publish it or present it at a conference, workshop or job talk.
The full announcement is here.
Rise and Fall of the Conglomerate Kings
I'm halfway through Robert Sobel's The Rise and Fall of the Conglomerate Kings, which is probably the definitive account of the conglomerate business structure as told through the lens of the characters who built them. If you're like me, or if you've take an M&A course from someone like me, discussion of the conglomerate period takes up about 15 minutes in the early stages of the class and sets up the narrative for the 1980s LBO boom and the development of the takeover law we all know. Sobel's book is a great introduction to the personalities - imperial CEOs before there was such a thing - who created the conglomerate structure from nothing. Really, you shouldn't consider yourself an M&A geek unless you know who Royal Little or Tex Thornton were.