Thursday, March 17, 2011
...and what are you going to do about it?
Well, sue you ... of course! Reuters and Bloomberg are reporting that shareholders have filed a suit challenging News Corp's recent acquisition for $675 million of Shine, a company owned by Rupert Murdoch's daughter. The complaint alleges that Murdoch treated News Corp like the "family candy store" in doing the deal. "Paying for nepotism" is a pretty hefty charge and not a run-of-the-mill merger challenge. Typically, challenges are brought against the target board. Here, the challenge is brought against the acquiring board. Acquirers in merger transactions generally get the protection of business judgment. The sets of facts that generate more intense scrutiny from the courts of acquiring boards are extremely limited and really the stuff of law school exams. For example, let's say you controlled a company and you used your control position to have the company acquire a firm that belongs to your daughter at an above market price ... wait a minute ...
Entire fairness. Look it up.
Oh, and because this is a loyalty question, there's no protection from 102(b)(7) if this goes the wrong way for directors. They could be on the hook personally for this.
Update: Here the complaint.
Wednesday, March 16, 2011
I love these kinds of papers...Here's Edgerton's Agency Problems in Public Firms: Evidence from Corporate Jets in Leveraged Buyouts:
Abstract: This paper uses rich, new data to examine the fleets of corporate jets operated by both publicly traded and privately held firms. In the cross-section, firms owned by private equity funds average jet fleets at least 40% smaller than observably similar publicly-traded firms. Similar fleet reductions are observed within firms that go private in leveraged buyouts. I discuss assumptions under which comparisons across and within firms provide estimates of lower and upper bounds on the average treatment effect of taking a firm from public to private in a leveraged buyout. Both censored and standard quantile regressions suggest that results at the mean are driven by firms in the upper 30% of the conditional jet distribution. Results thus suggest that executives in a substantial minority of public firms enjoy more generous perquisites than they would if subject to the pressures of private equity ownership.
Just so that you don't think this has faded into the distance...Kraft is once again in front of a Parliamentary committee explaining its actions prior to its acquisition Cadbury last year. Kraft's CEO, Irene Rosenfeld, decided not to appear. That apparently didn't go over well - "quite contemptuous", "a slap in the face". Here's the video of Kraft executives sitting uncomfortably while being grilled. This issue still has legs.
Tuesday, March 15, 2011
Buffet has jumped back into the M&A game, and it looks like the inside traders are right behind him. You'd think that the SEC wasn't in the middle of a massive campaign against insider trading complete with criminal prosecutions. Why? Well, according to Bloomberg someone has been trading in call options just ahead of Berkshire Hathaway's recent acquisition announcement:
Trading of bullish Lubrizol Corp. (LZ) options surged to the highest level in a year on March 9, before Berkshire Hathaway Inc. (BRK/A)’s offer today to buy the world’s largest producer of lubricant additives lifted the shares 28 percent.
Call trading surged to 2,931 contracts on March 9, and open interest for the April $110 calls jumped to 2,654 from 41. A block of 2,168 April $110 calls traded for $2.35 each on March 9, data compiled by Bloomberg show. Lubrizol’s four-week average trading volume is 413. The April $110 calls advanced almost 11- fold to $24.70 today. The Wickliffe, Ohio-based company surged 28 percent to $134.68.
“That is more than suspicious,” said Ophir Gottlieb, head of client services at Livevol Inc., a San Francisco-based provider of options market analytics. “It looks like a naked purchase of calls, and that’s highly suspicious if not straight insiders trading.”
I suppose the potential hostile offer by NASDAQ for the NYSE might raise antitrust issues, but the real worry should be the potentially anticompetitive effects of the rumored Starbucks-Peets tie-up. That might be a real headache - literally.