M & A Law Prof Blog

Editor: Brian JM Quinn
Boston College Law School

Thursday, September 29, 2011

New Master in Chancery

According to the Delaware Law Weekly, Abigail LeGrow, an associate at Potter Anderson, has been named Master in Chancery to replace Sam Glascock who was recently appointed Vice Chancellor.  Ms. LeGrow is a 2004 Penn State Law grad.  According to the DLW:

A master's duties will likely include mediating disputes involving the enforcement of deed covenants or restrictions, guardianships, trusts and estates, and arbitrating business disputes. Typically, a master assists the chancellor in drafting new court rules, legislation and other matters as well as other duties assigned by the chancellor.

Ms. LeGrow will be one of two Masters in Chancery.


September 29, 2011 in Delaware | Permalink | Comments (0) | TrackBack (0)


Michael De La Merced of the Dealbook notices the URL that Oracle set up as part of the fight that Larry Ellison has been picking with H-P over its acquisition of Autonomy.  Ellison says Lynch, Autonomy's CEO, pitched a deal to Oracle and Oracle passed.  Lynch says that's not true.  OK, so Oracle posts a copy of the pitch-book that Autonomy handed over to new Oracle President Mark Hurd:

 The truth is that Mr. Lynch came to Oracle, along with his investment banker, Frank Quattrone, and met with Oracle’s head of M&A, Douglas Kehring and Oracle President Mark Hurd at 11 am on April 1, 2011.  After listening to Mr. Lynch’s PowerPoint slide sales pitch to sell Autonomy to Oracle, Mr. Kehring and Mr. Hurd told Mr. Lynch that with a current market value of $6 billion, Autonomy was already extremely over-priced.  The Lynch shopping visit to Oracle is easy to verify.  We still have his PowerPoint slides.”  (and PPT part 2)

The PPT presentation is a nice example of a pitch-book if you're looking for one to show to your M&A class.  Now, why Ellison would spend so much time and energy antagonizing H-P over their acquisition of Autonomy is bit of piling on.  But, I suppose it's indicative of the relationship that's existed between H-P and Oracle since the Mark Hurd firing.  Another reminder that M&A is often as much about personalities as it is economics.

Shana Tova!


September 29, 2011 | Permalink | Comments (1) | TrackBack (0)

Wednesday, September 28, 2011

TransUnion on the block

Anyone who has ever taught corporate law will take a slight interest in the fact that the Pritzker family has decided to exit its investment in TransUnion.  You'll remember that Pritzker's acquistion of TransUnion in the mid-1980s was litigated.  Smith v Van Gorkom it was highly controversial because it held that directors who agreed to sell TransUnion were monetarily liable for violations of their duty of care.  It's a great set of facts, well worth reading.  But the result caused quite a stir and was the proximate cause of Delaware's adoption of 102(b)(7), exculpating directors from liability for similar future violations.  Although Van Gorkom is usually taught as a duty of care case, it's best understood in the context of the development of Delaware's takeover law jurisprudence.  It was decided in 1985 along with Moran and Unocal.  When you think about it that way, one might be more sympathetic about where the court was trying to go.  In any event, a piece of corporate law history is for sale.


September 28, 2011 in Delaware | Permalink | Comments (0) | TrackBack (0)

Saturday, September 24, 2011

Arbitration for merger agreements

This just popped up on the PR Newswire:

SANTA CLARA, Calif., Sept. 23, 2011 /PRNewswire/ -- Advanced Analogic Technologies, Inc. (the "Company" or "AnalogicTech") (Nasdaq: AATI) today announced that it has filed a Petition for Arbitration in the Delaware Chancery Court (the "Court") seeking specific performance of the Company's merger agreement with Skyworks Solutions, Inc. ("Skyworks") (Nasdaq: SWKS) and to order Skyworks to close the transaction.  AnalogicTech is seeking declaratory judgment from the Court that (1) AnalogicTech has not breached the merger agreement, (2) no "material adverse effect" has occurred with respect to AnalogicTech, and (3) Skyworks has breached its obligations under the merger agreement.

When these new aribtration rules were first announced in January, I hoped that it wouldn't be too successful.   It looks like parties are starting to take advantage of the arbitration procedures.  While that's not the end of the world, it might be cause for concern with respect to a particular aspect of deal litigation - contractual interpretation.  In the case of AnalogicTech for example it looks like one of the issues is whether a MAC has been triggered.  Now there's still enough ambiguitiy with respect to the MAC issue that it would be beneficial to have additional law on the question.  If arbitration becomes more common, then there might be negative spillovers for the maintenance of the corporate law over time and that would be a problem.

This is an issue worth paying attention to, and perhaps re-visiting at some point.


September 24, 2011 in Cases, Delaware | Permalink | Comments (0) | TrackBack (0)

Friday, September 23, 2011

First HP lawsuit on file

No surprise.  The first derivative suit against HP and its board of directors was filed in the Central District of California.  Here's the complaint: Espinoza v. Leo Apotheker et al.  It was filed on Wednesday - before Apotheker was fired. So it's more concerned with Apotheker's recent moves than it is with the board's firing of Apotheker.  Of course, there's no reference to the revelation that the board may have hired Apotheker without actually meeting him.  Look for this complaint to be amended to account for these recent events and revelations.  As it is, the complaint alleges violations of fiduciary duties by the directors -- essentially that they were reckless in their pursuit of the corporate strategy.  The complaint also makes various allegations of securities law violations.  The essence of the complaint is that for almost a year the CEO and the board we are all very optimistic about webOS  as the center of the corporate strategy.  Then, the board turned on a dime.  If the strategy was so bad, why did the board pursue it for so long?  Anyway, we'll see.  While this is the first suit through the door, I doubt it will be the last. 

In related news, new HP CEO Meg Whitman is off to a great start.   Yesterday, Bloomberg reported:

“It does not signal a change in the strategy,” Whitman said yesterday of her appointment. “We are behind the actions that were taken on Aug. 18. We are firmly committed to Autonomy.”

Presumably that includes sale of the PC business and moving what's left of H-P to some more akin to SAP, Oracle or IBM.  Anyway, today CNBC is reporting that her excutive chairman Ray Lane said, "We have no intention of getting out of the PC business."  Seems like they are still a little confused. 


Update:  Tom Hals at Reuters has a nice piece on the prospects for a suit against H-P's board:

Hewlett-Packard's board certainly has plenty of critics. The board could be most vulnerable to claims that it did not properly vet Apotheker. Reuters reported that the full board did not meet with Apotheker before hiring him.

But Delaware, where Hewlett-Packard is incorporated, protects directors from being liable for poor decisions so long as they can prove they were not consciously trying to harm the business.

That's a pretty high bar.  Even not bothering to meet the CEO before hiring him may not be enough to clear that. 

September 23, 2011 | Permalink | Comments (0) | TrackBack (0)

Thursday, September 22, 2011

Was the H-P Board paying attention?

Really? Really?!  This was the headline from James Stewart's Business Day article today:  Voting to Hire a Chief Without Meeting Him.  The article highlights the almost complete lack of attention the full board of H-P gave to the job of hiring a new CEO after firing Mark Hurd.

Among their revelations: when the search committee of four directors narrowed the candidates to three finalists, no one else on the board was willing to interview them. And when the committee finally chose Mr. Apotheker and again suggested that other directors meet him, no one did. Remarkably, when the 12-member board voted to name Mr. Apotheker as the successor to the recently ousted chief executive, Mark Hurd, most board members had never met Mr. Apotheker. ...

Before a final vote on Mr. Apotheker, H.P. search committee members again urged other directors to meet him. No one took them up. At least one director, Ms. Salhany, tried to slow the process, worrying aloud that “no one has ever met him. Are we sure?” But her concerns were brushed aside. “Among the finalists, he was the best of a very unattractive group,” one director said.

Really, I find that revelation - if true - to be an absolutely incredible abdication of responsibility by a board.  Short of a merger, hiring a CEO is one of the most important things a board can do.  And they can't even bring themselves to have coffee with the guy they are going to hire.  How is that possible?  Who advised them?

The members of the board should be thankful that Delaware has Sec. 102(b)(7) in the code, otherwise they might be looking at major liability - that's not to say they won't get sued, they just might anyway.

I wonder now how involved the board was with Apotheker's recent shift in corporate strategy away from the PC and tablet business and its generous acquisition of Autonomy (for 10x earnings revenues).  The shift took the investment community by surprise.  I wonder if the H-P board was surprised, too. 


Update:  A nice piece by Reuters reminds us just how dysfunctional the H-P board has been over the years.  Of course, one can start with the rancor over the Compaq acquisition that got H-P into the PC business in the first place.  There were accusations that then CEO Fiorina bought DB's votes to get that deal through.  And then there was the whole Patricia Dunn/boardroom leaks investigation that led to Tom Perkins' resignation in 2005/2006?  And now they're talking about hiring Meg Whitman to take over.  Goodness. 


September 22, 2011 in Corporate | Permalink | Comments (0) | TrackBack (0)

Wednesday, September 21, 2011

"You gambled and you lost."

Ten years for Zvi Goffer - Octopussy.  By almost any stretch, that's a lengthy sentence for insider trading.


September 21, 2011 in Insider Trading | Permalink | Comments (0) | TrackBack (0)

Aggregation and Step-Transaction Doctrines in Asset Sales

Thanks to our friends at CourtroomView I was able to watch the argument last week's arguments before the Delaware Supreme Court in the BNY Mellon v Liberty Media litigation.  There weren't many fireworks in the courtroom, but isn't that the way appellate litigation usually is?  In any event, the Court just handed down its opinion in the matter affirming the lower court's decision that the spin-offs did not constitute a sale of substantially all the assets.

The issue before the court was whether the series of spin-off transactions undertaken by Liberty Media beginning in 2004 constituted a "series of transactions" for the purposes of determining whether the violated a covenant not to sell substantially all the assets of the corporation.  The opinion provides a nice overview of the relevant doctrine that applies to questions of to think about a series of transactions and asset sales.  

Applying NY law, the court agreed with the Chancery Court's application of the "aggregation doctrine": 

... where asset transactions are not piecemeal components of an otherwise integrated, pre-established plan to liquidate or dispose of nearly all assets, and where each such transaction stands on its own merits without reference to another, courts have declined to aggregate for purposes of a “substantially all” analysis.

Each of Liberty's spin-offs over the years was a transaction that stood on its own merits without reference to any of the previous spin-offs.  Thus, the aggregation doctrine counsels that the spin-offs would not constitute a sale of substantially all the assets.  

The Chancery Court applied an additional doctrine, the step transaction doctrine to the determination of whether the spin-offs constituted a sale of substantially all the assets.  The Supreme Court described the doctrine in the following way:

The Court of Chancery analyzed the facts under the “step-transaction” doctrine, which treats the “steps” in a series of formally separate but related transactions involving the transfer of property as  a single transaction, if all the steps are substantially linked.  Rather than viewing each step as an isolated incident, the steps are viewed together as components of an overall plan

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.”  Second, under the “interdependence test,” separate 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.”  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.”

Though the Supreme Court felt application of the step transaction doctrine wasn't necessary, it's clear that under this test, when Liberty Media adopted a general business strategy of spinning out assets as the opportunity arose that it was not triggering a sale of substantially all the assets under the step transaction doctrine.

Here's Download BNY v Liberty Media

Liberty Media has just announced that the split-offs will start trading on Monday, Sept 26



September 21, 2011 in Asset Transactions | Permalink | Comments (0) | TrackBack (0)

Tuesday, September 20, 2011

Inadequate value



Air Products' bid was $70. Just saying.


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

Chinese rules on assessment of competitive effects

Chinese firm King & Wood - there's actually no Mr. King or Mr. Wood, but in the Chinese King & Wood are good names ... - anyway they have the run-down on the Provisional Rules of Assessment of Competitive Effects of Concentration of Business Operators (MOFCOM 2011/55).  This is another in a series of new rules and regs the Chinese have been rolling out to implement their Anti-Monopoly Law.


September 20, 2011 in Antitrust, Asia | Permalink | Comments (0) | TrackBack (0)

Monday, September 19, 2011

Takeover Panel amendments go into effect

The Takeover Panel amendments that were the result of a review in the wake of Kraft's acquisition of cadbury go into effect today. You can find a summary of the changes and transitional arrangements at the Takeover Panel's site.  The most important include:

1. The offeree is required to disclose the identities of "any potential offeror with which the offeree company is in talks or from which an approach has been received."

2. After a potential offeror is identified, the offeror has 28 days to "put up or shut up."

3. General prohibition on transaction related inducement fees (termination fees).

4. Improved ability of employees representatives to make their views on the offer known.

The prohibition on termination fees is the most interesting change.  Most of the rationalization for termination fees in the US is that termination fees are required in order to assure potential acquirors to invest the resouces needed to put together a bid.  Without the termination fees, potential bidders will disappear - not content to invest resources in a bid that might eventually fail.  Here, the Takeover Panel is weighing benefits of the compensatory function of the termination fees against the social costs of reduced competition associated with the potentially deterrent effect of termination fees and is erring on the side of increased competition.  At some point in the next year, a finance graduate student somewhere should probably do an event study to check to see if elimination of termination fees ends the UK deal world as we know it.  My guess is that it will still be there.



September 19, 2011 in Europe, Takeover Defenses | Permalink | Comments (0) | TrackBack (0)

Thursday, September 15, 2011

Autonomy and tender offers

The FT Alphaville notes an important difference between US and UK tender offers. They point to H-P's announcement that it is extending its tender offer after 42% of shares were tendered. My reaction, like Alphaville's was "that's awful low."  But it turns out, that's good for the UK where tender offers in their first round typically get only 10% of shares.  Now, that's low.  From Alphaville:

A typical level of acceptances at the first close of a UK takeover offer is somewhere around 10 per cent. That’s because investors are reluctant to give up the optionality of backing another bid emerging. In fact, hedge funds almost never give up this optionality until they absolutely have to.

But in this instance almost 42 per cent of Autonomy shareholders have signed up at the first opportunity even though there’s the possibility (admittedly slim) of a counter bid

 Interesting. I wonder what drives this behavior.  The Takeover Panel rules?


September 15, 2011 in Tender Offer | Permalink | Comments (0) | TrackBack (0)

Tuesday, September 13, 2011

Craigslist and eBay ... again ...

This is a feud that never ends, I suppose.  Reuters is reporting that the US Attorney has "launched a criminal probe into whether eBay Inc employees misappropriated confidential information from classified ad service Craigslist."

You'll remember that Chancellor Chandler in the Delaware Chancery Court ruled that against Craigslist in a rare case ordering a board to remove a poison pill in 2009.


September 13, 2011 in Takeover Defenses | Permalink | Comments (0) | TrackBack (0)

Cerberus says "so what?"

According to Reuters, Cerberus has blamed the poor economy for its MAC its deal with Innkeepers. In Cerberus' reply to Innkeepers' complaint, they blame "unforeseeable, unprecedented, and materially adverse economic developments", namely the prospect of a double-dip recession, for the claimed MAC.  So...if I can find a reputable economist, like Krugman or Roubini, who was predicting a double-dip recession in say July, then the economic developments would no longer be unforeseeable?  

Anyway, the reply also seems to stick it in Innkeepers' nose that the MAC was really, really broad, essentially giving Cerberus a contractual right to walk away from the deal at the slightest event: 

Innkeepers -- MAE

Doesn't really matter anyway.  The essence of Cerberus' reply is "so what?"  They argue that it doesn't really matter whether the court decides there isn't a MAC, because the parties agreed to a $20 million reverse termination fee as liquidated damages in the event of a contractual breach by Cerberus.  

The argument is that Cerberus didn't actually acquire Innkeepers, it acquired an option to purchase Innkeepers.  To top it off, if the court decides there was a MAC, then Cerberus wants its deposit back. Ouch. That would hurt.  


September 13, 2011 in Material Adverse Change Clauses, Private Equity | Permalink | Comments (1) | TrackBack (0)

Monday, September 12, 2011

Iowa's race to the bottom

Ted Allen at the ISS Corporate Governance Blog highlights a common trend in the corporate law -- the depressing race to the bottom that is characterized by state legislatures responding to management demands for protection from their own shareholders.  Iowa has now joined the list of states that now require classified boards of their public companies.  (h/t Broc Romanek)

Earlier this year, state lawmakers approved an amendment to the Iowa Business Corporations Act (IBCA) that requires public companies with more than 2,000 shareholders to maintain staggered board terms until Dec. 31, 2014. The law, which took effect March 23, provided a 40-day period during which a company's board could unilaterally vote to opt out of the classification mandate.

It appears that this legislation was passed to help Casey's General Stores, an Iowa-incorporated firm that faced an unsuccessful proxy fight in 2010. Casey's, an S&P 600 small-cap firm, did not opt out of the law and since has adopted a staggered board structure. The company has strong state legislative connections. One Casey board member, Jeffrey M. Lamberti, is an attorney who served in the Iowa Legislature from 1995 to 2006, which included three years as president of the Iowa Senate. His father is Donald Lamberti, the company's founder.

The classified board law was adopted despite the opposition of some Iowa corporate lawyers. In a Feb. 16 memo, the Iowa State Bar Association's Business Law Section Council observed that the legislation "will dramatically reduce the odds" that companies like Casey's would face proxy fights, but warned that it "would eliminate the voice of shareholders [from deciding whether to adopt staggered board terms] and leave that decision solely to management."


September 12, 2011 in Takeover Defenses | Permalink | Comments (0) | TrackBack (0)

Omnicare's litigation with Pharmerica

As part of its hostile effort to acquire Pharmerica, last week Omnicare filed suit against Pharmerica and its board.  Here's the Omnicare - Pharmerica complaint. Now, let me state right up front that I don't think this suit falls into the more general category of litigation flotsam that accompanies many merger announcements these days.  Although this is acquisition-related litigation, it involves a purported acquirer attempting to have the target's board withdraw its defenses against the offer.  This case is more along the lines of the Airgas scenario. In any event, given Airgas, one wonders whether Omnicare thinks it can pull an Omnicare-styled rabbit of the litigation hat.  And why not?  It happened famously for them once before.

In any event, the first defense that Omnicare would like the court to order withdrawn is Pharmerica's pill.  It's hard, given Airgas, to come up with a reasonable justification for the court to order Pharmerica's board to pull its pill.  Maybe after a year or trying, but now?  Probably not.  Omnicare's argument that Pharmerica's board is violating its fiduciary duties by not negotiating with Omnicare is going to fall flat.  The requirement is that Pharmerica's board be informed.  There is no requirement that it negotiate to sell its company to an unwanted bidder.  Of course, this is complicated by the fact that early in the summer, Pharmerica's CEO approaced Omnicare's CEO to discuss a possible combination, but that's just a complication.  Omnicare doesn't present any evidence to seriously suggest that Pharmerica's board is uninformed about its decision not to engage with Omnicare.

Second, Omnicare would like the court order Pharmerica's board to adopt resolutions exempting Omnicare from the effects of DGCL 203.  Yikes.   Omnicare's argument is essentially that Pharmerica's board is violating its fiduciary duties to the corporation by not actively exempting an unwanted bidder from Delaware's antitakeover statute.  Absent egregious facts that aren't present in the complaint, I can't imagine a court taking that argument all that seriously.    


September 12, 2011 in Litigation, State Takeover Laws, Takeover Defenses | Permalink | Comments (0) | TrackBack (0)

Sunday, September 11, 2011

Up the stairs...

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

Friday, September 9, 2011

10 years on.

Boston College news:

Twenty-two alumni of Boston College lost their lives on that fateful day. This weekend, we remember by reading their names at each of the Masses on campus. Our alumni - along with the many relatives, friends and all those affected by the tragedy - will never be forgotten. The campus labyrinth, dedicated to their memory, is among 9/11 memorials across the nation that can be visited for reflection and prayer: http://bit.ly/qwghsY


NYC Twin Lights 9/11 "Tribute in Lights"  Memorial 2005

(Credit: Flickr)

September 9, 2011 | Permalink | Comments (0) | TrackBack (0)

Exclusive forum provisions on the move

Although the collapse of the IPO market seems to have put an end to new adoptions of exclusive forum provisions in IPO charters, Davis Polk reports that several firms have begun trying to get exclusive forum charter amendment passed  and with some success.  

Seeking to strengthen their exclusive forum provisions against  Galaviz-like challenges, several companies this year proposed exclusive forum charter provisions for shareholder approval, including three large-cap companies: Allstate, Altera and DIRECTV 4    The results so far have been mixed. At Altera and DIRECTV, the proposed amendments were approved by healthy majorities of the votes cast but only narrowly received the majorities of the outstanding shares (50.3% and 53.2%, respectively) required to adopt a charter amendment. At Allstate, however, the exclusive forum amendment was rejected by a majority of the votes cast and received the support of only 41.9 percent of the outstanding shares. 

I've got a draft paper on the exclusive forum provision that will be coming out soon in the UC Davis Law Review in which I take up some reasons why I think these kinds of amendment aren't more prevalent.


September 9, 2011 | Permalink | Comments (0) | TrackBack (0)

Thursday, September 8, 2011

Strine on Banker Conflicts, Standstill Agreements, Deal Protections, and Fiduciary Outs

Pepper Hamilton reports here on observations made by Judge Strine (recently promoted to Chancellor of the Delaware Court of Chancery) at a recent hearing on a motion to expedite litigation involving Validus Holdings’s hostile bid to acquire Transatlantic Holdings.


September 8, 2011 | Permalink | Comments (0) | TrackBack (0)