Thursday, December 29, 2011
The potential post-closing erosion of value (either of the consideration received by the seller or the business acquired by the buyer) is an issue in almost every M&A transaction. This article by attorneys at Dechert LLP discusses a few of the popular types of transaction insurance currently available to help address this issue.
Saturday, December 24, 2011
The University of Illinois College of Law community mourns the loss of Professor Larry E. Ribstein, the Mildred Van Voorhis Jones Chair, Associate Dean for Research, and Co-Director of the Illinois Business Law and Policy Program, who passed away on Saturday, December 24, in Fairfax, Virginia.
A member of the Illinois law faculty since 2002, Ribstein was a prodigious and pioneering scholar across a vast range of subjects, including partnerships and limited liability companies, corporate and securities law, choice of law, financial regulation, white-collar crime, legal ethics, and the legal profession. Among his over 170 publications, he was the author of The Rise of the Uncorporation (Oxford University Press, 2010), The Law Market(Oxford University Press, 2009) (with Erin A. O’Hara), The Sarbanes-Oxley Debate(American Enterprise Institute Press, 2006) (with Henry N. Butler), The Constitution and the Corporation (American Enterprise Institute Press, 1995) (with Butler), leading treatises (including Ribstein & Keatinge on Limited Liability Corporationsand Bromberg & Ribstein on Partnerships), and two casebooks (Business Associations (4th ed. 2003, Lexis/Nexis) (with Peter V. Letsou) and Unincorporated Business Entities (4th ed. 2009, Lexis/Nexis) (with Jeffrey M. Lipshaw)). His latest book, The Rise of the Uncorporation, which examines the emergence and significance of non-corporate forms of business organization, was recently described in the Michigan Law Review as a “fascinating” study that “takes the traditional law and economics story of the corporation and turns it on its head.” A prominent commentator on law and business, Ribstein was the founder of Ideoblog (www.ideoblog.org) and the leading contributor to Truth on the Market (www.truthonthemarket.com), which was recently ranked by the ABA Journal as one of the 100 top law blogs.
Professor Ribstein taught a variety of courses at the College of Law, including business organizations, unincorporated business entities, and market regulation. He also taught an innovative colloquium on corporate law that brought together students and leading scholars to discuss current issues in the field.
“Larry was a scholar of incandescent intellect, breathtaking range, and unflagging energy,” said Dean Bruce Smith. “He cared passionately about his students and about transforming legal education to meet the challenges of the twenty-first century. He invested selflessly in the professional development of junior faculty members – whether at Illinois or at other institutions. He cared deeply about the College of Law and contributed incalculably to it through his ideas, his engagement, and his counsel. And he cherished his family with a love that was boundless. Larry was a towering figure and an incomparable person, and he will be dearly missed.”
After earning his B.A. from The Johns Hopkins University and his J.D. from the University of Chicago Law School, Ribstein practiced for three years as an associate at McDermott, Will & Emery in Chicago. He began his teaching career at Mercer University Law School (1975-87), later serving on the faculty at George Mason University School of Law (1987-2002), including as George Mason University Foundation Professor of Law (1993-2002). He also held visiting professorships at New York University Law School, the University of Texas School of Law, Washington University School of Law, and St. Louis University School of Law. He served the legal-academic community in a variety of capacities, including on the Executive Committee of the American Association of Law Schools (AALS) Section on Securities Regulation, as chair of the AALS Section on Agency, Partnership and LLCs, and as editor and co-editor of The Supreme Court Economic Review.
Wednesday, December 21, 2011
Yahoo? Boohoo is more like it. From Forbes:
The New York Times is reporting that Yahoo tomorrow will consider a proposal to sell its stakes in Yahoo Japan and Alibaba Group, in a transaction that would be worth approximately $17 billion. But here's the thing: Yahoo's entire market cap is just over $18 billion.
So, Yahoo's non-Asian assets are only worth $1 billion. Goodness, how the mighty have fallen, even Groupon has a market cap larger than $10 billion...
Tuesday, December 20, 2011
So the termination of the AT&T/T-Mobile deal was no surprise. And on cue, here's T-Mobile's "pay me" letter agreement which terminates the merger agreement and stipulates that AT&T will make payment on the reverse termination fee within three days. In relevant part:
... (i) AT&T, or one of its Affiliates, shall (A) within three Business Days following the date of this letter agreement, pay to DT the cash amount set forth on Annex E of the Purchase Agreement by wire transfer of immediately available funds and (B) deliver to the Company, or as otherwise directed by DT, the assets set forth on Annex E of the Purchase Agreement in accordance with the obligations under Section 7.5(b) of the Purchase Agreement (which shall continue in effect as to such matters notwithstanding the termination of the Purchase Agreement), and (ii) pursuant to Section 2(a) of the Roaming Agreement and in full satisfaction of AT&T’s obligations under Section 7.5(b) of the Purchase Agreement with respect to the roaming agreement referenced therein, all of the sections of the Roaming Agreement that were not effective as of the execution date of the Roaming Agreement shall come into full force and effect on the date hereof and shall be implemented as set forth in the Roaming Agreement or as the parties thereto otherwise shall agree. Upon and after the payment of such cash amount, so long as AT&T is in good faith attempting to comply with its obligations under Section 7.5(b) of the Purchase Agreement with respect to the transfer(s) of the assets set forth on Annex E of the Purchase Agreement, the sole and exclusive remedy of DT and its Subsidiaries and their respective officers, directors and Affiliates against AT&T and its Subsidiaries and their respective officers, directors and Affiliates for any Damages resulting from, arising out of, or incurred in connection with, the Purchase Agreement (including termination thereof) or any transactions ancillary thereto shall be as set forth in Section 7.5(c) of the Purchase Agreement.
Shouldn't be hard for AT&T to come up with $3 billion in cash. After all, they re-upped their $5 billion revolving credit facility just yesterday. Maybe in anticipation of having to cut a big check? (h/t footnoted.com)
Grading exams and all sorts of end of year activities, so posting will be light. Happy Holidays!
Wednesday, December 14, 2011
Chancellor Strine approved the J Crew settlement today over the objections of one of the co-lead plaintiffs, Martin Vogel.
The only individual acting as a lead plaintiff, Martin Vogel, was also removed because he opposed the settlement. ...
Mark Vogel, a New Jersey lawyer and investment adviser who represented his father Martin Vogel at Wednesday's hearing, said the class action process was driven by attorneys who "confined me to a silo" and "steamrolled" him.
"Lead counsel's game is to intimidate the one individual who managed to find his way into their cozy club," Mark Vogel said.
Vogel laid out his complaints about plaintiff counsel in his objection (here). Notwithstanding those complaints, Vogel was removed as a co-lead plaintiff and the case was permitted to settle. The plaintiff's counsel received a $6.5 million fee award and the board got another chastizing.
Strine also criticized the behavior of J Crew's directors and chief executive for allowing TPG Capital, one of the buyers, to get a head start in the sale process, which he said may have eliminated potential rivals.
"It's icky stuff," said Strine. "This was not good corporate governance."
Not good, indeed.
Tuesday, December 13, 2011
Wait ... this is unusual. According to a piece by Tom Hals of Reuters, the lead plaintiff - not his lawyer, but the lead plaintiff himself - is opposing settlement of the shareholder litigation in the J Crew transaction. The J Crew MBO was on the receiving end of a shareholder lawsuit and for good reason (here, here, and here). The litigation moved towards settlement and then ran into some trouble when the plaintiffs counsel threatened to take the whole thing to trial. Then the litgation kind of disappeared off the radar. Now, it's back.
Martin Vogel, one of the named lead plaintiffs in the J Crew shareholder litigation, is refusing to settle the case. And, he's asking uncomfortable questions:
When "lawyers tell you that you absolutely must settle this case for a smidgeon of additional money which in no way begins to address the actual damages, one cannot help but wonder whether a fatal conflict of interest has arisen between counsel and the class," Vogel said
Vogel is looking to get rid of his counsel in this case and then litigate it rather than settle. For anyone familiar with the typical role played by shareholder plaintiffs in these cases, this move is pretty unusual. Shareholder plaintiffs normally not even seen, much less heard when it comes to these kinds of cases. Of course, in the post-PSLRA period, we are getting used to more vocal shareholder plaintiffs in the Federal courts, but that's not yet the rule in the state courts where the quasi-mythical shareholder plaintiffs like Alan Kahn are still quite active. But still this is a little unusual. It may be that there are issues, internal to the plaintiffs' executive committee about strategy that has led to one of the named plaintiffs to speak out. Hard to say. In any event, it'll play itself out in front of Chancellor Strine tomorrow.
Friday, December 9, 2011
Delaware Chief Justice Myron Steele speaking at Stanford Law School last month on what is remains the central question in the corporate law. In this talk, Chief Justice Steele looks forward and lays out what he thinks are the next big issues (i.e. fiduciary implications of the changing nature of share ownership; state-based proxy access regimes, etc.).
Thursday, December 8, 2011
Jenter and Lewellyn have a new paper, CEO Preferences and Acquisitions. It reminds me of the throw-away line in Smith v Van Gorkom where the court reminds the reader that Van Gorkom was approaching the mandatory retirement age when he agreed to sell TransUnion to Pritzker. If you ever wondered what the court meant by that, here's your answer.
Abstract: This paper explores the impact of target CEOs’ retirement preferences on the incidence, the pricing, and the outcomes of takeover bids. Mergers frequently force target CEOs to retire early, and CEOs’ private merger costs are the forgone benefits of staying employed until the planned retirement date. Using retirement age as an instrument for CEOs’ private merger costs, we find strong evidence that target CEO preferences affect merger patterns. The likelihood of receiving a takeover bid increases sharply when target CEOs reach age 65. The probability of a bid is close to 4% per year for target CEOs below age 65 but increases to 6% for the retirement-age group, a 50% increase in the odds of receiving a bid. This increase in takeover activity appears discretely at the age-65 threshold, with no gradual increase as CEOs approach retirement age. Moreover, observed takeover premiums and target announcement returns are significantly lower when target CEOs are older than 65, reinforcing the conclusion that retirement-age CEOs are more willing to accept takeover offers. These results suggest that the preferences of target CEOs have first-order effects on both bidder and target behavior.
Wednesday, December 7, 2011
Back in the summer, there was a 'to-do' about the Massey shareholder litigation. You'll remember that shareholders brought a derivative suit against the directors for violations of their fiduciary duties in the running of the company that ended with a disaster at the Upper Big Branch mine in West Virginia. Twenty-nine miners lost their lives. Chancellor Strine dismissed the case after Massey was acquired by Alpha, refusing to allow the shareholders who had lost standing to maintain the case. Although the shareholders' attorney were volubly upset at the decision, Strine made it clear first, that there were still other avenues to find justice for the victims, and second, the shareholders weren't the victims. They had benefited from the directors' bad acts.
Now, we get word that the Federal Mine Safety and Health Administration and the US attorney have reached settlements with Alpha, Massey's successor. Alpha will pay $209 million in civil and criminal penalities to resolve its liability with respect to the UBB disaster. This settlement includes $46.5 million in payments to the families of the victims of the UBB disaster. While this settlement resolved any corporate criminal liability, it left open the possibility of personal criminal liability for executives of Massey.
This seems like a start.
Monday, December 5, 2011
We noted previously that the no-cross talking provisions in Yahoo's confidentiality agreement made it difficult for bidders to communicate with each other about possibly putting together a joint bid for Yahoo. At the time, I suggested there might come a time when it might be unreasonable for the Yahoo board to sit on that provision. Now, Kara Swisher notes that the inevitable lawsuits challenging the no-cross talk provisions have been filed. Here's the complaint in M&C Partners v Yang, et al.
While in some circumstances, a No Cross Talk Provision promotes vigorous competition among a host of interested parties, it can only have the opposite affect in the case ofYahoo, which is the classic “difficult sell.” Indeed, no bids for the entire company had been announced as of December 1, 2011. On November 30, 2011, it was reported that Yahoo had received a bid for a minority stake from private equity firm Silver Lake and several partners (including Microsoft) that values the Company at $16.60 per share, and a somewhat higher bid of about $17.50 per share from TPG Capital. This is far below Yahoo’s fair value. For example, David Loeb of Third Point, LLC (a 5% Yahoo shareholder) has placed Yahoo’s value at $27-28 per share.
The No Cross Talk Provision constitutes an unreasonable anti-takeover device, designed to entrench and favor Yang and the current Board. It tilts the playing field unreasonably in favor of Yang, who is working to attract investors who will take a large minority position in Yahoo (less than 20%, but enough to effectively block any future proxy contest), and who can be expected to support Yang’s desire to retain a disproportionate influence over Yahoo’s business and affairs.[citation] The favoritism toward Yang in this process is both irrational and unreasonable. Since 2000, Yang has been the architect of policies which have driven Yahoo’s market value down by an astounding 85% (from $140 billion in 2000 to the present $19.5billion). Indeed, it is fair to say that Yahoo would be worth little or nothing without minority investments it has made over the years in companies managed by neither Yang nor Yahoo.
The basic argument is that the no-cross talking provision should be analyzed as a defensive measure under the Unocal standard. Plaintiffs are hoping that the court will determine that the no-cross talking provision is an unreasonable defense that precludes any potential joint bid from appearing and thus not grant the board's decision to demand the provision as part of any confidentiality agreement is not subject to the business judgment presumption. My guess is that while this argument has some merit, we're probably not there, yet.
Thursday, December 1, 2011
Brien Santarlas who along with another former Ropes & Gray lawyer, Arthur Cutillo ,was convicted as part of the Galleon insider trading investigation was sentenced yesterday to 6 months in prison. Cutillo was previously sentenced to 30 months in prison. Here's the original criminal complaint in that case (US v Goffer, et al).