Thursday, November 25, 2010
Who announces a deal on Thanksgiving?! Delmonte, it seems.
Vestar Capital Partners and a fund run by Centerview partner James Kilts will join KKR in the deal, which ranks as one of the largest U.S. leveraged buyouts of the year. The three partners will assume about $1.3 billion in Del Monte's debt. When including the debt, the company said the deal value is $5.3 billion.
Del Monte can try to solicit high offers until Jan. 8, 2011 during a so-called "go shop" period. Del Monte said it expects the deal to close in March if it gets no higher bid.
The go-shop has nearly become a standard term over the past couple of years. This development is a bit of a puzzle. Sure, directors of sellers are likely afraid that they might face litigation if they don't so something to actively test the market. There's something to that. On the other hand, courts have -- particularly in recent years - been less demanding of selling directors. There's no reason to believe that for a high profile transaction like this one that a no-shop with a fiduciary out wouldn't be sufficient. Hey, don't get me wrong, I'm all for go-shops. I just wonder whether there's more to them given that financial buyers who have always been averse to auctions are now willing to give go-shops without too much complaining any more.
Now for more turkey.
Wednesday, November 24, 2010
Tuesday, November 23, 2010
See that there? That's egg on my face (ARG-DelSupCtOpinion). It's a total victory for Ted Mirvis and Wachtell. The Supreme Court even cited approvingly to the ABA's form book.
The Supreme Court overturned the Chancery Court, basically holding that since everyone has always assumed the language "in the third year following the year of their election" means a "three year term" for directors, then four months between annual meetings is too truncated to count as an annual meeting. So a bylaw that moves the annual meeting to a date that isn't near the "traditional" date, but still "in the third year following the year of their election" is invalid. That seems like a victory for poor (or sloppy) drafting: "in the third year following the year of their election" or "three year term" ... whatev's.
Of course, the court leaves unanswered the next question - okay, so what's the minimum amount of time between annual meetings? Five months? Six months? More?
So the good news? By ruling against the bylaw, the Supreme Court has given new life to Air Products challenge to Airgas' "just-say-no" defense. Could it be that we might finally get "just-say-no" litigated? We'll see. Air Products' challenge to Airgas' poison pill is next up in the docket.
Monday, November 22, 2010
Gina Chon and Preeta Das at the WSJ have an article this morning suggesting that Genzyme might be open to a deal with Sanofi if it's given certain back-end protections for its shareholders. The basic problem that has stood in the way of Genzyme doing a deal with Sanofi has been valuation. Genzyme's board has consistently said that Sanofi's bid woefully undervalues Genzymes short and medium term prospects. It looks like that the parties might be reaching back into the old bag of trick for a deal device to bridge the valuation gap. They're calling it a contingent value right -- a right that would pay off for Genzyme shareholders in the event Campath (Genzyme's new drug) outperforms certain targets.
Wait a minute ... that sounds like an earnout. In fact, it is an earnout. The CVR is typically used when buyers are offering stock as consideration and the seller is not convinced that the short or medium term value of the stock is worth what the buyer claims. The CVR gives the selling shareholders the right to come back to the buyer for cash ex post in the event the price of buyer's stock fall belows a target rice.
The earnout on the other hand is a contracting device that helps to bridge the valuation divide from the other end. The buyer is not convinced the seller's asset is worth what the seller claims it is. The earnout lets the seller put her money where her mouth is. If ex post the seller turns out to be worth what the seller says it's worth, then the seller's shareholder get additional compensation. If not, not.
What's unique about the earnout that Genzyme may be talking to Sanofi about is that Genzyme is a publicly traded company. Typically earnouts are only used when the seller is privately-held. Rarely does one see a public company target getting an earnout. In any event, that doesn't change my general view of earnouts: it's best to just say no. Particularly given that the parties to this possible deal are not necessarily on the same page, it would probably be best for them to avoid disputes later down the road to do the hard valuation work now. But, hey, that's just my opinion.
Those of you reading in the US - have a great Thanksgiving. I'll be posting again next week.
One of the more surprising developments over the past couple of years has been the rehabilitation of Frank Quattrone. During the Internet bubble, Quattrone was investment banker to Netscape and Amazon among others. He got caught up with spinning hot stocks and when the Feds went looking for a scalp, Quattrone found himself in their cross-hairs. The case, ultimately, was a bust and died about four years ago.
Recently, Quattrone has been busy. Among other recent deals, he shepherded 3Par during its sale to HP (and the bidding contest with Dell), and Isilon's recent sale to EMC. Now, Quattrone is speaking out and giving his M&A exit advice to entrepreneurs. In a conversation with Ben Gurley (Benchmark Capital) at the Web 2.0 Conference last week in San Francisco, Quattrone noted the changed M&A lanscape. IPOs are no longer the preferred exit for VCs - although they used to account for 50% of liquidity event, they are now less than 10%. That's probably not be choice given the fact that IPO multiples remain higher than M&A multiples. Nevertheless, with the state of regulatory affairs post Sarbanes-Oxley, there isn't a lot of interest in taking small companies public.
On the M&A side, according to Quattrone the tech market is also more mature and has consolidated considerably - the top 10 tech companies now have 70% of the tech market cap and 70% of the cash (Microsoft, Google, Apple, Amazon, eBay, and Yahoo among others). That means the market is, on the one hand, potentially less competitive for sellers because the number of obvious buyers has shrunk to just a handful. On the other hand, the buyers who are left may be more willing - as in HP/Dell - to bid aggressively against each other as the big techs are all consolidating vertically.
In the conversation with Gurley (below) Quattrone provides some interesting insights into thinking strategically about selling a startup tech firm and directions that M&A in the tech sector are taking. Quattrone is optimistic about the near future prospects of M&A. Of course, he's an M&A banker, he has to be optimistic! In any event, this conversation is worth watching when you have time -- maybe between turkey and dessert, or at halftime.