M & A Law Prof Blog

Editor: Brian JM Quinn
Boston College Law School

Monday, January 31, 2011

Genzyme deal reached?

So says Reuters

U.S. biotech company Genzyme Corp and French drugmaker Sanofi-Aventis SA have reached an agreement in principle on the outlines of a merger deal, three sources familiar with the situation said on Monday.

The agreement in principle would include a so-called contingent value right (CVR), or a payout over time based on the performance of Genzyme's experimental multiple sclerosis drug, Lemtrada, the sources said.

Ugh, the earnout survived! 


January 31, 2011 | Permalink | Comments (0) | TrackBack (0)

Genzyme due diligence

Reuters and Bloomberg are reporting that Sanofi has executed a nondisclosure agreement (text here) with Genzyme.  That likely means that the two are far enough along in their discussions to begin due diligence.  It also suggests that Sanofi and Genzyme expect this transaction to end up in friendly territory.  It was always my expectation that if the two were to do a deal, that it would be a friendly one.  Genzyme's management has plenty of protections from the Mass corporate law so there was never any way that Sanofi would be able to successfully complete a hostile tender.  

Now how to talk them out of the earnout?  How about this - from a data set on fair values of earnouts for a paper I'm writing - less than 20% of earnouts are actually successful.  Most earnouts fail to meet their targets and an astonishing 31% of earnouts are written off completely within the first year following closing of the transaction.  


January 31, 2011 | Permalink | Comments (0) | TrackBack (0)

Friday, January 28, 2011

Sara Lee discussing spin-off

Listen in right now.  Sara Lee is discussing its plans to pursue a break up of its business through a spin-off.  It hasn't come up with a name for its "Coffee Co" so I'm sure Sara Lee would appreciate suggestions!


January 28, 2011 | Permalink | Comments (0) | TrackBack (0)

Insider trading still a bad idea

OK, I'll let the allegations in the a couple of early paragraphs of this recent SEC complaint speak for themselves:

Beginning in at least August 2010, defendant Zizhong Fan, a manager at Seattle Genetics, learned confidential information about positive clinical trial results for a cancer drug under  development by the company.  Zizhong Fan tipped this information to a relative in southern  Califoniia, defendant Zishen Fan, who purchased several hundred thousand dollars of Seattle  Genetics stock and options in the U.S. brokerage account of another family member living in  China, relief defendant Junhua Fan.  When Seattle Genetics reported to the public in late  September 2010 that its flagship drug had proven effective in fighting Hodgkin's lymphoma,  the company's stock price jumped nearly 18%.  By trading on inside information learned by  Zizhong, the Fans netted over $803,000 in illicit profits.

Upon being contacted by the staff of the Securities and Exchange Commission ("Commission"), Zizhong Fan denied being related to or even knowing Zishen Fan, despite the fact that they have shared multiple addresses over the years.  Zishen Fan similarly denied to the Commission staff that he knew anyone who worked at Seattle Genetics.  Almost immediately after being contacted by the Commission staff, Zishen Fan contacted his broker and attempted to  transfer several hundred thousand dollars from Junhua Fan's brokerage account to a bank account in China.  While two of these attempts were unsuccessful, as of the date of this Complaint, one such request is still pending with the brokerage. ...

Between August 24 and September 24,2010, Zishen Fan purchased over 2,750 Seattle Genetics option contracts - options which provided the right to purchase Seattle Genetics common stock at a designated price - at a total cost in excess of $360,000.  On many of the days during which the trades were made, Zishen's purchases represented the vast majority of the option trading volume for the entire market.  He purchased these securities in a brokerage account held in the name of Junhua Fan, a relative in Beijing.

The call options purchased by Zishen Fan had an exercise price of$12.50 and an expiration date ofOctober 16,2010.  At the time, Seattle Genetics' stock was trading at around $12 per share.  This meant that the options were "out-of-the-money" and would have value only if some event caused the company's stock price to jump to $12.50 by October 16; if the stock did not rise by that date, the options would expire worthless,and Zishen and Junhua Fan stood to  lose the entire $360,000 investment.

This looks like a run-of-the-mill insider trading case, but there are a couple of important lessons to take from this.  First, trading ahead of major corporate events is always a bad idea.  Regulators -- actually their computers -- regularly comb through trades and try to correlate them with unusual trading patterns.  If you have piling into a stock a week or two before a major announcement, they'll see that.  I guarantee it. 

Second, if you're buying call options ahead of a major corporate event, you might as well turn yourself in right away.  In this case, the SEC alleges that Fan was on many days the largest single purchaser of options in the market.  The option market is really thin and definitely not a place for an insider.

Third, when the feds come knocking, don't lie to them.  Certainly, you have the right not to incriminate yourself, but you don't have the right to lie.  If you do, you just help them make a Martha Stewart-like case against you.  If they can't get you insider trading, they'll get you for obstruction of justice.  The knocked on Zizhong Fan's door because they knew he was related to Zishen Fan.  Why lie about that?  Anyway, better to say nothing than to lie.

Fourth, ...so many lessons...placing trades through a relative's account in another country doesn't make the trades any less visible.  For some reason people that if they place a trade through a brokerage in China or Serbia or wherever that suddenly no one will notice.  Guess what?  They'll notice.  Placing a trade through a brokerage overseas is like playing hide-and-seek by hiding behind a folding chair.  

Fifth, immediately trying to move money out of accounts that you tell the SEC you don't know anything about does help your case.  By the time they are standing on your doorstep, believe me, they already know where most of the money is.  It isn't that hard to track.  Also, don't think your broker is going to protect you. They'll be happy to put a freeze on your ill-gotten gains. 

Sixth, though it's not here in the allegations above, prior to the complaint being filed, one of the defendants told his supervisor that he would have to be out of the office for four weeks to go back to China.  Let me just offer up that it's a pretty good bet that skipping the jurisdiction is not a good idea. Here's the SEC litigation release and there are some write ups in the Seattle Post-Intelligencer (a great paper, by the way).



January 28, 2011 in Insider Trading | Permalink | Comments (0) | TrackBack (0)

Airgas ruling on Feb 8

According to Reuters Legal, Chancellor Chandler will issue his ruling in the Airgas rights plan case on Feb. 8.  So, look for it then.  I don't have any additional insight on the hearing mostly because Courtroom View decided to make the poison pill hearings a "Premium" offering and therefore put them out of my price range.  Everybody has to make a buck I suppose.


January 28, 2011 | Permalink | Comments (0) | TrackBack (0)

Wednesday, January 26, 2011

HSR Threshholds Raised for 2011

Here are a few law firm memos on the increase:


Dorsey & Whitney




January 26, 2011 | Permalink | Comments (0) | TrackBack (0)

Dynegy gets no takers on its 'go-shop'

According to Reuters Dynegy was not able to coax anyone to make an offer to top Carl Icahn's $665 million offer for the company.  The company updated its 14d-9 to include the following disclosure regarding the go-shop process:

 Of the 54 parties contacted, 48 parties declined to participate in the “go-shop process” or did not respond to repeated contacts from representatives from Greenhill and Goldman Sachs, four parties were given access to confidential information regarding the Company and offered the opportunity to receive a presentation from Company management and two parties indicated that they would perform due diligence on the Company using publicly available information.  ...  Of the four parties given access to confidential information, one party participated in meetings with Company management (another of these parties had previously participated in meetings with Company management under the “go-shop” process conducted in the fall of 2010).   After completing their due diligence, representatives of each of the two large private equity firms that separately devoted substantial efforts to due diligence separately informed representatives from Greenhill and Goldman Sachs that they did not believe they would be able to offer to acquire the Company at a price above the Offer Price and that they would not submit an acquisition proposal. Of the two other parties given access to the data room, one party ...[was] only interested in acquiring certain assets of the Company and needed to partner with another party interested in acquiring the Company as an entirety, and the other party informed representatives [...] that they would not submit an acquisition proposal and subsequently ceased communications [...] regarding their interest in a transaction with the Company [...] .

It sounds like Dynegy's bankers were really burning the mid-night oil trying to come up with alternatives but were unsuccessful.  For those of you out there who have done this -- my sense is that 50+ contacts, yielding 4 or so potential bidders is not unusual in a go-shop process -- but I'm likely wrong.  Feel free to let me know in the comments how many contacts is typical for an i-banker to make as part of a go-shop process. 


January 26, 2011 | Permalink | Comments (0) | TrackBack (0)

Tuesday, January 25, 2011

Hey Sanofi - hire me!

The talks between Genzyme and Sanofi apparently continue with the parties still at odds over a proposed earnout tied to performance of a pipeline drug.  I guess though the talks are still in process, Sanofi is feeling sufficiently comfortable that Reuters is now reporting that it has hired an executive search firm to come up with names of potential directors that it might appoint, or cause to get elected, to a new Genzyme board.   Either that or Sanofi is gearing up for a proxy contest.  Well, if they're looking to fill some board seats, why not hire me?  I'm local so I won't run up big hotel bills!  


January 25, 2011 | Permalink | Comments (0) | TrackBack (0)

Monday, January 24, 2011

Poison pill in Delaware court on Tuesday

So, tomorrow Chancellor Chandler will take up the question of whether to order the Airgas board to pull its pill.  Air Products, you'll remember, has been pursuing Airgas for many months now.   Airgas has steadfastly said "No."  In the fall Air Products elected three members to the board and got shareholders to vote to approve a new bylaw that would have moved up the next annual meeting to January - thereby cutting short the defense that time provides in the classified board.   The Chancery Court upheld the bylaw change.  But then, in a little bit of a stunner, the Delaware Supreme Court overruled the Chancery Court's opinion.  The Chancellor, I assuming confident that his opinion wouldn't be overruled, had put off the question of whether to order the rights plan pulled to a date just past the accelerated shareholder meeting date.   That was a nice way to avoid the question of the pulling the pill -- had the Chancery Court's opinion not been overruled, the shareholders would have met by now, and presumably, voted in a new majority for the board, thus making the question of the pill moot.  The Delaware Supreme Court decision ensured that this was not to be. 

So, Chancellor Chandler is put in the uncomfortable position of having to consider whether to order a board that has lost the first round in a proxy contest whether it must pull its rights plan.   Of course, Chancellor Chandler is not opposed to issuing such an order in the right circumstances.  In the Craigslist case he order the board to pull its pill.  Craigslist was a bit of a unique case.  How many closely-held firms have shareholder rights plans anyway?  Probably just Craigslist.  The Airgas case is more difficult.  Why?  Well because it's precisely the kind of case that the Chancery Court has studiously avoided hearing for year.  In his 2002 paper, which is a response to a paper from Profs. Bebchuk, Coates, and Subramanian, Vice Chancellor Strine described just this scenario as the "professorial bear hug" intended to forces judges to deal directly with the fiduciary duty issues related to the pill.

The question the authors ask us to decide affirmatively is fundamental: Can control of the corporation be sold over the objections of a disinterested board that believes in good faith that the sale is inadvisable? That is, at bottom, the authors want to force the hand of the Delaware courts to decide, once and for all, that impartial and well-intentioned directors do not have the fiduciary authority to "just say no" for an indefinite--even perpetual--period to a noncoercive tender offer made to their company's shareholders. ...

... When the stockholders of  a corporation with an ESB have  expressed their desire to receive  a fully funded, all-shares tender offer  in  a fair, noncoercive  board election  that was  preceded by an adequate opportunity for the incumbent board to develop  a better strategy and make  their  case to the target stockholders, does  a well-motivated  and well- informed majority of independent, incumbent directors who  believe  that the offer  is inadequate have  the power to block  that tender offer by continuing to deploy a poison pill?

And that, in essence, is what is at stake tomorrow in Chancellor Chandler's courtroom.  A couple of months ago, I predicted that we'd never get to see this day.  I also predicted that the Del. Supreme Court wouldn't overturn Chancellor Chandler's bylaw decision and that the Pats would beat the Jets (not cover the spread, just beat them).  Clearly, I'd be a mess if I had to make my living in Vegas, so I'm making no predictions.  Chancellor Chandler has shown himself to be sufficiently peeved at being overruled in his earlier decision that I think most bets are off.   I continue to be amazed that the Delaware Supreme Court wasn't able to look ahead to tomorrow and realize that by knocking down the bylaw they set up this Just-Say-No case to come before Chandler, and inevitably them.  Why is that a better outcome than letting the bylaw survive?  I don't know.  Anyway, tune in tomorrow for all the fun.



January 24, 2011 in Delaware, Hostiles, Takeover Defenses | Permalink | Comments (0) | TrackBack (0)

Thursday, January 20, 2011

NBC-Comcast deal approved

The FCC granted approval for the NBC-Comcast transaction yesterday.  The deal was announced last Spring and has been pending approval since then.  You'll remember that because the NBC-Comcast deal involves broadcast and cable properties, it required the approval of the FCC in addition to the normal antitrust review. The standard for the FCC in passing on deals is whether the transaction is in the public interest.  That's a fairly broad and vaguely worded mandate. So, one shouldn't be surprised that there are differences of opinion on the panel as to what that interest actually is.  In the end, the FCC approved the deal with a number of conditions, including selling off control of Hulu so that it can freely compete with Comcast's Xfinity service. The FCC press release approving the transaction is here.  

Of course, it wasn't all roses for the deal.  There were dissents on the FCC panel.  Here's Commissioner Copp's dissent and his summary of the effects of the transaction:

In sum, this is simply too much, too big, too powerful, too lacking in benefits for American consumers and citizens.  I have respect for the business acumen of the applicants, and have no doubts that they will strive to make Comcast-NBCU a financial success.  But simply blessing business deals is not the FCC’s statutorily-mandated job.  Our job is to determine whether the record here demonstrates that this new media giant will serve the public interest.  While I welcome the improvements made to the original terms, at the end of the day this transaction is a huge boost for media industry (and digital industry) consolidation.  It puts new media on a road traditional media should never have taken.  It further erodes diversity, localism and competition—the three essential pillars of the public interest standard mandated by law.  I would be true to neither the statute nor to everything I have fought for here at the Commission over the past decade if I did not dissent from what I consider to be a damaging and potentially dangerous deal. 

Time will tell.


January 20, 2011 in Miscellaneous Regulatory Clearances | Permalink | Comments (0) | TrackBack (0)

Tuesday, January 18, 2011

Icelandic backlash

Clearly since the financial crisis, Iceland has been on its heels.  Dealing with the incredible debt that Icelanders have been left to pay has forced some very difficult decisions on the current government. One of those was the decision to sell HS Orka hf, the state-owned geothermal company to the Swedish energy concern Magma.  The sale was completed on Dec. 23, 2010.  It's hard to really visualize how important Orka is in Iceland.  Think about this:  in Reykjavik, there are no private homes with "boilers" for heating.   That's because Orka runs a centralized geothermal heating system for all the residents of the country's capital city.  Orka is responsible for all the heat and hot water.  It's central to the economic and social life of the country.  

It's no surprise then that the sale of the company to foreigner owners has generated a lot of controversy.  Yesterday, the Icelandic singer Bjork presented the Icelandic PM with a petition calling for Iceland to buy back the company from its new foreign owner. The petition had 47,000 names on it - that's an incredible 15% of that small country's population.  Indications are that the government will respond to the petition by forcing a sale back to the government and keeping the utility in public hands.   


January 18, 2011 in Cross-Border | Permalink | Comments (0) | TrackBack (0)

"I plead guilty because I am guilty."

Attorney Arthur Cutillo (Villanova Law, '05) pleads guilty to his role in the Galleon insider trading ring.  Background from the US Attorney's press release:

At all relevant times, CUTILLO worked at the law firm of Ropes & Gray LLP. In 2007 and 2008, CUTILLO and another Ropes & Gray attorney, BRIEN SANTARLAS, provided ZVI GOFFER with inside information they misappropriated from Ropes & Gray about several mergers and acquisitions of public companies for which the law firm was providing legal services. The inside information included information regarding the potential acquisition of 3Com Corporation ("3Com") and the potential acquisition of Axcan Pharma, Inc. ("Axcan"). CUTILLO and SANTARLAS provided the inside information concerning these companies to JASON GOLDFARB, another New York attorney, who allegedly passed the inside information to GOFFER. In exchange for providing the inside information to GOFFER, CUTILLO, SANTARLAS, and allegedly GOLDFARB, received cash payments.

Don't be like Arthur. 


January 18, 2011 in Insider Trading | Permalink | Comments (0) | TrackBack (0)

Monday, January 17, 2011

J Crew gets no bids ... no one is surprised...

According to Bloomberg J. Crew apparently apparently got no bids during its go-shop period that ended on Jan. 15.  I must admit, given that the incumbent CEO has a clear preference for TPG/Leonard Green, this result is hardly surprising.  


January 17, 2011 | Permalink | Comments (0) | TrackBack (0)

Boycotting Walmart in South Africa?

Shareholders in South Africa just approved Walmart's $2.3 billion acquisition of South African retailer Massmart.  Now the Congress of South African Trade Unions (COSATU) - who opposed the sale - have called for  the 'mother-of-all-boycotts':

"We urge shareholders to vote against this deal. If the deal goes through, COSATU will do what it does best. We will organize a mother of all boycotts against Massmart," COSATU's first deputy president, Tyotyo James, told shareholders immediately before the vote.

In the end, the threat of a boycott wasn't enough to deter shareholders from voting in favor of the transaction (79%).  However, threading the needle that is local politics of South Africa will prove a challenge for Walmart in completing this deal.




January 17, 2011 in Cross-Border | Permalink | Comments (1) | TrackBack (0)

Thursday, January 13, 2011

J. Crew conflicts

Bloomberg highlights the various potential conflicts of interest associated with J. Crew's pending going private deal with TPG (unembeddable video here).


January 13, 2011 in Going-Privates | Permalink | Comments (0) | TrackBack (0)

Wednesday, January 12, 2011

2011: An M&A Rebound?

I am teaching M&A again this semester.  In my first class yesterday, I tried to give my students a sense of how M&A deal activity has been faring over the past several years and where things are expected to go.  It appears that the mood about M&A in 2011 is more buoyant than it was in the lull of the summer of 2010.  After reading reports like this one from E&Y, I am feeling cautiously optimistic.  I am not sure if all of this optimism will last, but for now, the new year is starting off pretty well.  This week’s merger Monday included a host of M&A deal activity, with $21 billion in announced deals.

So far, so good…but it’s only January.


January 12, 2011 in Current Events, Deals | Permalink | Comments (0) | TrackBack (0)

Tuesday, January 11, 2011

Trading on rumors doesn't pay

Turns out that trading on rumors doesn't pay.  Who knew!? Just another reason to hold a low-cost index fund. From Bloomberg - if you hear a merger rumor, short the stock. You'll do better over time. 

Electronic news services, brokerages and newspapers reported at least 1,875 rumors about potential buyouts of 717 companies between 2005 and 2010, according to data compiled by Bloomberg. A total of 104, or 14.5 percent, were acquired, the data show. While stocks that were the subject of takeover speculation initially jumped 2.9 percent, betting on declines yielded average profits of 1.2 percent in the next month, an annualized gain of 14 percent.


(h/t P.D.)



January 11, 2011 | Permalink | Comments (0) | TrackBack (0)

US takeover guide

Clifford Chance has a nice (glossy) 52 page guide to US takeover law.  Download it here.


January 11, 2011 | Permalink | Comments (0) | TrackBack (0)

Monday, January 10, 2011

Governance and returns on cross border transactions

Rene Stulz and his co-authors have a new paper, Globalization, Governance, and the Returns to Cross-Border Acquisitions, examining the returns cross border acquisitions.   Interesting, it looks like acquirers from countries where corporate governance is poor tend to over-pay.  That makes sense.  Also, it looks like the country of the acquirer doesn't explain as much of the stock returns as the industry and year of the acquisitions.  Bubbles matter.

Abstract: Using a sample of control cross-border acquisitions from 61 countries from 1990 to 2007, we find that acquirers from countries with better governance gain more from such acquisitions and their gains are higher when targets are from countries with worse governance. Other acquirer country characteristics are not consistently related to acquisition gains. For instance, the anti-self-dealing index of the acquirer has opposite associations with acquirer returns depending on whether the acquisition of a public firm is paid for with cash or equity. Strikingly, global effects in acquisition returns are at least as important as acquirer country effects. First, the acquirer’s industry and the year of the acquisition explain more of the stock-price reaction than the country of the acquirer. Second, for acquisitions of private firms or subsidiaries, acquirers gain more when acquisition returns are high for acquirers from other countries. We find strong evidence that better alignment of interests between insiders and minority shareholders is associated with greater acquirer returns and weaker evidence that this effect mitigates the adverse impact of poor country governance.


January 10, 2011 in Cross-Border | Permalink | Comments (0) | TrackBack (0)

Tenet delays shareholder meeting

Tenet Healthcare (a Nevada corp) is in the midst of fighting off an unsolicited $3.3 billion offer from Community Healthcare Systems.  The Tenet board characterized the CHS offer (a 40% premium) as "inadequate and opportunistic" and "grossly undervaluing" Tenet and "not in the best interests of Tenet or its shareholders."

On Friday, Tenet announced that it had adopted a shareholder rights plan to protect its NOLs and ward off CHS.  You'll remember that last Fall the Delaware Supreme Court approved rights plans intended to protect corporate assets like NOLs. The plan triggers at the 5% level.  This level is low compared to typical shareholder rights plans geared toward warding off hostile bidders which more typically trigger at 15-20%.  We could have a whole other discussion about the proper levels to trigger the pill, but let's leave that for another day.  

What caught my attention was this:

On January 7, 2011, the Board approved the amendment and restatement of the Company’s Amended and Restated Bylaws (as amended and restated, the “ Bylaws ”), effective as of January 7, 2011. The principal change effected by the adoption of the amended Bylaws is to amend Section 2.2 of Article II of the Bylaws to remove the restriction that the annual meeting of stockholders must be held not later than 210 days following the Company’s fiscal year end and instead provide that the annual meeting of stockholders shall be held on the date and at the time as set by the Board.

The effect of course is to permit the board to delay the next shareholders meeting which should occur in May 2011 until November 2011.  That gives the Tenet directors an annual term of 18 months - for this year at least.  Now, when Airgas' shareholders did the reverse of this maneuver, the Delaware Supreme Court came to the rescue of the board in what - to be candid - was a confusing head-shaker of an opinion.   Of course, delaying shareholder meetings is a common enough strategy, but it looks now like it's only a one way street.  Boards will be free to delay meetings and get "annual" terms of 18 months, but following Airgas, shareholders are not permitted to move them up if moving them up shortens director terms to anything less than, I guess, 365 days.  Of course, I'm assuming that the Nevada courts adopts the Delaware view, perhaps they will take a different view on this question if it ever comes before them. 


Update:  While the Delaware code (Sec. 211) requires that an annual meeting be held not later than 13 months after the previous annual meeting, there is no similar requirement under the Nevada corporate law.  I suppose this means that while "annual" now means 365 days in Delaware, it still has a very expansive meaning in Nevada.

January 10, 2011 | Permalink | Comments (0) | TrackBack (0)