M & A Law Prof Blog

Cross Border Acquisitions by Emerging Market Companies

Chernykh, Liebenberg, and Macias have posted a paper, Changing Direction: Cross Border Acquisitions by Emerging Market Firms, in which they analyze acquisition patterns of emerging market firms in over 3,000 transactions.  It seems that firms from countries with trade surpluses with the US are using their new found wealth to make profitable acquisitions of US (and other developed country) firms.  

Abstract:  We find a significant increase in both the number and economic size of cross-border acquisitions conducted by emerging market firms since 1990. The most dramatic turn is that the emerging market firms are becoming increasingly active in acquiring companies in developed countries. The analysis reveals two main growth patterns by emerging markets, either through mega deals (usually involving developed-market targets) or through frequent acquisition of smaller targets (usually involving emerging-market targets). Although the abnormal returns for targets acquired by emerging market firms is always positive, the magnitude more than doubles when the target is from a developed market. More importantly, emerging market acquirers also experience significant positive announcement returns when the target is from a developed market. Overall, we document that in their aim to grow globally emerging market acquirers play a significant role in cross-border acquisitions.

-bjmq

Airgas Insider Buying?

I suppose it wouldn't be a modern tender offer, I guess, unless it ended with an SEC investigation.   According to Reuters:

     But before the takeover bid was announced, a burst of activity in a few select Airgas call options occurred, fueling suspicion that the news was leaked ahead of time and was used to profit on a potential spike in Airgas' stock.

     "This does not surprise me that regulators would want to find out who was behind the heavier-than-normal call option volume on the last trading day prior to the announcement," said Henry Schwartz, president of Trade Alert. 
     "In fact, Airgas call volume started to lift on Jan. 29 and continued to be above normal all that week, suggesting that the leak, if there was one, happened about a week in advance of the proposed deal," Schwartz said.

The SEC is now investigating these trades. Of course they are.   I'm continually surprised that there remain people who think that buying options ahead of a major corporate announcement like an acquisition will go unnoticed.  Believe me, it's not all that hard to figure out.  It's called a database.  It's the same way that Walmart knows that men tend to buy beer and diapers when their wives send them shopping.   

  

-bjmq

"Just Say No" Challenge in Del.

Last week Air Products filed a suit in Delaware Chancery Court challenging Airgas' "Just Say No" defense. This has the makings of being an important case if it gets as far as a ruling.  

On the one side, we have Air Products launching a financed all-cash off for $60 (38% premium).  On the other side we have a board that is apparently uninterested in the offer and has turned it down as undervaluing Airgas. The board has a pill in place and has not opted out of DGCL Sec. 203.  The only other case we have challenging the "Just Say No" defense is Moore v Wallace (Fed Dist. Court Del).  In Moore v Wallace the Federal District Court interpreted Delaware law as permitting such a defense. The Chancery Court has never actually ruled on the issue, however.

Of course, this isn't a perfect set of facts.  It would be better if the Airgas had neither a pill nor 203 defenses in place.  As it is, the board's decision to sit on its pill and not waive 203 will likely be subject to Unocal review.  Nevertheless, this case may give the Chancery Court an opportunity to rule on the "Just Say No" defense.  Appropriately enough, Wachtell Lipton is serving as Airgas' legal counsel.

-bjmq

Tortious Interference and Pennzoil

This is a great video.  I post it because I recently had a conversation with a colleague about the Pennzoil v Texaco tortious interference with contract case.  If you're teaching this case in torts, this video is worth watching for Icahn's description (at a comedy club no less) of how the Pennzoil case got settled.   Oh, fair warning, his telling of this story is definitely rated PG-13.

-bjmq

More Galleon Scalps

Galleon takes yet another scalp.  This one from Rajiv Goel - a 1993 Wharton classmate of Raj Rajaratnam and former executive at Intel.  From the US Attorney’s Press Release announcing the guilty plea: 

Specifically, in April 2007, GOEL obtained Inside Information regarding Intel's earnings announcement for the quarter ending in March 2007 from a colleague who worked at Intel. GOEL provided this Inside Information to RAJARATNAM on Friday, April 13, 2007, at which time Galleon Tech held a short position of approximately 1,150,000 shares of Intel common stock (worth approximately $23.5 million). Intel was scheduled to announce its quarterly earnings on Tuesday, April 17, 2007.

Between April 13 and April 17, 2007, after receiving the Inside Information from GOEL, RAJARATNAM caused Galleon Tech to cover its entire short position in Intel common stock and to purchase approximately 1.72 million additional shares of Intel common stock (worth approximately $36 million). These trades changed Galleon Tech's position in Intel common stock from short approximately $23.5 million to long approximately $36 million -- a swing of approximately $59.5 million -- in the three business days preceding Intel's earnings announcement. In addition, on April 17, 2007, RAJARATNAM also caused Diversified to purchase approximately 250,000 shares of Intel common stock.

Goel also provided Rajaratnam with information related to a pending Intel joint venture.  According to the complaint from the SEC, Rajaratnam bought stock on Goel’s behalf and presumably as a payoff for the information that Goel provided.

Galleon is a continuing object lesson for a new generation of investors and Rajaratnam is fast becoming the Ivan Boeksy of this generation.  Of course, the US attorney probably got lucky here.  Without a wiretap, both of the charges against Goel could have been hard to make stick. 

First, the trading in advance of the announcement of the Intel joint venture:  Rajaratnam received the information and bought months in advance of the announcement.  That’s not the kind of thing that gets easily noticed and there are plenty ways to explain that away if pressed.

Second, the trading in advance of an earnings release.  Well, the timing of earnings releases are like the phase of the moon – they’re highly predictable.  And, when pressed it should be relatively easy for an investor like Rajaratnam to make a case that he had been following Intel for some time and could justify a purchase/sale prior to earnings.

On the other hand, if you’re going hand out inside information business school classmates about the company you’re working for, rest assured that the SEC knows where you went to school.  Also, if your business school buddy is buying shares of Hilton in your name and you’ve not sent him a check, it doesn’t take a genius to figure out what’s going on.

-bjmq

 

Canadian Insider Trading

Oh no!  Say it ain't so!  Even the Canadians are inside traders?!  I'm beginning to lose all faith in humanity...

Update:  Acquisition announcements generate predictable movements in acquirer stock. For example, post-announcement returns are typically negative for high Tobin’s q acquirers, stock transactions, and foreign targets, but positive for venture capital-backed private targets. Pre-announcement trading of acquirer stock is more likely to be attributable to insider trading when the pre-announcement price changes match the expected post-announcement acquirer returns. Based on a sample of Canadian acquirers and public and private acquisition targets from Canada, the U.S. and 31 other countries over the years 1991-2008, we find evidence consistent with insider trading of acquirer stock. This evidence, however, is limited to specific situations and is far from generalizable to all types of acquisition announcements. The evidence thereby has policy implications for the allocation of surveillance efforts for initiating insider trading investigations.

-bjmq