Friday, December 17, 2010
In a real belt-and-suspenders approach to making sure there isn't another bidding contest, Dell is requiring its most recent target, Compellent, to adopt a shareholder rights plan as a condition of its merger. On Dec. 13, Dell announced that it will be acquiring Compellent for $27.75/share in cash. In a little twist that intended to give more teeth to what is now a relatively standard window shop provision, the merger agreement requires that Compellent adopt a shareholder rights plan:
4.2 Operation of the Company’s Business. ... (e) Promptly (but no later than three days) after the date of this Agreement, the Company shall adopt a stockholder rights plan in the form previously approved by Parent (and otherwise satisfactory in form and substance to Parent). The Company shall not, without Parent’s prior written consent, amend or waive any provision of such rights plan or redeem any of the rights issued under such rights plan; provided, however, that the board of directors of the Company may amend or waive any provision of such rights plan or redeem such rights if: (i) (A) neither any Acquired Corporation nor any Representative of any Acquired Corporation shall have breached or taken any action inconsistent with any of the provisions set forth in Section 4.3, in Section 5.2 or in the Confidentiality Agreement, (B) the Company’s board of directors determines in good faith, after having consulted with the Company’s outside legal counsel, that the failure to amend such rights plan, waive such provision or redeem such rights would constitute a breach by the Company’s board of directors of its fiduciary obligations to the Company’s stockholders under applicable Delaware law, and (C) the Company provides Parent with written notice of the Company’s intent to take such action at least four business days before taking such action; or (ii) a court of competent jurisdiction orders the Company to take such action or issues an injunction mandating such action.
On cue, Compellent's board adopted a rights plan yesterday. The plan is available here. Now, is this rights plan going to stop a topping bid from coming in? No, it's not likely going to stop a motivated bidder. And, since Compellent's board has Revlon obligations (cash consideration for its sale triggered them), they are not going to be able to sit very long on a pill in the face of a plausible topping bid. So, what's it all about? That's a good question. Perhaps Dell is using the adoption of the plan to signal to everyone else that they should stay away. Unlike 3Par, Dell might actually want to buy this company!
-Update: The Deal Prof thinks that the real target of this pill is not potential second bidders, but shareholder activists who might try to jump in to disrupt the sale. That rings very true. Although a board may not use a pill to prevent a topping bid and still comport with their obligations under Revlon, if the bidder were not a "real" bidder but a shareholder activist looking to blow up a deal, courts might not be so amenable to a challenge. It's an interesting question, I'll give it some more thought over the holiday break.
Wednesday, December 15, 2010
Tuesday, December 14, 2010
Over at ProfsBlawg, Matt Bodie (following up on a post by Stephen Bainbridge) comments on a WSJ editorial entitled "Billionaires on the Warpath?" and concludes, among several other things, that a progressive tax code is simply a matter of economics:
One of the basic principles of economics is diminishing marginal utility. Marginal utility represents the change in utility from the increase in consumption of a particular good or service. As you get more and more of a good, your marginal utility with each increment generally decreases. Eventually, you can have so much that an additional increment adds nothing to your overall utility. Money is not a good or service, but it represents the ability to obtain goods and services. And thus one would expect money to have diminishing marginal utility as well. The more money you have, the less utility you get from each addition dollar.
So if you're constructing a tax code, it makes sense to keep this in mind. The lower the income, the higher the utility each dollar represents to that individual. Since the government is indifferent as to which dollar it takes, it makes sense to take more money that has a lower utility to the taxpayer. Doesn't $100 mean something different to someone who makes $30,000, as opposed to someone who make $30,000,000?
But this argument seems a bit of a non sequitur to me.
For the sake of argument, let's assume diminishing marginal utility applies. That still doesn't mean everyone has the same utility curve. $100 might easily mean more to someone who makes $251,000 than it does to someone who makes $30,000. Maybe you think it shouldn't, but that's not an economic argument. So you can't really justify a progressive tax code on the theory that it is just a way to maximize utility in society. Can you?
(By the way, even if you could figure out how to do it, I suspect most people would object rather strongly to a system that taxed people based on who had the lowest marginal utility to the next dollar raised).