Wednesday, August 31, 2011
Here's the DOJ's press release, and an excerpt:
“The combination of AT&T and T-Mobile would result in tens of millions of consumers all across the United States facing higher prices, fewer choices and lower quality products for mobile wireless services,” said Deputy Attorney General James M. Cole. “Consumers across the country, including those in rural areas and those with lower incomes, benefit from competition among the nation’s wireless carriers, particularly the four remaining national carriers. This lawsuit seeks to ensure that everyone can continue to receive the benefits of that competition.”
“T-Mobile has been an important source of competition among the national carriers, including through innovation and quality enhancements such as the roll-out of the first nationwide high-speed data network,” said Sharis A. Pozen, Acting Assistant Attorney General in charge of the Department of Justice’s Antitrust Division. “Unless this merger is blocked, competition and innovation will be reduced, and consumers will suffer.”
And here's a copy of Justice's ATT/TMobile Complaint.
AT&T and T-Mobile respond via their mobilizeeverything.com website:
We are surprised and disappointed by today’s action, particularly since we have met repeatedly with the Department of Justice and there was no indication from the DOJ that this action was being contemplated.
We plan to ask for an expedited hearing so the enormous benefits of this merger can be fully reviewed. The DOJ has the burden of proving alleged anti-competitive effects and we intend to vigorously contest this matter in court.
Tuesday, August 30, 2011
From an H-P spokesman (via Reuters):
We prefer a spin-off as a separate company and the working hypotheses is that a spin-off will be in the best interests of HP's shareholders, customers and employees," a HP spokeswoman said. "However, we have to complete the diligence process and validate this assumption, including fully understanding the dis-synergies in separating the PSG business from HP.
Spin-offs are always interesting transactions - particularly since they are often used to disentangle a firm from an earlier mistake (e.g. TimeWarner's spin-off of AOL last year). The H-P spin-off of its personal systems group will be interesting because it looks like it's part of a strategy to bury H-P. Al Lewis at the WSJ previously weighed in how a spin-off might be value-destroying for H-P. I'm still wondering why they think this is a good idea. It seems like there may be many "dis-synergies".
So now Innkeepers has filed a complaint against Cerberus in the SDNY challenging Cerberus' decision to call a MAC on its acquisition of Innkeepers.
The MAC as it appears in the Commitment Letter is as follows:
The occurrence of any condition, change or development that could reasonably be expected to have a material adverse effect on the business, assets, liabilities (actual or contingent), or operations, condition (financial or otherwise) or prospects of the Fixed/Floating Debtors taken as a whole . . .
Here's the Innkeepers' complaint. They are looking for specific performance. The crux of their argument is that while there may have been some market volatility recently, there has been no material adverse change. Consequently, there is no basis for Cerberus to walk away from the transaction. Indeed, Innkeepers argues that the subject of the MAC clause - the Fixed/Floating Debtors - are doing just fine, thank you very much. Recent market volatility has - according to Innkeepers - is not relevant to the performance of the properties in question and in any event was foreseeable at the time of the contract. They accuse Cerberus of trying to force a renegotiation of terms.
My best guess is that Innkeepers has the better side of the argument here, although that's left to be seen. We'll continue to follow this case as it develops.
Thursday, August 25, 2011
Over at the VC, Orinn Kerr reports on an interesting survey of GW alumni regarding which elective courses lawyers wish they had taken in law school and what courses they found most interesting.
I'm not sure how useful the study is, given the small sample size (particularly after breaking down results by practice area, which is the most useful way to look at the data--after all (as an example) a transactional tax lawyer at an AM Law 100 firm and a litigator at a small white collar boutique will find different courses to have been helpful).
That said, it is interesting that alumni did not list negotiations or legal drafting as useful, given the handwringing over law schools failure to teach these types of practical skills.
My thoughts on what courses transactional lawyers should take can be found here.
Wednesday, August 24, 2011
For anyone who missed it, the latest issue of Transactions has several papers related to M&A deal-making. The issue includes Don Langevoort's insightful essay on The Behavioral Economics of Mergers and Acquisitions about which we blogged previously. The issue also includes an interesting response by Joan Heminway entitled A More Critical Use of Fairness Opinions as a Practical Approach to the Behavioral Economics of Mergers and Acquisitions.
Abstract: This paper responds to Professor Donald C. Langevoort's essay entitled "The Behavioral Economics of Mergers and Acquisitions" (12 Transactions: Tenn. J. Bus. L. 65 (2011)). Together with Professor Langevoort's essay and another responsive work written from the standpoint of behavioral psychology – Eric Sundstrom's "Tall Steps, Slippery Slopes & Learning Curves in the Behavioral Economics of Mergers & Acquisitions" (12 Transactions: Tenn. J. Bus. L. 65 (2011)) – this paper preliminarily explores solutions to behavioral issues in the context of mergers and acquisitions.
Specifically, this paper contends that changes in the contents, construction, use, and assessment of fairness opinions may better enable fairness opinions to counteract the potential and actual biases of corporate management and shareholders in M&A decision-making. The paper begins by briefly reviewing the nature (attributes, benefits and detriments), regulation, and utilization of fairness opinions in the M&A transactional process, including the ways in which fairness opinions manifest, support, and attempt to counteract behavioral norms. Next, the paper suggests best practices in the construction and use of fairness opinions that take into account our knowledge of behavioral psychology as it relates to M&A transactions. The net effect of these best practices is to transform what may be unconscious behavioral norms into conscious biases that, once exposed, can be confronted and, as desired, mitigated.
Tuesday, August 23, 2011
John Coates, IV has posted an interesting new paper Managing Disputes Through Contract: Evidence from M&A. The paper looks at dispute management provisions in a sample of 120 randomly chosen M&A contracts from 2007 and 2008. The paper examines contract terms “aimed at managing litigation, such as (a) clauses mandating and setting the scope for arbitration; (b) choice of law clauses, (c) forum selection clauses, (d) jury waivers, (e) clauses allocating legal costs in the event of a dispute, and (f) clauses attempting to increase or decrease the odds that a court will award specific performance as a remedy in the event of breach.”
Abstract: An important set of contract terms manages potential disputes. In a detailed, hand-coded sample of mergers and acquisition (M&A) contracts from 2007 and 2008, dispute management provisions in correlate strongly with target ownership, state of incorporation, and industry, and with the experience of the parties’ law firms. For Delaware, there is good and bad news. Delaware dominates choice for forum, whereas outside of Delaware, publicly held targets’ states of incorporation are no more likely to be designated for forum than any other court. However, Delaware’s dominance is limited to deals for publicly held targets incorporated in Delaware, Delaware courts are chosen only 20% of the time in deals for private targets incorporated in Delaware, and they are never chosen for private targets incorporated elsewhere, or in asset purchases. A forum goes unspecified in deals involving less experienced law firms. Whole contract arbitration is limited to private targets, is absent only in the largest deals, and is more common in cross-border deals. More focused arbitration – covering price-adjustment clauses – is common even in the largest private target bids. Specific performance clauses – prominently featured in recent high-profile M&A litigation – are less common when inexperienced M&A lawyers involved. These findings suggest (a) Delaware courts’ strengths are unique in, but limited to, corporate law, even in the “corporate” context of M&A contracts; (b) the use of arbitration turns as much on the value of appeals, trust in courts, and value-at-risk as litigation costs; and (c) the quality of lawyering varies significantly, even on the most “legal” aspects of an M&A contract.
Cerberus and Chatham Partners, LP have reportedly walked away (here: Deal Journal's coveragel) from their deal to acquire Innkeepers out of bankruptcy citing a MAC. You can find the bankruptcy filings here. There is no MAC in the APA. The MAC that the acquirers are citing can be found Term Sheet (Exhibit B to the Binding Amendment Commitment Letter - Exhibit F). Here's the relevant termination language from the Term Sheet:
Unless otherwise agreed by the Plan Sponsors in writing, the Plan Sponsors may terminate the Amended Commitment Letter and Term Sheet by written notice to the Company and the Special Servicer upon the earliest occurrence of the following events (each a “Termination Event”):
6. The occurrence of any condition, change or development that could reasonably be expected to have a material adverse effect on the business, assets, liabilities (actual or contingent), or operations, condition (financial or otherwise) or prospects of the Fixed/Floating Debtors taken as a whole; provided, however, that this Termination Event shall not apply to the chapter 11 case of Grand Prix West Palm Beach LLC;
This is mighty buyer friendly MAC language. No carveouts for anything except one specific contingency. That's pretty unusual these days. Cerberus and Chatham are apparently citing some change since May when they agreed to acquire Inkeepers. I think things have been generally bad since May, haven't they? OK, there has been a bit of recent volatility since early August, but hey ... isn't that just more of the same these days? You'd think that someone making an acquisition of a business out of bankruptcy would anticipate the effects of temporary volatility or an additional downturn on the business. In IBP Shareholders Litigation, the Delaware Chancery Court set the bar for invoking a MAC pretty high:
... [the MAC] is best read as a backstop protecting the acquiror from the occurrence of unknown events that substantially threaten the overall earnings potential of the target in a durationally-significant manner. A short-term hiccup in earnings should not suffice; rather the Material Adverse Effect should be material when viewed from the longer-term perspective of a reasonable acquiror.
Or maybe Cerberus is telling us something about their longer-term view on the state of the economy?
Reuters is reporting that DB's acquisition of the New York Stock Exchange has been approved by the US Committee on Foreign Investments. It didn't even cross my mind that a voluntary CFIUS filing would have been on the radar for this transaction. Though, I suppose control of the capital markets in the US is a question of national security.
Monday, August 22, 2011
Drafting guru Ken Adams has taken a look a the Google-Motorola agreement and shares his thoughts:
So, what do I think of the Google–Motorola merger agreement? It’s a mediocre piece of drafting. It’s bloated and hard to read, and that takes a toll at every stage—drafting, reviewing, negotiating, and monitoring compliance. And there might be lurking in the verbiage some bit of confusion that metastasizes into a dispute down the road.
Mediocre? How can that be! After all, Google is represented by the prominent law firm Cleary Gottlieb—presumably they did the bulk of the drafting. Well, the Google–Motorola merger agreement is mediocre because all big-time M&A drafting—or at least all that I’ve seen—is mediocre.
True enough. Imagine if Mark Twain tried to write The Adventures of Tom Sawyer by committee and using The Adventures of Hucklebery Finn as a template for the first draft? Wouldn't be much of a book, that's for sure. Ken offers up his thoughts on improving the drafting process - including commoditizing the process.
Friday, August 19, 2011
Thursday, August 18, 2011
Wednesday, August 17, 2011
A commenter on my previous post on the hazards of telling your no-goodnik boyfriend material, non-public information asked whether it made a difference in the analysis if the person with whom you are sharing material, non-public information is a spouse.
In short, it doesn't. It just hurts more to learn that they person you have decided to spend the rest of your life with is a jerk. Christie Hefner, former CEO of Playboy, is probably learning that right now. Last week, the SEC charged Hefner's husband with insider trading:
The Securities and Exchange Commission today filed a civil injunctive action in the U.S. District Court for the Northern District of Illinois charging William A. Marovitz, the spouse of former Playboy CEO Christie Hefner, with illegal insider trading in Playboy stock in advance of public news announcements.
The SEC alleges that on five occasions between 2004 and 2009, Marovitz traded based on confidential information that he misappropriated from Hefner, who was the CEO of Playboy during most of the trades at issue. Marovitz bought and sold Playboy stock in his own brokerage accounts ahead of public news announcements despite instructions from his wife that he should not trade in shares of Playboy and a warning from the general counsel of Playboy about his buying or selling Playboy stock. In total, Marovitz gained profits and avoided losses of $100,952.
According to the SEC’s complaint, between 2004 and 2009 Marovitz misappropriated confidential, non-public information about Playboy from Hefner. Hefner made clear to Marovitz in 1998, both personally and through Playboy’s general counsel, that she expected him to keep any information he learned from her about Playboy confidential and not to trade based on this information.
The SEC doesn't particularly care aboout the legal status of the relationship -- husband/wife, boyfriend/girlfriend, boyfriend/boyfriend, father/son, it doesn't really matter. What matters is that between the two people there is a "relationship of trust and confidence" and that the recipient knows or should know that he is receiving material, non-public information and should not trade on it.
If the recipient (e.g. the CEO's spouse) consoles his wife about an upcoming negative earnings release ("It's okay, honey, you've done everything you could. Anyway, you know I love you.") and then goes out and trades on that information ... well ... first of all, he had betrayed the trust that the spouse has put in him. In short, he's a jerk. The SEC also considers that a violation of a fiduciary duty to the spouse in this case sufficient to trigger liability under the misappropriation theory of insider trading.
So, it's a tough call. You work 18 hours a day. When you come home, your spouse wants to know what you've been doing all day that justifies you missing your children's school plays, dinners with family and friends, etc. Discretion is the textbook answer, but that's not easy. More often than not, we tell our significant others everything and then trust that we've made the right choice. Sometimes we're right, sometimes we're not.
Footnoted.com is doing yeoman's work reading lots of corporate filings so you don't have to. Most recent example is Motorola Mobility's recent filing of a Change of Control Agreement (exhibit to their 10-Q) just a couple of weeks ago in advance of the announcement of transaction. MMI's CEO stands to do pretty well when the transaction with Google closes. According to Footnoted.com:
Diving into the proxy, the amount that Chairman and CEO Sanjay Jha stands to make is pretty eye-popping: over $90 million, although that number includes a $22 million gross-up for taxes — something that Jha and other Motorola executives apparently agreed to give up earlier this year.
Still, even without the tax gross-up (can I get one of those, please?), $68 million is plenty incentive to get this deal done. It's worth remembering that Change of Control Agreements are vestiges of the good old days of the hostile takeover movement. I know it's hard for people to believe this now, but these severance agreements that guarantee huge payouts to managers in the event of a sale were a good governance reform! They made sense at the time, but things, I think, have changed. Given the amount of stock and options now used as part of any compensation package, managers are much less likely to have negative knee-jerk responses to acquisition offers. For the most part, managers probably no longer need the extra kick that many of these severance agreements give - especially given the large amounts of negative attention they can sometime attract. Remember Home Depot?
Tuesday, August 16, 2011
Apologies for the relatively long hiatus. Blogging is more work than it seems at times and sometimes one needs a little break. In any event, the current administration is continuing to teach lessons to the current generation of idiot inside traders. Law students -- there are real life lessons to be learned from the experience of a young woman who interned at Walt Disney in 2009.
Lesson number one: Don't share material non-public information with your no-goodnik boyfriend. Why? Isn't it obvious by now? Cause he probably doesn't love you as much as he loves money.
The allegations that the SEC is making against Toby Scammell are really just head-shaking. One wonders not just where the moral compass is, but what happened to common sense.
First, Scammell's girl friend was working as an "extern" at Walt Disney during the summer of 2009. She was assigned to work on the deal team that was taking the lead on the acquisition of Marvel. For her, this was apparently an important career opportunity. She shared her good fortune with her boyfriend of two years, Scammell. She discussed with him whether or not she should delay applying to business school so she could include the Marvel acquisition experience in her application. She discussed with him the timing of the deal - because it apparently impacted on plans they had to attend a wedding together. She let him access her Blackberry where she kept work-related e-mails, etc.
Of course, it turns out that Scammell was less than a loyal boyfriend. The SEC alleges that Scammell made over 3000% profit on short term call options in Marvel that he purchased on the basis of the inside information he misppropriated from his girlfriend. Not only that, but his purchases of short term call options swamped the market - making it more than a little obvious to investigators that something was up:
Apparently, Scammell had only purchased options once before -- long-term Google call options in which he lost 99% of his investment. So, his purchases of short term Marvel options was highly unusual.
Of course, with all insider trading prosecutions, the real challenge for the government is scienter. Well, it appears that Scammell went out his way to help the government with its case:
Googling "insider trading"?! C'mon.
Why does it matter that he didn't mention his trades and profits to his brother? Oh, I forgot to mention that Scammell was managing the finances of his brother who was serving Iraq. The SEC alleges that Scammell was hard up on funds, so he accessed his brother's account to get cash to fund his option purchases.
I'm sure this guy was planning on telling his brother about the profits ... at some point. In fact, Scammell's brother didn't learn about the profits Scammell made with his funds until the SEC called him months later to ask him about it.
There are real lessons for law students and young associates in this story. First, discretion is the watch-word. Just because you happen to love your boyfriend, doesn't mean that he won't trade on your inside information. Don't believe me? Just ask Scammell's girlfriend.
It's no way to start a professional career.
Here's the SEC complaint.
Thursday, August 11, 2011
Gibson Dunn has posted a useful update on merger enforcement trends in the US and Europe since the beginning of 2011. The update notes that "As was the case in 2010, antitrust enforcers in the United States and Europe have continued to make headlines by intervening in major merger cases and launching new policy initiatives. While M&A activity on both sides of the Atlantic continues to recover from the global financial crisis, it appears that antitrust enforcers are placing a higher priority on merger enforcement, a pattern that is likely to continue for the foreseeable future." The update also discusses the DOJ's recently released Policy Guide to Merger Remedies and conduct remedies imposed in recent merger transactions.
Friday, August 5, 2011
In this client alert, Clifford Chance notes that the European Commission recently targeted a PE firm for potential fines for antitrust breaches allegedly committed by one of its portfolio companies even though there is no allegation that the firm or any of its personnel participated in, or were aware of, the alleged cartel. Thus, if a fine is imposed on the PE firm, it would be solely on the basis of parental liability for the activities of the portfolio company.
According to the alert "this is one of the first instances - and certainly the most high profile - in which a private equity firm has been targeted in this way."
- Analysis and Guidance for Use of Earnout Provisions
- "Bringdown" conditions
- Dispute Resolution Clauses in Purchase Price Adjustment Provisions
- Judicial Interpretation of "Best Efforts" Clauses
- Judicial Interpretation of Exclusivity and No-Shop Provisions
- Judicial Interpretation of Financial Statement Representations in the Acquisition Context
- Judicial Interpretations of Full Disclosure ("10b-5") - Representations
- Material Adverse Change Provisions in Acquisition Agreements
- No Undisclosed Liabilities Representations
- Research Regarding Attorney-Client Privilege and Conflicts of Interest in Negotiated Acquisitions
- Third Party Beneficiary Issues in M&A Transactions
- Time Limitations on Post-Closing Recovery for Breaches of Representations and Warranties: Survival Clause as a Contractual Statute of Limitations
While the materials are available only to members of the Mergers and Acquisitions Committee, its not that hard a club to join.