Friday, September 24, 2010
I'll just add this brief comment to Afra's good post on the state of the proposed Potash/BHP transaction. Potash has sued BHP in federal court over this BHP's hostile offer (Download Potash complaint). It's worth noting that since the complaint alleges various violations of the Williams Act, which you'll remember is the disclosure regime that governs tender offers, Potash is limited in the remedies that it can ask for. The best remedy for inadequate or incorrect disclosure is .... well ... disclosure. That's why the injunction that Potash is asking for is tied to slowing the offer down until the disclosure can be corrected. In the real world of large NY law firms, that isn't a whole lot of time ... 24, 48 hours to kick out an amended Schedule TO?
I have no doubt that if Potash could get an injunction preventing the offer from going forward, it would. In fact, they hint at it in the complaint - suggesting the tender is coercive because BHP is only seeking 51% has not conditioned the offer on receiving more than 67% of the outstanding shares. I think they're hoping that a judge will agree with them and enjoin the whole deal. Well, that's not going to happen. There's no obligation under the Williams Act that an offerer buy 100% of the outstanding shares, and buying less than all, without more, is just not coercive. In any event, the courts have regularly ruled that the Williams Act is not intended to be a defensive weapon to protect management from unwanted bids. A plaintiff is only going to get an injunction to block a bid if the preferred remedy - disclosure - isn't enough to avoid irreparable harm (see Rondeau v Mosinee Paper), and I don't see the irreparable harm here.
Just the other day one of my students dropped by my office and made an embarrassing admission. Seems he will be joining the corporate department of a big law firm after graduation and ... well ... he said that when the associates were talking "shop" over lunch during the summer that it all sounded like Japanese to him. He is afraid that being an English major in college is just about to catch with him.
Well, don't worry, cause there's an app for that -- Latham & Watkins "Book of Jargon." Download it now so you never have to guess what a "Macaroni Defense" is or what "KFC" stands for. I'll admit I wracked my brain for minutes and then gave up. I had never heard of the KFC acronym before. I looked it up in the Book of Jargon and apparently it means "Kentucky Fried Chicken." Is that a new deal structure?
Thursday, September 23, 2010
In local news, quasi-mythical shareholder plaintiff Alan R. Kahn recently filed suit in MA challenging the Genzyme-Sanofi transaction. In his complaint (which is sadly not available online) he alleged various breaches of fiduciary loyalty by the board, etc. The suit seeks (i) class action status, (ii) an order enjoining the defendants from initiating any defensive measures that would inhibit the defendants' ability to maximize shareholder value, (ii) compensatory damages and (iii) an award to plaintiffs of the costs of the action, including reasonable attorneys' and experts' fees and expenses.
Wait a minute ... there is no Genzyme-Sanofi deal, not yet anyway. Talk about jumping the gun! Well I guess he had the joy of being able to yell "FIRST!"
Well bad news for Mr. Kahn - if he thinks that he'll be able to get an injunction or an order out of the MA courts to prevent or even slow down this deal when and if it ever gets announced he's sadly mistaken. This Skadden Arps memo via the Boston Bar Association (H/T EDJ) notes that the MA courts are especially stingy when it comes to handing out injunctions to block deals:
The lesson of Elliot and its brethren is clear. Massachusetts law is increasingly unreceptive to injunction motions seeking to interfere with sophisticated corporate transactions, particularly where such motions would seek to interfere with shareholder votes. While such cases may occasionally find litigation “traction” elsewhere — indeed, there are Delaware cases granting injunctions in some circumstances,including injunctions delaying shareholder votes — our judges have been skeptical.
At least they are more predicable. It wasn't long ago that the knock on business litigation in MA was that there results were often no better than a lottery.
Wednesday, September 22, 2010
A heated cross-border hostile takeover saga (with big US connections) has been occurring over potash (a key input for fertilizer and other agricultural products), and the moves by the various players should remind our readers of classic plays in the hostile takeover game. In August of this year, British-Australian giant BHP Billiton (the jilted former suitor of Rio Tinto back in 2008) launched a $39 billion takeover bid for Canadian company Potash Corporation of Saskatchewan Inc. (“PotashCorp”). PotashCorp’s board has been actively resisting BHP’s bid, putting forth the usual argument that BHP’s offer is opportunistic, inadequate and coercive, that Potash is better off alone rather than selling to BHP (without of course ruling out a potential sale at some point), and that “superior offers are expected to emerge.” PotashCorp’s management has not relied only on the standard letters, press releases and regulatory filings to resist BHP, as Brian noted earlier, PotashCorp’s CEO has also posted videos to communicate with the company’s shareholders. Meanwhile BHP’s CEO is busy meeting with Canadian lawmakers and defending the Potash bid to his shareholders. Now, there is also news that China’s Sinochem Corp. has allegedly hired expensive bankers (are there any other kind…) to explore a rival offer for PotashCorp. In light of potential competition from Sinochem, BHP’s CEO stated yesterday that BHP would be willing to walk away if the offer didn’t make sense for his shareholders. Of course, this could also be because it is not clear that BHP’s shareholders buy the argument that the PotashCorp acquisition is the way to go (especially since there is a lot of evidence that big transactions like this rarely add value for the shareholders of the buyer). Moreover, unlike these kinds of big deal involving US companies where shareholders of the acquirer often do not get voting rights, BHP may need shareholder approval for its offer under the UK Listing Rules which require approval from shareholders of the acquirer of larger (Class 1 transactions), meaning a transaction that amounts to 25 percent (or more) of any of the company‘s gross assets, profits, or gross capital, or in which the consideration is 25 percent (or more) of the market capitalization of the company‘s common stock.
PotashCorp isn’t waiting around to see if Sinochem comes forward with an offer, it has also filed a suit in US federal court seeking to block the takeover and accusing “BHP of making false and misleading statements in regards to how it plans to run the combined company in the future.” PotashCorp has also raised the BHP shareholder vote issue, stating in its complaint that “BHP failed to disclose to PCS shareholders that on the day it launched its hostile bid, and thereafter in light of the market reaction to the offer price, it was reasonably likely that a vote of BHP shareholders – required under U.K. law for any acquisition where the consideration equals 25% or more of the acquirer’s market capitalization – would be required. Indeed, even BHP’s lowball bid was equal to approximately 23% of BHP’s market capitalization at the time the tender offer was commenced. BHP’s misleading omission deprived PCS shareholders of critical information in at least two respects: that approval of the transaction was uncertain, and that the need for shareholder approval could constrain BHP’s ability to increase its bid to a level closer to fair value.”
For M&A buffs, it is worth keeping an eye on this deal, there are a lot of moving targets and I wouldn’t be surprised if more legal, strategic and regulatory issues arise.
Matthew Cain and Steven Davidoff (The Deal Professor) have a new paper, Form Over Substance? The Value of Corporate Process and Management Buy-Outs, over at SSRN. This area of the law is one where there is a lot of interest and I suspect is ripe for some change, particularly with respect to challenges to cash-out mergers. So this paper is a welcome addition to the mix.
We examine management buy-out (MBO) transactions announced from 2003-2009 in order to study the wealth effects of MBOs and the role of process. We find that there is “value” in corporate process. MBO offer premiums are positively associated with competitive contracts and the existence of special committees. Among transactions with low initial offer premiums, bid failures are more likely when target shareholders benefit from competitive contracts. Our results allow for a cautious approach and more rigorous application of current Delaware law to provide that courts more vigorously scrutinize MBO transactions. They also inform the proper standard for review of other forms of takeovers with explicit agency/principal conflicts, including freeze-outs.
Monday, September 20, 2010
Over at Truth on The Market, J.W. Verret lists the Top Ten Books in Corporate Law that he believes a practitioner would find useful in day to day practice. This follows a prior post listing his top ten books in corporate governance, which reader comments led him to believe had (perhaps) too academic a focus. As he notes, most of the entries on the new list are treatises.
Acknowledging that corporate practices can vary widely, I have to say that, while I have consulted most of the books on his list, they are not the ones I turn to most often. As a transactional practitioner I’m generally looking for books that give more concise, practical advice on how to actually do things.
So, here’s my list of 10 texts for the transactional practitioner (in no particular order):
- Corporate Finance and the Securities Laws, by Charles J. Johnson, Jr., Esq., Joseph McLaughlin, Esq.
- Negotiated Acquisitions of Companies, Subsidiaries and Divisions, by Lou R. Kling & Eileen T. Nugent
- Start-Up & Emerging Companies: Planning, Financing & Operating the Successful Business, edited and co-authored by Gregory C. Smith with Contributing Experts
- Negotiating and Drafting Contract Boilerplate, edited & co-authored by Tina L. Stark
- Any one of: (a) The Section 16 Treatise and Reporting Guide, (b) The Section 16 Deskbook or (c) The Section 16 Forms and Filings Handbook, each of which is by Peter Romeo and Alan Dye
- Resales of Restricted Securities, by J. William Hicks
- The Williams Act—Tender Offers and Stock Accumulations, by Arnold S. Jacobs
- Legal Opinions: Drafting, Interpreting, and Supporting Closing Opinions in Business Transactions, by Donald W. Glazer, Scott T. FitzGibbon, Steven O. Weise
- Regulation of Securities: SEC Answer Book, by Steven Mark Levy
- Regulation of Corporate Disclosure, by J. Robert Brown
In the interest of full disclosure, several have been written or edited by partners or former partners of mine and I’ve contributed to a couple of them. I have excluded bar resources and pure form books, although often these are the things I use most frequently. I also excluded any text that is over two volumes long. And of course I've left off imternet resources, which I use quite frequently.
Thoughts welcome in the comments.
Sunday, September 19, 2010
By now it should be obvious to most readers that one of my target audiences when I write this blog is mostly recent law grads still getting their footing as young associates. I think it's useful to reinforce a couple of lessons that they may not have thought much about while in law school, but once you get out in practice confront you every day. First among them for transactional lawyers - particularly those new to the practice who are, often for the first time, handling confidential client information - is insider trading. As any transactional lawyer will tell you, when you work on deals, you're constantly handling inside information. If you want to have a long career you have to take that seriously. That's why I will often highlight "idiot lawyers" and others who ruin their careers for small amounts of cash, or for fleeting personal glorification. Some of these people deserve what they get, others ... well ... others could have been you. These are lessons worth learning.
All that said, the latest addition to the pantheon of people who should have known better, but thought maybe nobody would notice, is Dr. Bobby Khan. The SEC recently filed a civil complaint against Khan alleging that Khan traded on material nonpublic information that he acquired from a long time business associate and friend. The associate was an officer at Sciele who shared information with Khan about a pending transaction in which Sciele would be acquired by a Japanese pharmaceutical firm. The SEC alleges that Khan received that information after having assured his associate he would keep it confidential. In fact, the SEC alleges that after having learned about the acquisition from his associate over dinner, Khan sent the following email:
"Had a great dinner with you on Friday and I wish all the best with the negotiations on the potential buyout of Sciele. Of course, I will keep it confidential."
Of course, he will. But, you know how the story ends. Following his receipt of this information, Khan allegedly opened an online brokerage account, his first since 2003 and then transferred approximately one-third of his then liquid net worth into that account in order to purchase about 4,000 shares of Sciele stock only a few days before public announcement Sciele's acquisition on September 1, 2008. Following the tender offer announcement, Khan sold all of his Sciele shares in October 2008, making $45,000 in profits.
I'll give you three guesses where the SEC got the e-mail to the officer of Sciele. It probably wasn't Khan. I'm sure that when the SEC starting putting the dots together on who Khan was it took them about three minutes to realize that the Sciele officer was on the advisory board of Khan's startup. In fact, I wouldn't be surprised if the Sciele officer gave up Khan right away.
The good news for Khan is that he is a medical doctor and not a lawyer. Presumably he will still have a career after this is over.