January 7, 2011
Lel & Miller on M&A and Managerial Discipline
More grist for the market for corporate control mill: Lel and Miller have a new paper "Does Takeover Activity Cause Managerial Discipline? Evidence From International M&A Laws".
Abstract: We examine the causal effects of the market for control on managerial discipline by using an exogenous source of variation in the threat of takeover caused by the initiation of M&A laws around the world. We find that the propensity to replace poorly performing CEOs increases following the enactment of M&A laws. Exploiting differences in legal protection and firm-level internal governance as a second source of variation to further ensure we identify the effects of takeover laws, we also document that this increased sensitivity of CEO turnover to performance is strongest in countries with weak investor protection and firms with no institutional ownership. Overall, our results suggest that an increase in the threat of takeover leads to better corporate governance outcomes.
Private Equity ... 2011
More predictions. Up against deadlines, PE will splurge in 2011, from The Street:
"This year will be a good year for private equity. They are incentivized and under a fair amount of pressure and be more aggressive to get the money out before investment deadlines expire," said Dominick DeChiara, private equity practice co-chair of the law firm Winston & Strawn.
If everyone is going to be busy, I hope they start hiring law students!
Has the market killed "Just Say No"?
So says Donald Drapkin. Although the law hasn't moved this far, yet markets and investors just won't let it happen anymore. Drapkin's observation highlights the sea-change that has occurred over the past three decades. During the 1980s target boards sought to keep acquirors away - the hostile acquisition and entrenchment concerns guided the development of the corporate law. Now, times have changed. There are a few boards (Airgas, Genzyme, etc) who fight acquisition attempts. Many more, however, can see the payday. The real question these days is not of the entrenchment of the 1980s, but of management conflicts in the going private or cash out sale (e.g. J. Crew). The law is still developing to deal with those conflicts.
January 6, 2011
RIP Don Tyson
Don Tyson passed today. Without Don Tyson there would be no In re IBP, Inc. Shareholder Litigation. Remember it was Don Tyson who decided to walk away from Tyson's acquisition of IBP and then call a MAC.
Kraft closes Cadbury plant at center of controversy
Kraft had promised not to close the Bristol (UK) plant and save the plant's jobs as part of its acquisition of Cadbury. That turned out to be a false promise. The plant has just closed.
Cadbury has confirmed the last bar of chocolate has rolled off the production line at its Somerdale factory in Keynsham. The closure of the plant, which at one stage was one of the biggest employers in the area, marks the end of Bristol's 250-year long association with the chocolate industry...
At its height, the factory employed about 750 people and produced around 52,000 tonnes of chocolates each year, including Crunchie, Caramel, Double Decker, Picnic, Chomps, Mini Eggs and Turkish Delight...
Meanwhile Roger Carr, the businessman who oversaw the £11-billion sale to the US multinational Kraft in February, was knighted for services to industry in the New Year Honours List. Sir Roger was praised by the City for getting a good deal for shareholders when the Cadbury sale went through in February.
Of course, the workers get shown the door, while Carr gets a knighthood. I wouldn't expect anything less. You'll remember that Kraft's promise to save the jobs at the UK plant was an important part of Kraft's public relations campaign to get the deal done. The broken promise generated political pressure to force a reexamination of the Takeover Rules, now in progress.
More prognostications for 2011 ... cross border protectionism
Reuters suggests protectionism could stall Asian M&A - particularly in the resource and financial sectors:
"We have seen increased level of scrutiny and governmental control being applied to cross-border and M&A transactions and there is a more protectionist flavor currently than what we have seen in the past," said Colin Banfield, Citigroup's head of M&A for Asia-Pacific.
I suppose with oil threatening to hit $100/barrel this has to be true.
January 5, 2011
Happy New Year ... is that another merger wave coming?
Ok, I'm back. What with the holiday, writing, and getting ready for the new semester, I don't know where the time goes. In any event, I'm back...and with good tidings for the new year. CNBC is back on the band wagon reporting the next merger wave:
"In terms of the numbers, we'll see announced M&A going up more rapidly than completed M&A—Q2, Q3 we'll see M&A activity beginning to come in. And that's really going be the story, which is the next wave."
And CNBC is not alone. Yesterday, the WSJ had a nice run-down of corporate optimism and the cash piles that they hope to fund the next wave under the headline "Big Firms Poised to Spend Again":
"We preserved cash" over the past few years, said Jim Flaws, chief financial officer of Corning Inc. "Now we're turning around and feeling comfortable about our outlook and spending it."
I guess things are looking up for 2011. Let's hope.