November 12, 2010
Bad Canadian lawyers. Still. According to the Ontario Securities Commission Mitchell Finkelstein, a partner at the Bay St. firm of Davies Ward Phillips and Vineberg, is alleged to have gathered information on were four major Canadian business transactions that took place between 2004 and 2007. Here's how the OSC describes Finkelstein actions in the complaint:
Kohlberg Kravis Roberts & Co. (“KKR”) acquisition of Masonite International Corporation (“Masonite”), announced December 22, 2004 (the “Masonite Transaction”) – Davies acted on behalf of Masonite and Finkelstein was counsel on the matter. On the evening of November 16, 2004, Davies’ lawyers, including Finkelstein, met with management of Masonite to discuss the Masonite Transaction.
In the following three days, there were several telephone contacts between Azeff and Finkelstein, the last one occurring approximately two hours before the first buy order was placed on November 19, 2005 by Azeff and/or Bobrow.On January 26, 2005, Azeff met with Finkelstein in Toronto. In the two days following the meeting, Finkelstein made two cash deposits in $50 and $100 bills to his two bank accounts.
Cash. He took cash. The OSC isn't clear on how much was deposited, but as any good lawyer knows, if you're making a large cash deposit banks are required to report it to the Treasury Department - in the US anyway. Canada has a similar requirement.
In any event, the OSC alleges that Azeff (the tippee) passed along the informatio to Miller who in turn sent the following e-mail out to clients:
Call me I have a tip … Stock trades on TSX at around $34 - cash takeover of $40 Timing should be before xmas but you never know with lawyers … I'm long
So what probably started out a tip to a friend in exchange for some extra walking around money got broadcast over the Internet in the form of an e-mail to clients that identifies the source of the info as a "lawyer". Great.
OK, kids, don't do this at home.
Davidoff on Genzyme's (un)Staggered Board
The Deal Prof does a great job of plowing through Genzyme's old proxy statements to give us a deeper look at why Sanofi will be unlikely to do much to stop Genzyme from re-staggering its board should it want to. The reason revolves around Massachusetts' staggered board statute (156D, Sec. 8.06). Unlike Delaware staggered boards are the default for Massachusetts public companies. Steven walks through the proxies and points out that back in 2006 the board, and not the shareholders, de-staggered the board. Because the board took the initial action, the statute permits the board to stagger it at any point in the future without going to the shareholders.
That's a good trick. And one more reason why if Sanofi wants this deal to happen, it's going to have play nice.
November 11, 2010
Lamb on the Unified Standard
Former Vice Chancellor Lamb comments on the "unified standard" of review for freezeout transactions in the most recent Directorship:
... for the time being, the law in this area remains unsettled, and controlling stockholders who are considering a freezeout must continue to weigh the risk of entire-fairness review against the transactional uncertainty introduced by empowering a special committee to negotiate the controlling stockholder's proposal and even block any further acquisition of shares by it through the implementation of a poison pill.
November 10, 2010
Exclusive Forum Bylaws
Berkshire Hathaway just adopted an exclusive forum bylaw that would limit shareholder suits to the Chancery Court. Here's the new section 14 to their bylaws:
Forum for Adjudication of Disputes
14.1. Unless the corporation consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware shall be the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of the corporation, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of the corporation to the corporation or the corporation’s stockholders, (iii) any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law or the corporation’s certificate of incorporation or by-laws, or (iv) any other action asserting a claim governed by the internal affairs doctrine.
Along those lines, I've got a paper in the works that proposes an amendment of the corporate code to facilitate the adoption of exclusive forum provisions in corporate charters. Here's the abstract.
November 9, 2010
On Oct 11, 2010 Gymboree, a Delaware corporation, announced that it was to be acquired by Bain Capital. I asked how long before the first lawsuit would be filed. Not that long it turns out. On Oct 12, two complaints (Halliday complaint and Himmel complaint) were filed in the California state courts. The third was filed, also in California, on Oct 18 (Harris complaint).
The allegations in the various complaints can be summarized as follows:
Acting on their own self-interest, defendants utilized a defective sales process which was not designed to maximize shareholder value or protect the interests of Gymboree’s shareholders, but rather was designed to divert the Company’s valuable assets to Bain Capital. Each of the defendants has breached their fiduciary duties of loyalty, due care, independence, candor, good faith and fair dealing, and/or has aided and abetted such breaches. Rather than acting in the best interests of the Company’s shareholders, defendants spent substantial effort tailoring the structural terms of the Proposed Acquisition to aggrandize their own personal interests and to meet the specific needs of Bain Capital, which efforts will eliminate the majority of the equity interest of the Company’s shareholders.
In essence, the Proposed Acquisition is the product of a flawed process that was designed to ensure the sale of Gymboree to Bain Capital, on terms preferential to Bain Capital and defendants, and detrimental to plaintiff and the Company’s shareholders. Plaintiff seeks to enjoin the Proposed Acquisition.
No complaints were filed in the Delaware Chancery Court.
Genzyme & Sanofi: Penpals
Sanofi and Genzyme have been exchanging letters. In the first one, Sanofi's CEO Christopher Viebacher sent a letter to Genzyme CEO Henri Termeer. In the letter Viebacher makes the following points:
First, you indicated that you believe that the Genzyme Board can, at any time, opt to immediately stagger the terms of its members, extending the terms of two‐thirds of Genzyme's current directors for an additional one to three years. ...
Second, you stated that the Genzyme Board retains the ability to adopt a "poison pill". As you are well aware, if adopted, the poison pill would prevent Sanofi-Aventis from acquiring Genzyme, regardless of your shareholders' support for a transaction.
Third, you indicated that the Genzyme Board may wield the Massachusetts anti-takeover statutes in a manner that would, as a practical matter, prevent Sanofi‐Aventis from acquiring Genzyme without the cooperation of Genzyme's Board, notwithstanding your shareholders' support of a transaction.
Since the stockholders destaggered the Genzyme board in 2006, presumably Genzyme would stagger the board through a bylaw amendment adopted by the board. In his letter, Viebacher suggests that taking these defensive actions would be inconsistent with "maximizing shareholder value." I suppose he wants Termeer to get concerned that he might violate his fiduciary duties as a director of a MA company should he not immediately agree to a sale of Genzyme to Sanofi. Well, Termeer has little to fear. As I've written before, MA companies are very management friendly and have written out of the law any of the pesky obligations put on boards by Delaware decisions like Revlon and Unocal. Just-say-no is alive and well in Massachusetts. Clearly, the Genzyme board is engaged and informed. That's basically going to be enough. The brush off letter from Termeer back to Viebacher seems to indicate that Termeer knows this, too.
November 8, 2010
Law firm merger news
Squire Sanders & Dempsey and Hammonds (UK) announced their merger this afternoon. Here's their release. For background on what is motivating law firm mega mergers like this one see Marc Galanter and William Henderson's 2008 paper on the transformation of the modern law firm published in the Stanford Law Review or Bruce Aronson's 2007 paper on elite law firm mergers.
Canada: not the Boys Scouts of international finance
The Star up in Canada defends the country's right to say no to foreign investment, but still worries that the fix might be in:
Yes, the Canadian government's actions last week sent a message to the rest of the world: that we are no longer willing to be the Boy Scouts of international finance.
If the Potash Corp. episode has taught us anything, it is that the Investment Canada process is far too opaque. When Industry Minister Tony Clement said the takeover of Potash Corp. did not meet the “net benefit” test under the Investment Canada Act, he was prevented by law from saying why. If Clement turns around after the 30-day appeal period and says BHP has improved its offer and now meets the test, how would we know?
Some looking at the situation with Potash seem to think that the Investment Canada Act and the current climate could prove the ultimate takeover defense for Research in Motion (Blackberry). Given the extremely competitive market for smart phones, that's some comfort for RIM's board, I suppose.