September 10, 2010
eBay-Craigslist: Pill Enjoined
Chandler handed down his decision in the eBay-Craigslist trial and ruled, mostly, in favor of eBay. According to the Bloomberg report:
The poison pill was enacted “to punish eBay for competing with Craigslist” and not “in response to a reasonably perceived threat or for a proper corporate purpose,” Chandler said in his decision. ...
Trial testimony didn’t establish that Buckmaster and Newmark “acted in good faith and in pursuit of a good corporate purpose when they deployed” the pill, Chandler said. The judge concluded that the pair “resented eBay’s decision to compete with Craigslist” and set up the defense “as a punitive response.”
But it wasn't a complete win for eBay. eBay had challenged Craigslist's staggerd board as a defensive measure and argued that it too should be evaluated under Unocal. Chandler didn't bite. The staggered board was left in place.
I'm still looking for a copy of the opinion in a form that doesn't require me to pay Lexis $50! If anyone has it and is willing to share, I'll read it for you!
BTW: Those of you who took my corporate law final will find the facts in this case oddly familiar.
Update: Thanks to those of you who sent me copies of the opinion - Download EBay v Newmark. Greatly appreciated.
Update: You can always count on Francis Pileggi and the Delaware Litigation Blog. He's got the opinion here. Chandler summarizes the mixed bag opinion in the David v. Goliath case in the following way:
... the battle in Delaware has not been as one-sided a victory for the smaller contender as was the contest between the fabled Israelite and Philistine: more fortunate than Goliath, eBay leaves this field with only a gash across its forehead; less fortunate than David, craigslist leaves this field with something less than total victory.
In applying the Unocal analysis to Craig Newmark and Jim Buckmaster's decision to adopt a rights plan, Chandler focused the threat identified by Jim and Craig (why not Newmark and Buckmaster?). It appears that they identified the "threat" to be the prospect of eBay or some other corporate behemoth one day turning Craigslist into a money making operation. Here's how Chandler dealt with that "threat":
Jim and Craig did prove that they personally believe craigslist should not be about the business of stockholder wealth maximization, now or in the future. As an abstract matter, there is nothing inappropriate about an organization seeking to aid local, national, and global communities by providing a website for online classifieds that is largely devoid of monetized elements. Indeed, I personally appreciate and admire Jim’s and Craig’s desire to be of service to communities.The corporate form in which craigslist operates, however, is not an appropriate vehicle for purely philanthropic ends, at least not when there are other stockholders interested in realizing a return on their investment. Jim and Craig opted to form craigslist, Inc. as a for-profit Delaware corporation and voluntarily accepted millions of dollars from eBay as part of a transaction whereby eBay became a stockholder. Having chosen a for-profit corporate form, the craigslist directors are bound by the fiduciary duties and standards that accompany that form. Those standards include acting to promote the value of the corporation for the benefit of its stockholders. The “Inc.” after the company name has to mean at least that. Thus, I cannot accept as valid for the purposes of implementing the Rights Plan a corporate policy that specifically, clearly, and admittedly seeks not to maximize the economic value of a for-profit Delaware corporation for the benefit of its stockholders—no matter whether those stockholders are individuals of modest means or a corporate titan of online commerce. If Jim and Craig were the only stockholders affected by their decisions, then there would be no one to object. eBay, however, holds a significant stake in craigslist, and Jim and Craig’s actions affect others besides themselves. ...
Directors of a for-profit Delaware corporation cannot deploy a rights plan to defend a business strategy that openly eschews stockholder wealth maximization—at least not consistent with the directors’ fiduciary duties under Delaware law.
September 9, 2010
No TRO in Dollar Deal
No surprise, really. According to Reuters, Vice Chancellor Strine just handed down an opinion (84 pages - if someone wants to send it along, I'd gladly read it for you...) in which he denied the Dollar shareholder plaintiff's motion for a temporary restraining order to prevent Dollar's deal with Hertz from moving forward.
I'm pretty bad at guessing what's going on in the mind of most judges, but this one was pretty obvious.
Update: Vice Chancellor Strine frames the Revlon question nicely. Here from page 44 of the opinion:
Put simply, I do not quibble with the notion that the plaintiffs’ perspective is one that loyal fiduciaries reasonably seeking to obtain a value-maximizing deal could have adopted. But that, of course, is not the question. The question is whether the alternative approach that the Dollar Thrifty Board adopted was itself a reasonable choice that a loyal and careful board could adopt in the circumstances. I frame that question with purpose. The heightened scrutiny that applies in the Revlon (and Unocal) contexts are, in large measure, rooted in a concern that the board might harbor personal motivations in the sale context that differ from what is best for the corporation and its stockholders. Most traditionally, there is the danger that top corporate managers will resist a sale that might cost them their managerial posts, or prefer a sale to one industry rival rather than another for reasons having more to do with personal ego than with what is best for stockholders. Avoiding a crude bifurcation of the world into two starkly divergent categories – business judgment rule review reflecting a policy of maximal deference to disinterested board decisionmaking and entire fairness review reflecting a policy of extreme skepticism toward self-dealing decisions – the Delaware Supreme Court’s Unocal and Revlon decisions adopted a middle ground.
14D-9's and the 21st Century
It used to be that a board in response to an unwanted offer a board would just send a press release to PR Newswire and then file a 14D-9. My ... how times have changed. Potash is presently fending off an unwanted bid from BHP and rather than simply issue a press release, they go to YouTube! (H/T WSJ Deal Journal) Here's Potash CEO Bill Doyle explaining the board's reasons for rejecting the offer:
It's a simple, low budget production. I wonder why they thought it would be more useful than a press release. It's certainly not easier - it takes CEO time and still requires a filing with the SEC. Since you can't file a video clip, yet, the whole thing has to be transcribed before its filed. Here's the filing for the video. It's also not the kind of thing that CNBC or some other business network is going to want to air. I wonder what it's for.
Oh and here's Bill Doyle on those dastardly arbitrageurs ... you know who you are ...
To be honest, I still think the guys over at Woot! know how to use video to communicate with their customers and shareholders. Can you imagine the impact of a monkey puppet rejecting BHP's bid?!
September 8, 2010
A Unified Standard for Controlling Shareholders
I don't know how this one slipped by me. Early in July, Vice Chancellor Laster certified an interlocutory appeal by the defendants in the In re CNX Gas Corporation Shareholders Litigation (May 25, 2010 memo opinion) case. At issue was VC Laster's application of VC Strine's "unified standard" in the context of a controlling shareholder's unilateral freeze-out of the minority. VC Chancellor Laster certified the following question: "[A]re voluntary non-coercive tender offers made with full disclosure by controlling stockholders of Delaware corporations subject to entire fairness review?"
In his memo opinion in May, VC Laster suggested that the issue of the standard of review was ripe for resolution by the Supreme Court and practically invited the defendants to appeal. They did. He certified their interlocutory appeal and it went to the Delaware Supreme Court. The court promptly refused to hear the case ... well, not promptly, they waited two days.
While the Supreme Court refused to resolve the ambiguities in the law, I guess the good news is that the the decision leaves VC Laster's opinion and application of the "Cox Communications" test in place. That test says "if a first-step tender offer is both (i) recommended by a duly empowered special committee of independent directors and (ii) conditioned on the affirmative tender of a majority of the minority shares, then the business judgment standard of review presumptively applies. If either requirement is not met, then the transaction is reviewed for entire fairness."
In short, if practitioners begin to incorporate the Cox Communications test into their transaction planning, it suggests that controlling shareholders should be able to structure going private transactions around many non-meritorious lawsuits.
September 7, 2010
Will the 'Just Say No' Defense Ever Get Litigated?
I'm of the mind that the answer to that question is likely no. In his Stanford Law Review paper of a few years ago (Professorial Bear Hug), Vice Chancellor Strine made it clear that ... well ... it wasn't clear. Of course we professors would like a court to rule once and for all on the question of whether a classified board can simply sit on its poison pill in the face of an unsolicited offer. The courts, I think, are happy with this constructive ambiguity as it relates to the limits of the uses of a pill. For example, the Federal District Court in Delaware suggested in Moore v Wallace (persuasive, but not precedent) that a Delaware state court might permit the defense. Vice Chancellor Allen in Interco, on the other hand, made it clear that there were limits to such a defense and employed a Unocal analysis with respect to 'threats' facing the corporation. Allen understood threats to be of only of two types: threats to voluntariness and the threat of a inadequate price. In context of a single-tier, all-cash bid, there is no threat to voluntariness, there is just the threat that the bid is inadequate. In any event, the Supreme Court rejected that analysis in Paramount v Time leaving us really at sea as to the limits of a 'just say no' defense. The 'just say no' defense really lies at the heart of the most crucial discussion in the corporate law - who should make the decision about the fundamental future of the corporation: the board or the stockholders. You'd think it would eventually get litigated once and for all.
A few months ago it looked like we might have a chance to see it happen. Air Products launched an all cash tender offer for Airgas. Airgas just sat on its pill and said 'no.' Air Products then filed suit. Here's a copy of the complaint. I came to the realization last week that this case would never get before a chancellor. It's scheduled in the Chancery Court for October 1, but that it turns out is just creative scheduling. In fact, it will likely never get that far.
Airgas' shareholder's meeting at which shareholders will likely decide the fate of Air Products' offer is scheduled for September 15. Over the weekend, Air Products upped its offer to $65.50, a whopping 50% premium over the prebid price for Airgas. Air Products also announced that if it is unsuccessful in its proxy contest, it will walk away and not pursue Airgas further. And just like that, the challenge to the 'just say no' defense will go away. Litigating this issue will likely have to wait for another day, unless of course Air Products succeeds in the proxy contest and elects three of its own directors and the remaining directors continue to fight.