M & A Law Prof Blog

Editor: Brian JM Quinn
Boston College Law School

Tuesday, May 31, 2011

More on Revlon triggers

Every now and then we get a case that helps provide additional color to the perenial question - how much cash is enough cash to trigger Revlon obligations?   Now comes Smurfit-Stone.  In Smurfit-Stone, Vice Chancellor Parsons gives us another marker.  

Two earlier cases provided some help with this question.  First there is In re Santa Fe.  in that transaction, consideration was compromised of 33% cash.  There, the Delaware Supreme Court ruled that 33% cash consideration is not sufficient to trigger enhanced scrutiny under Revlon.  On the other hand, In re Lukens, the court ruled that a transaction with 62% of the consideration in cash was sufficient to trigger Revlon obligations.   That large area in the middle remained a gray zone with respect to the question of triggering Revlon.  Now that range has been reduced.  In Smurfit-Stone, the transaction consideration was 50% cash.  Noting that the Delaware Supreme Court has not provided explicit guidance on where the line between Revlon and "non-Revlon" transactions, Vice Chancellor Parsons ruled that 50% cash consideration is sufficient to trigger enhanced scrutiny under Revlon.  Here's the Smurfit-Stone opinion.


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

Friday, May 27, 2011

Graduation season

I'll be back to more regular blogging next week -- and there will be lots to catch up on.  For now, I want to send my warmest congratulations to the Class of 2011.   Off to sit in ceremonies all day...


May 27, 2011 | Permalink | Comments (0) | TrackBack (0)

Tuesday, May 24, 2011

UK Parliament releases report on Kraft acquisition of Cadbury

The FT has a nice review of Kraft's acquisition of Cadbury one year on.   The initial results of the acquisition appear to be mixed.  On the one hand, 

Speaking to the Financial Times before Monday’s statement from the committee, [Kraft CEO Rosenfeld] said: “We have clearly shown ourselves to be good stewards of the brands, and yet the continued assault has been somewhat surprising.

“I think we’ve done everything possible to address concerns, to respond to issues, and the focus remains on making sure that this integration is successful."

Defectors from Cadbury and politicians beg to differ. They say the speed of the integration, allied to the fact that the hostile nature of the bid precluded due diligence, has made the process more fraught. Ms Rosenfeld’s perceived disdain, for workers as well as parliament, has added to the rancour.

In the wake of the acquisition and what were understood to be broken promises related to the status of the Cadbry plant in Bournville, the UK Takeover Panel revisited its rules and the UK Parliament tasked a Select Committee to undertake an investigation.  The Committee's report, Is Kraft Working for Cadbury?, was released earlier this month. The report - though critical of Kraft in many respects - was guardedly optimistic:

 Our overall conclusion, therefore, is that, while there remain some significant concerns about Kraft takeover of Cadbury, a number of positive signs may be beginning to emerge. Those positive messages would have been considerably more convincing if conveyed directly to bodies such as ourselves from the top of the organisation. As for the future, Kraft's witnesses asked us to judge Kraft on its deeds. We shall.

For the timebeing, that seems to be it from the Parliament and its investigation.  


May 24, 2011 in Cross-Border, Europe, Miscellaneous Regulatory Clearances | Permalink | Comments (0) | TrackBack (0)

DOJ Sues H&R Block

The DOJ's Antitrust Division filed a suit to block H&R Block's proposed acquisition of TaxAct yesterday.  H&R Block is in the process of learning a lesson (likely expensive) about what not to say in the run up to a deal.  For example, internal documents from H&R Block noted that the primary benefit of the acquisition would be “elimination of competitor.”  That's never good a good document to hand over when the antitrust authorities come knocking.  Another goodie - internal documents note that “acquir[ing] TaxACT and [will] eliminate the brand to regain control of industry pricing and further price erosion.”  

Here's the DOJ's complaint.


May 24, 2011 in Antitrust | Permalink | Comments (0) | TrackBack (0)

Friday, May 20, 2011

Disbarred lawyer on the stand

This is how it starts (Bloomberg):

[Brien] Santarlas told jurors he and [Arthur] Cutillo began passing tips after a conversation over drinks in the summer of 2007.

“While we were making good money, it seemed like nothing compared to what they were making on Wall Street,” Santarlas said. “Art made the suggestion that there’s other ways to make money.”

A friend of Cutillo’s knew a trader who would pay for tips about corporate acquisitions, Santarlas said Cutillo told him.

“My understanding was the trader would buy the stock and he could essentially make money when the acquisition was announced publicly,” Santarlas testified.

Santarlas said he picked up information from talking with colleagues, trolling office printers for deal-related papers and searching Ropes & Gray’s document management system for keywords including “3-Com” and “merger.”


May 20, 2011 in Insider Trading | Permalink | Comments (1) | TrackBack (0)

Steele on Airgas

Delaware Chief Justice Myron Steele is interviewed by The Metropolitan Corporate Counsel.  Among other topics, Chief Justice Steele addressed Chancellor Chandler's decision in Airgas as well as the earlier Supreme Court opinion:

Editor: Why has the Delaware Supreme Court decision in Airgas, Inc. v. Air Products and Chemicals, Inc . received much attention?

Steele: There are two reasons. First, one of the three chancellor opinions suggested a difference of opinion between the Court of Chancery and the Supreme Court on the fundamental issues in the case. Judicial disagreement always draws attention.

Second, Airgas teed up a core issue, particularly among academics, institutional shareholders and organizations like the National Association of Corporate Directors (NACD). Specifically, is Delaware still a director primacy state, or have we moved toward the trendier shareholder democracy regime?

Airgas focuses on the relative authority of the board and the shareholder base when they may be at odds over a hostile acquisition. Who should prevail and under what circumstances, and who has the last word on whether an acquirer's offer is sufficient?

We all know the board has fiduciary duties to act in the best interest of the corporation and its shareholders. The Delaware statute authorized Airgas to have a staggered board. As a potential acquirer, Air Products sought to unseat staggered board members, and, in fact, elected three of its own in a proxy contest.

The question then centered on how quickly Air Products could force an election for the next three of the "three-three-three" staggered board by passing a bylaw that alters the annual meeting schedule. Under dispute was whether a 51 percent shareholder vote could override a concurring opinion - by both the board and Institutional Shareholder Services (ISS) - that the offer was too low.

Air Products responded by passing a bylaw that rescheduled the annual meeting within months of the election of its own three-member slate - meaning that, potentially, well within one year, Air Products could elect six out of the nine board members. From there, Air Products' majority would pull the poison pill that in conjunction with the staggered board thwarted, or at least slowed, their takeover attempt.

The Airgas parties asked  the court to determine the extent of board authority to frustrate a premium-to-market acquisition, particularly when many shareholders wanted to accept the premium. Under what circumstances should the law allow the board's exercise of its fiduciary duty to frustrate a shareholder vote on the tender offer?

From a lawyer's point of view, this case is a dream. You interpret the bylaw, determine if it is consistent with the charter, determine whether the charter is consistent with the Delaware code and then find an ambiguity. Both the Court of Chancery and the Supreme Court concluded that the language is ambiguous.

The Chancellor found that ambiguity should be resolved in favor of the shareholders through a policy default mechanism. The Supreme Court disagreed, maintaining that a charter is a contract and that a decision must be rendered in the same way as with language disputes among parties to a contract.

We affirmed the need to look at both the extrinsic evidence and the demonstrated history of the parties' conduct. Instead of saying the annual meeting could be held at any time during the next year, we maintained that, in order for the staggered board to be effective, the only rational interpretation of "annual" means nearly 12 months. Otherwise, the directors would not have served a full three-year term if they could be eliminated during the first month of the next calendar year.

Here, the annual meeting, during which the three Air Products members were elected, was held on September 15, and their own new bylaw provided that the next annual meeting would be January 15 - just two weeks into the following calendar year.

All courts agreed that the language was ambiguous, but the Chancellor maintained that resolution must default in favor of the shareholders. If upheld, this decision would allow an annual meeting within four months, frustrate the staggered board, enable the pill to be pulled and make the offer available for a shareholder vote. At bottom, this is a reasonable position with which we simply disagreed.

We looked at communications from the company through its proxies to its shareholders and the SEC. Consistently, for the last ten years, the board met annually in the July-August time frame. In this case, while the meeting occurred slightly later - on September 15 - it remained within the spirit of a charter that mandated a staggered board and annual meetings (approximately 12 months apart). We couldn't justify a four-month time frame interpretation in light of company history.

Interestingly, the three Air Products board members elected on the Air Products case voted with the Airgas board majority to reject the tender offer. It seems, once they got involved, they agreed that the offer was too low, which frustrated those who wanted a shareholder vote. Our final view is consistent with the idea that directors run the company, and, in order to carry out their fiduciary duty, they have to act in the best interest of the entire diverse shareholder base.

When directors conscientiously believe that an offer is too low, it would be inconsistent with their fiduciary duty to disappear and let the shareholders decide. Mom and Pop shareholders might take an overly simplistic view that 70 dollars was enough for stock the board thought to be worth 78 dollars, or they might simply adopt the board's long-term strategy. On the other hand, institutional shareholders have to satisfy the people for whom they act as fiduciaries in the short term and who have not necessarily aligned with the long-term interest of the corporation.

Airgas attracted so much attention because it involved a fundamental, philosophical difference between the view that the board has to exercise its fiduciary duty for the entire shareholder base and the view that boards should step out of the picture and let the shareholders vote.

After our finding, the Chancellor's ultimate decision was consistent with ours, but his language was very critical of our opinion and took the opposite philosophical view. While there's nothing wrong with reasonable people disagreeing, we think the way to solve this problem is either to amend an individual corporate charter, eliminating the staggered board, or to ban staggered boards through state legislation. Both are options.

Because I believe that a charter is a contract between the shareholders, management and the board, my only job was to interpret the contract - not to make Olympian determinations about what is in the best interest of corporate America.


May 20, 2011 | Permalink | Comments (0) | TrackBack (0)

Thursday, May 19, 2011

Watch your wallet

Liberty Media is making a run at Barnes & Noble, offering $17/share cash.  I don't know a lot, but I know this: John Malone is a savy dealmaker.  I never pictured him as the kind of guy to buy a bookstore and retire.  This should be interesting.


May 19, 2011 | Permalink | Comments (1) | TrackBack (0)

Chandler to WSGR

Palo Alto-based Wilson Sonsini has announced that Chancellor Chandler will join their firm as a partner at the end of his term in the Chancery Court next month.

"It has been a privilege to serve on the Delaware Court of Chancery," said Chancellor Chandler. "I repeatedly have said that serving as Chancellor likely will be the greatest honor of my life, but I felt that the time was right to take on new challenges. After considerable thought, I believe Wilson Sonsini Goodrich & Rosati is the right place for me to begin my next chapter. WSGR has an outstanding legal practice, one of the most enviable client bases in the nation, and a roster of attorneys whom I long have considered among the best in the business. That made the firm extremely compelling to me, and I am excited to establish my practice on such a strong and promising platform."

Wilson doesn't have either a Delaware or a Philadelphia office, so I assume he will be joining their New York office.  That's a good get for WSGR.


Update:  Reuters interviews Chandler about his upcoming move:

He said he did consider returning to his most cherished job, lifeguarding on Fenwick Island, Delaware.  "It's hard for someone my age to do that. It doesn't pay very well," said Chandler, who is 60.

That said, Wilson Sonsini did something a New York firm couldn't match. "I will admit to you that I did think about the opportunity to body board and surf on the West Coast when I joined Wilson Sonsini."

May 19, 2011 | Permalink | Comments (0) | TrackBack (0)

Baseball teams for sale

According to Yahoo Sportrs in court filings by Frank McCourt's estranged wife, Jamie, she asks for a court ordered sale of the Bums:

Over most of four pages, Jamie McCourt accuses her ex-husband, Frank, of “not operating [the team] in the best interests of the club or the marital estate,” bringing the franchise “to the brink of financial ruin,” and “hurting the team’s good will and hard-earned reputation in this community.” She contends, “MLB is under no obligation to maximize the proceeds of such a sale,” and therefore the McCourts’ profit “stands to be grievously impaired."

According to Forbes, the Dodgers may have trouble making payroll this month:

Today a source familiar with the financial problems of the  Los Angeles Dodgers says the most likely scenario is that the baseball team will be sold in an auction similar to the Texas Rangers because owner Frank McCourt is still from $6 million to $9 million short of the cash he needs to meet payroll this month.

If the Dodgers are auctioned off it will be a big month for sports M&A.   Late last month, news started floating around about a potential sale of the Mets by the Wilpons.  The Wilpons ran in Madoff-related cash flow problems that have hobbled that organization and have pushed them towards considering a sale.

So, if you are a hedge-funder with a hankering to try something new, get your check book out.  How much might a professional baseball franchise in the number one and number two media markets in the US going to cost you?   Here's a data point - the Astros.  Earlier this week, MLB announced the sale of the Houston Astros for $680 million to Jim Crane - who is already being touted as the next Frank McCourt.  That's not nothing.


May 19, 2011 | Permalink | Comments (0) | TrackBack (0)

Monday, May 16, 2011

J. Crew sues shareholders

That's a real "man bites dog" headline, but it looks like J Crew has sued the shareholder plaintiffs who challenged the going private deal.  You'll remember that the shareholder plaintiffs and defendants reached a settlement agreement.  Later the plaintiffs walked away from that agreement arguing that the defendants broke the spirit of the agreement.  Even though most the derivative claims will have disappeared following the closing of the transaction, J. Crew is looking to get the benefit of its bargain.  From the J. Crew_complaint against its former shareholders (Corrected link:  Download JCrew_Complaint):

39. In exchange for these concessions, the Defendants agreed to provide, on their own behalf and on behalf of the Settlement Class, “a full and appropriate release of all claims that were asserted or that could have been asserted” in the Underlying Shareholder Action.  (MOU ¶ 12.)

40. The Defendants never negotiated for:  (a) a provision requiring J.Crew to schedule its stockholder vote only on or after a certain time period, or (b) a provision requiring J.Crew to mail its Proxy Statement only on or after a particular date.  Additionally, the Defendants stated that they didn’t need confirmatory discovery. 

41. In addition, while the MOU limited TPG’s and Leonard Green’s “contractual information rights” (see Exhibit F (emphasis added)), the Defendants never negotiated for a term restricting the disclosures that the Special Committee (or the J.Crew Board of Directors) could make to J.Crew’s stockholders and to the market based on the Special Committee’s (or the Board’s) considered business judgment.

J. Crew is arguing that a deal is a deal and that they lived up to their end and relied on the settlement agreement before it closed the transaction.  They want the court to order performance of the settlement.


May 16, 2011 | Permalink | Comments (2) | TrackBack (0)

Friday, May 13, 2011

M&A and Competition Law in India

This week the Competition Commission of India (CCI) released the new M&A regulations. These rules are somewhat softened from the stringent guidelines issued earlier this year (for various commentary see here).  For example, deals entered into prior to June 1st have been exempted, and filing fees have been significantly decreased (see this useful Mayer Brown summary). 

The rules exempt a host of transactions from the scrutiny of the CCI.  For example, if an acquirer has a 50% stake in a firm then further acquisition will not trigger the competition law except where the acquisition leads to transfer from joint control to single control.  Moreover a combination taking place entirely outside India with insignificant local nexus and effect on markets in India “need not normally be filed.” 

With respect to timing, the regulations provide that within 30 days of submission of the notification form the CCI is to form a prima facie opinion as to whether the combination is likely to cause or has caused an appreciable adverse effect on competition within the relevant market in India.  The proposed transaction will then be cleared or subject to a second phase investigation. The regulations provide that the CCI “shall endeavour to pass an order” in a second phase investigation within 180 days from the date of submission of the notification form.

The new regulations still leave some grey areas, such as failing to address pre-merger consultation, although the CCI has indicated that it will issue regulations on consultations.  There is also concern about potential conflict between the new rules and the proposed overhaul of the Takeover Code by SEBI.


May 13, 2011 in Antitrust, Asia | Permalink | Comments (0) | TrackBack (0)

Ganor on the Power to Issue Stock and Top-up Options

Mira Ganor has posted a paper, The Power to Issue Stock.  She takes on the question of board discretion to issue stock.  In particular, she focuses on the top-up option that has attracted recent attention.  

Abstract: Studies of management's disregard of the will of the shareholders have focused on combinations of entrenchment mechanisms and special governance structures. However, management's power to issue stock, a fundamental element of the ability of management to control the corporation regardless of the will of the shareholders, has received scarce attention. This Article highlights the significance of the power to issue stock: When managers choose to ignore the will of the majority of the shareholders or when managers choose to circumvent the veto power of the minority shareholders, they often take advantage of their power to issue stock. A top-up option, for example, which is studied in this Article, is contingent upon the managers' ability to issue shares and dilute the voting power of dissenting minority shareholders. The poison pill is also contingent upon the managers' ability to dilute a hostile-bidder by issuing shares to the shareholders. The ability of managers to use new stock issues as a shareholder-circumventing mechanism is particularly important. It plays a key role in the management’s arsenal and it provides an incentive for managers to reserve this unique power and refrain from diminishing it by, for example, replacing equity-based compensation and equity-financing with less efficient choices. This Article explores the key power of managers to issue stock as well as the current and potential limitations on this power. One such limitation is the size of the authorized capital of the corporation, which provides a ceiling for the total number of shares that can be issued. The ratio of authorized non-outstanding shares to the issued and outstanding shares, what I shall call the "excess-ratio", is an indicator of the magnitude of the managers' power to issue stock. A study of the excess-ratio reveals that corporations go public with a high excess-ratio the number of unissued authorized shares is more than threefold the number of issued shares. Further results of the study of the excess-ratio are analyzed in this Article

With respect to the top-up option she writes:

Top-up options ... are a powerful tool that has been increasingly used to dilute the voting power of opposing shareholders in takeovers supported by the board of directors. The grant of a top-up option as part of a take-over may allow for the consummation of a quick short-form merger without a shareholder meeting and despite the opposition of a significant number of the shareholders in excess of the statutory ceiling of ten percent of the shares. The effect of a top-up option is that a management friendly bidder faces only a truncated supply curve at the tender offer. This is because a top-up option lowers the percentage of shares needed to be tendered in order to have a successful outcome. In addition, the speed of the takeover process makes it harder for a competing bidder to launch an opposing bid. Like the poison pill, top-up options are contingent upon the managers‘ ability to issue a nontrivial number of shares and thus dilute the voting power of the dissenting minority shareholders.

Clearly, she disagrees with Vice Chancellor Laster.  I suppose he would respond - "If 70% of the shareholders have tendered, and if the merger agreement ensures that any back end consideration would not be subject to dilution, what are minority shareholders losing with a top-up.  It's not like the minority could ever win a shareholder vote for a back-end merger."

I tend to agree with the Vice Chancellor, but I'll admit that I'm uneasy about it.  There's no reason why an acquirer can't simply tender for 51% of the public shares and then do a back-end statutory merger.  If the shareholders can act by written consent, there's no need to even call a meeting.   There's no question that controlling shareholder will win the vote following a successful tender offer, so what's at stake?  Time?  Protection of minority rights?  Minority shareholders can rely on their appraisal rights in the backend merger if they are unhappy with the consideration, but, short of fiduciary duty claims, that's about it.  

Top-up options are sure to continue to generate discussion.  Ganor's article is a valuable contribution to that puzzle.



May 13, 2011 | Permalink | Comments (2) | TrackBack (0)

Thursday, May 12, 2011

Laster on Top-up Options

Rick Climan walks Vice Chancellor Laster through the legal issues relating to top-up options.  If you don't want to watch his talk, you can read the equivalent in Vice Chancellor Laster's opinion in Olson v Ev3

In the talk, Laster refers to the top-up option in the Hawk/Carlisle transaction as an example of top-up option that has all the "magic language."  Here's the top-up option language that Laster liked:

SECTION 1.3 Top-Up Option.
     (a) Subject to Section 1.3(b) and Section 1.3(c), the Company grants to Merger Sub an irrevocable option (the “Top-Up Option”), for so long as this Agreement has not been terminated pursuant to the provisions hereof, to purchase from the Company up to the number (but not less than that number) of authorized and unissued shares of Company Common Stock equal to the number of shares of Company Common Stock that, when added to the number of Shares owned by Parent, Merger Sub or any Subsidiary of Parent at the time of the exercise of the Top-Up Option, constitutes at least one Share more than 90% of the Shares that would be outstanding immediately after the issuance of all shares of Company Common Stock to be issued upon exercise of the Top-Up Option (such Shares to be issued upon exercise of the Top-Up Option, the “Top-Up Shares”).
     (b) The Top-Up Option may be exercised by Merger Sub only once, at any time during the two-Business Day period following the Acceptance Time, or if any subsequent offering period is provided, during the two-Business Day period following the expiration date of such subsequent offering period, and only if Merger Sub shall own as of such time more than 75% but less than 90% of the shares of Company Common Stock outstanding; provided that, notwithstanding anything in this Agreement to the contrary, the Top-Up Option shall not be exercisable (i) to the extent the number of shares of Company Common Stock issuable upon exercise of the Top-Up Option would exceed the number of authorized but unissued and unreserved shares of Company Common Stock, (ii) if any Judgment then in effect shall prohibit the exercise of the Top-Up Option or the delivery of the Top-Up Shares, and (iii) unless Parent or Merger Sub has accepted for payment all Shares validly tendered in the Offer and not withdrawn. The Top-Up Option shall terminate upon the earlier to occur of (i) the Effective Time and (ii) termination of this Agreement in accordance with Article 8. The aggregate purchase price payable for the Top-Up Shares being purchased by Merger Sub pursuant to the Top-Up Option shall be determined by multiplying the number of such Top-Up Shares by the Offer Price, without interest. Such purchase price may be paid by Merger Sub, at its election, either (A) entirely in cash or (B) by paying in cash an amount equal to not less than the aggregate par value of such Top-Up Shares and by executing and delivering to the Company a promissory note having a principal amount equal to the balance of such purchase price. Any such promissory note shall bear interest at the rate of 3% per annum, shall mature on the first anniversary of the date of execution and delivery of such promissory note and may be prepaid without premium or penalty. Without the prior written consent of the Company, the right to exercise the Top-Up Option granted pursuant to this Agreement shall not be assigned by Merger Sub except to any direct or indirect wholly owned Subsidiary of Parent. Any attempted assignment in violation of this Section 1.3(b) shall be null and void.
     (c) In the event Merger Sub wishes to exercise the Top-Up Option, Merger Sub shall deliver to the Company written notice (the “Top-Up Notice”) setting forth (i) the number of Top- Up Shares that Merger Sub intends to purchase pursuant to the Top-Up Option, (ii) the manner in which Merger Sub intends to pay the applicable purchase price and (iii) the place and time at which the closing of the purchase of such Top-Up Shares by Merger Sub is to take place. The Top-Up Notice shall also include an undertaking signed by Parent and Merger Sub that, promptly following such exercise of the Top-Up Option, Merger Sub intends to consummate the Merger in accordance with Section 253 of the DGCL as contemplated by Section 6.1(c). At the closing of the purchase of the Top-Up Shares, Parent and Merger Sub shall cause to be delivered to the Company the consideration required to be delivered in exchange for the Top-Up Shares, and the Company shall cause to be issued to Merger Sub a certificate representing the Top-Up Shares. The parties hereto agree to use their reasonable best efforts to cause the closing of the purchase of the Top-Up Shares to occur on the same day that the Top-Up Notice is deemed received by the Company pursuant to Section 9.1, and if not so consummated on such day, as promptly thereafter as possible. The parties further agree to use their reasonable best efforts to cause the Merger to be consummated in accordance with Section 253 of the DGCL as contemplated by Section 6.1(c) as close in time as possible to (including, to the extent possible, on the same day as) the issuance of the Top-Up Shares. Parent, Merger Sub and the Company shall cooperate to ensure that any issuance of the Top-Up Shares is accomplished in a manner consistent with all applicable Laws.
     (d) Parent and Merger Sub understand that the Top-Up Shares will not be registered under the Securities Act, and will be issued in reliance upon an exemption thereunder for transactions not involving a public offering. Each of Parent and Merger Sub represents and warrants to the Company that Merger Sub is, and will be upon any exercise of the Top-Up Option, an “accredited investor” as defined in Rule 501 of Regulation D promulgated under the Securities Act. Each of Parent and Merger Sub represents, warrants and agrees that the Top-Up Option is being, and the Top-Up Shares will be, acquired by Merger Sub for the purpose of investment and not with a view to or for resale in connection with any distribution thereof within the meaning of the Securities Act. Any certificates evidencing Top-Up Shares shall include any legends required by applicable securities Laws.
     (e) Any dilutive impact on the value of the Shares as a result of the issuance of the Top-Up Shares will not be taken into account in any determination of the fair value of any Appraisal Shares pursuant to Section 262 as contemplated by Section 2.7(c).


OK, me?  Still grading.


May 12, 2011 | Permalink | Comments (0) | TrackBack (0)

Wednesday, May 11, 2011

The Latest Reverse Termination Fee Study

The Practical Law Company has issued a new study of study of reverse termination fees and specific performance in public merger agreements. The study (which can be accessed here) covers 2010 deals (181 merger agreements with a signing value of at least $100 million).  It looks like specific performance remained the dominant contractual remedy for a buyer’s failure to close the transaction due to a breach or financing failure, especially in the case of strategic buyers. Financial-buyer deals, however, were more varied.

- AA

May 11, 2011 in Merger Agreements, Research | Permalink | Comments (0) | TrackBack (0)

Monday, May 9, 2011

Hertz takes another bite at the Dollar apple

Hertz announced this morning that it was giving the acquisition of Dollar Thrifty another go.  You'll remember that last year, Dollar terminated its agreement with Hertz after Dollar shareholders voted no on its $50/share offer.   The sharehodler vote followed sharehiolder litigation in Delaware to try to get the deal protections in the Hertz-Dollar deal invalidated (In re Dollar Thrifty), resulting in a termination of the merger agreement.  Following which Dollar and Avis entered into protracted - and so far unsuccessful = talks amongst themselves and the antitrust authorities about getting a deal done.  

Apparently, Hertz has decided enough is enough and has decided to jump back in - hoping that Dollar shareholders will think differently this time around. Here's a summary of the new offer from the Hertz press release:

Hertz will offer Dollar Thrifty shareholders $72.00 per share (based on Hertz’s closing stock price on May 6, 2011), consisting of $57.60 in cash and 0.8546 shares of Hertz.  The offer represents:
    * a 26% premium and 18% premium to Dollar Thrifty’s 90-day and 60-day average share price, respectively;
    * a 7.6x multiple of Dollar Thrifty’s LTM EBITDA for the period ended March 31, 2011; and
a 24% premium to the value of the entirely hypothetical price announced by Avis Budget Group, Inc. (“Avis Budget”) over seven months ago.
In an e-mail to employees, Hertz's CEO Mark Frissora provides a little more information about their reasons for giving the acquisition of Dollar one more try.

You may wonder why we are moving forward now after the unsuccessful Dollar Thrifty shareholder vote last fall.  First, the vote did not prevent Hertz from re-engaging at any time of our choosing.  Additionally, economic conditions continue to improve, creating revenue growth opportunities over the next several years.  Moreover, Avis has been trying unsuccessfully for the past 12 months to secure government approval to buy Dollar Thrifty and all they have to show for their year-long efforts are “constructive discussions” with U.S. regulators.  We don’t believe Avis can get a deal done and the time is right to resolve this matter once and for all to our and Dollar Thrifty’s satisfaction.

In contrast with Avis, we’ve picked up where we left off with the government last fall and we are confident we can secure its consent to proceed.  Unfortunately, that will mean divesting Advantage Rent-a-Car in the U.S., which is not our preference, but it’s clear that a merger with Dollar Thrifty becomes far more difficult if the government opposes the transaction.

For its part, Hertz appears to be taking an aggressive stance towards offering Dollar's shareholders a deal they can't refuse.  It's offering an improved bid and is committing to  sell its Advantage rental brand (e-mail to Advantage employees)- to help clear the way for regulators to provide clearance to the proposed transaction. We'll see how Doolar II proceeds and whether shareholders have a different view on the transaction given what they've seen over the past few months. 


Update: Reuters has a timeline for this deal here.

May 9, 2011 in Antitrust, Transaction Defenses, Transactions | Permalink | Comments (0) | TrackBack (0)

Friday, May 6, 2011

SEC moves on those phantom AMR/Kodak bids

About six weeks ago, AMR and Kodak were the recipients of mysterious "bids."  At the time, I noted that the man at the center of the "bid" - likely scrawled on the back of napkin or worse sent via Twitter - was already known to the SEC.  By "known" , I mean he was already subject to previous enforcement effots by the agency.   I suggested that if there were any market manipulation charges to be brought as a result of the Kodak and AMR bids, that the SEC could be trusted to move.  Well, they have.  Yesterday, the SEC broiught a compalint against Allen E. Weintraub in connection with each of those "bids".  According to the complaint filed on Wednesday by the SEC:

Weintraub, the sole owner, officer, director, and employee of his company, Sterling Global, an inactive Florida corporation, emailed a written tender offer to Eastman Kodak Company (“Kodak”) for all its “outstanding stock” at a total price of approximately $1.3 billion.   On March 29, 2011, Weintraub emailed substantially the same letter to AMR Corporation (“AMR”), the parent company of American Airlines, offering to purchase all “outstanding stock” of AMR for approximately $3.25 billion.  Both offers represented almost a 50% premium over Kodak’s and AMR’s then closing prices.

Weintraub is a convicted felon on probation for fraud in the State of Florida, and is subject to a prior injunction issued by this Court against violations of the antifraud provisions of the federal securities laws, as well an Order of this Court barring him from acting as an officer or director of a public corporation.  Weintraub and Sterling Global lack the means to complete the tender offers.  Weintraub filed for personal bankruptcy in April 2007 and has not paid a nondischargeable prior judgment in favor of the SEC in the amount of $1,050,000.   Weintraub and Sterling Global have substantially no assets.  

Hey, it's not like this guy is totally without means.  He tried to get financing for these purchases.   Look, here:

Weintraub entered an Aventura-area branch of [a large commercial] bank, and represented to a customer representative that he was a significant shareholder in an unnamed public aviation company that he wanted to take private.  In order to take the company private, Weintraub told each bank that he would need at least a billion dollars in financing.  Weintraub also volunteered information about his own purported business experience.  Since the banks’ local branch offices typically did not handle the type of financing Weintraub was seeking (which would generally be handled by the banks’ investment banking units), the local bank personnel initially tried to determine what Weintraub was requesting and whether other units of their respective banks might be able to address Weintraub’s requests.   Each bank ultimately declined to go forward with any business relationship or financing agreement with Weintraub or Sterling Global.

What?  Isn't that how you finance two large going private deals - by goign to the local branch of BoA or Citi for a loan?!

In any event, the SEC is not pleased.  They are alleging all sorts of violations o fthe tender offer rules - mostly the ones dealing with fraudulent offers.  I wonder why.  I wouldn't have guessed that it was against the tender offer rules to make a fraudulent offer to purchase.  For those students still studying for exams, it's a great set of facts to use as a review in preparation for your upcoming securities regulation exam.  



May 6, 2011 | Permalink | Comments (0) | TrackBack (0)

Wednesday, May 4, 2011

Sale of substantially all the assets and the step-transaction doctrine

In Liberty Media Corp v Bank of New York Mellon Trust, Vice Chancellor Laster explained the step-transaction doctrine as they apply to claims that a series of separate asset sales over a length of time.  At issue is whether such sales can be aggregated in order to substantiate a claim that the corporation has engaged in a coordinated series of sales of assets of the corporation that would have the effect of shifting assets away from the corporation to the detriment of bondholders, and in effect be a sale of substantially of all the assets of the corporation. 

In order to determine whether Liberty Media's strategy of engaging in acquisitions and spin-offs was effectively a sale of substantially all the assets, the court applied the step-transaction doctrine:  

The step-transaction doctrine applies if the component transactions meet one of three tests.  

 *   First, under the “end result test,” the doctrine will be invoked “if it appears that a series of separate transactions were prearranged parts of what was a single transaction, cast from the outset to achieve the ultimate result.”   Id. (internal quotation omitted).  

 *   Second, under the “interdependence test,” transactions will be treated as one if “the steps are so interdependent that the legal relations created by one transaction would have been fruitless without a completion of the series.” Id. (internal quotation omitted).  

 *   The third and “most restrictive alternative is the binding-commitment test under which a series of transactions are combined only if, at the time the first step is entered into, there was a binding commitment to undertake the later steps.”

 Applying this doctrine to the facts in the case, Vice Chancellor Laster concluded that one could not aggregate the transactions into a single asset sale for purposes of determining whether they constituted a sale of substantially all the assets. 

Following a consistent business strategy and deploying signature M&A tactics does not transmogrify seven years of discrete, context-specific business decisions into a single transaction.  Liberty has engaged in acquisitions and divestitures as part of the regular course of its business.  Liberty did not engage in an “overall scheme” to sell substantially all of its assets.  On the facts of this case, aggregation is not appropriate.  

The Trustee recognizes that the Capital Splitoff, viewed in isolation, does not constitute a disposition of substantially all of Liberty’s assets.  Accordingly, Liberty is entitled to a declaration that the Capital Splitoff [is not a sale of substantially all the assets of the corporation.]


(H/T Morris James)

May 4, 2011 | Permalink | Comments (0) | TrackBack (0)

Tuesday, May 3, 2011

K&E Survey of Recent Developments in Public M&A Deal Terms

K&E just published this "survey" of recent developments in public M&A deal terms.  Unlike the broad, quantitative surveys put out by oganizations like the ABA or PLC, this one seems more impressionistic, so it may be biased by the universe of deals the authors were exposed to.  Still, a worthwhile read.


May 3, 2011 in Deals, Lock-ups, Merger Agreements, Mergers, Private Equity, Tender Offer, Transactions | Permalink | Comments (0) | TrackBack (0)

Pileggi moves to Eckert Seamans

This blog doesn't typically announce professional moves, but I'll depart from our standard practice for this:

Eckert Seamans Cherin and Mellott, LLC, a full-service national law firm, today announced that Francis G.X. Pileggi, a leading Delaware attorney and law blogger, has joined the firm as Member-in Charge of the Wilmington office.  Mr. Pileggi, who previously served as the founding partner of Fox Rothschild's Wilmington office, practices primarily in the areas of corporate and commercial litigation.  

As most of you know, Francis Pileggi runs the Delaware Corporate and Commercial Litigation Blog.  Congratulations to Francis on the move. 

Apologies for the light blogging in recent days.  It's exam season.  That's the semi-annual rush season for professors.  It occupies more time than you can imagine.


May 3, 2011 | Permalink | Comments (0) | TrackBack (0)