April 2, 2011
Transactional lawyering meet at Drexel
Congratulations to Michael Woronoff's team at UCLA for going to the final round! BC Law and UC Davis also had teams at the meet. Both teams did well - getting to the semi-final round. I'm sure Afra - like me - will be gearing up early to take on the Bruin team next time around.
Congratulations to everyone who participated. We should definitely be doing more of this kind of event for students who have an interest in transactional lawyering.
Update: Of course - I'd be remiss if I didn't congratulate the winning team from the Western New England College School of Law. I recently had the pleasure of attending a conference on Wilkes v Springside Nursing Home at the Western New England College School of Law. It's a great place, so their success is no surprise!
March 31, 2011
Insider trading at the top of Berkshire Hathaway?
If what people are saying is true ... well ... wow. Here's Berkshire Hathaway's press release and excerpts:
Finally, Dave brought the idea for purchasing Lubrizol to me on eitherJanuary 14 or 15. Initially, I was unimpressed, but after his report of a January 25 talk with its CEO, James Hambrick, I quickly warmed to the idea. Though the offer to purchase was entirely my decision, supported by Berkshire’s Board on March 13, it would not have occurred without Dave’s early efforts.
That brings us to our second set of facts. In our first talk about Lubrizol, Dave mentioned that he owned stock in the company. It was a passing remark and I did not ask him about the date of his purchase or the extent of his holdings.
Shortly before I left for Asia on March 19, I learned that Dave first purchased 2,300 shares of Lubrizol on December 14, which he then sold on December 21. Subsequently, on January 5, 6 and 7, he bought 96,060 shares pursuant to a 100,000-share order he had placed with a $104 per share limit price.
Dave’s purchases were made before he had discussed Lubrizol with me and with no knowledge of how I might react to his idea. In addition, of course, he did not know what Lubrizol’s reaction would be if I developed an interest. Furthermore, he knew he would have no voice in Berkshire’s decision once hesuggested the idea; it would be up to me and Charlie Munger, subject to ratificationby the Berkshire Board of which Dave is not a member.
As late as January 24, I sent Dave a short note indicating my skepticismabout making an offer for Lubrizol and my preference for another substantial acquisition for which Mid American had made a bid. Only after Dave reported on the January 25 dinner conversation with James Hambrick did I get interested in theacquisition of Lubrizol.
Neither Dave nor I feel his Lubrizol purchases were in any way unlawful. He has told me that they were not a factor in his decision to resign.
Dave’s letter was a total surprise to me, despite the two earlier resignation talks. I had spoken with him the previous day about various operating matters andreceived no hint of his intention to resign. This time, however, I did not attempt to talk him out of his decision and accepted his resignation.
Berkshire Hathaway announced its acquisition of Lubrizol on March 14, 2011 for $135/share. Just last week, the WSJ lauded Sokol's early role in helping Berkshire make the Lubrizol deal happen and pointed to that as evidence that Sokol would eventually succeed Buffet:
David Sokol, considered a possible successor to Warren Buffett at Berkshire Hathaway Inc., identified chemicals maker Lubrizol Corp. as a potential acquisition and took the lead in early negotiations to buy the company, according to a regulatory filing late Friday that detailed how last week's $9 billion deal came about.
It was Mr. Sokol, a Berkshire executive, who plucked Lubrizol from a list of 18 chemical companies that bankers at Citigroup Global Markets had compiled in December 2010 as possible acquisitions at Mr. Sokol's request, according to the filing. ...
Mr. Sokol's early involvement in the deal is further evidence that he has become an important lieutenant for Mr. Buffett in recent years, and may give more ammunition to followers of Berkshire who consider him the front runner to eventually succeed Mr. Buffett as Berkshire's CEO. Mr. Buffett had already tapped Mr. Sokol to turn around Berkshire's fractional-jet business, NetJets, and sent him to China to meet with executives at battery-maker BYD Inc. before investing in that company.
Dennis K. Berman of the WSJ attributed Sokol with the following previous quotation:
“Integrity is not complicated. If it seems to be, you probably do not belong on our team."
If nothing else, Sokol may be liable for usurping a corporate opportunity with his early purchases. For a guy like Sokol it's small money, but really embarrassing for him at the very least.
Update: Not all that impress with the "Well...Charlie did it, too" defense.
March 30, 2011
The "bid" for AMR
It's getting that any snake with a Twitter account can launch a bid on a multi-billion dollar company!
There's been a swirl of news about a "bid" for AMR. I think the fact that AMR is even talking about this suggests they don't believe there is anything to the "bid" for the company. Over at Marketwatch, they note that the same group that has purported to make a bid on AMR recently made a "bid" for Eastman Kodak that Kodak concluded was a hoax. Barron's did a little more digging and came up with this gem: The guy apparently at the center of the "bid" for AMR and Kodak was the subject of an SEC civil action in 2002. From the SEC's litigation release:
Further, the complaint alleges that since Weintraub gained control of Vector, its filings with the SEC have failed to disclose one or more of the following: (1) In 1992, Weintraub pled guilty in Broward County, Florida to five felonies: one count of organized fraud and four counts of grand theft; (2) In 1998, Weintraub pled nolo contendere in Miami-Dade County, Florida to four felony counts for fraudulent practices; (3) Also in 1998, a civil judgment was entered against Weintraub in the amount of $22,897.36, which remains unsatisfied; and (4) In 2000, a civil judgment was entered against Weintraub in the amount of $33,549.62 which also remains unsatisfied. The complaint also alleges that Vector misrepresented Weintraub's background in its annual report for the year ended December 31, 2001 which was later also incorporated by reference into a Form S-8 registration statement. The complaint further alleges Weintraub has profited from Vector's misrepresentations and omissions by dumping millions of Vector shares into the public market for a profit of well over $200,000.
In any event, AMR's stock jumped 5% on the "news". Presumably, if anyone is engaged in attempted market manipulation, the recently re-invigorated cops on the beat will track that down. Moving on.
"Getting an edge"
I've stayed away from the Galleon trial for the most part. Not because it's not interesting, in fact it's way too interesting. It would suck up all my free time if I were to try to follow it too closely. The testimony of Adam Smith (nice name for a hedge fundie, I guess) as reported in Bloomberg yesterday caught my eye, though.
“Research is sort of doing your homework ahead of time,” Smith told jurors. “Getting the number is more like cheating on the test.” ...
“I was tasked with doing research, getting an edge,” Smith testified when asked about leaks he said he got from an Intersil insider. ...
“Getting an edge is the key component to arbitraging consensus” when hedge funds are “looking for situations” in which a company’s results differ from Wall Street expectations, Smith said. “You need to have an edge.”
For Smith, getting an edge meant receiving inside information from friends and insiders. Smith has since pled guilty to insider trading and cooperating with the Feds. "Getting an edge " turned out to be not much of a career move for this Harvard MBA.
... to start trading on April 4? So says Reuters:
The French drugmaker said on Tuesday that the U.S. Securities and Exchange Commission (SEC) had cleared the trading of contingent value rights (CVR) under the ticker GCVRZ.O.
March 29, 2011
AT&T and T-Mobile and state clearances
The WSJ Deal Journal is reporting that the NY Attorney General has jumped into the merger clearance business:
Attorney General Eric Schneiderman, who took office at the beginning of the year, announced today his office will “undertake a thorough review” of AT&T’s proposed $39 billion takeover of mobile phone company T-Mobile.
More work for lawyers, so I suppose that can only be a good thing. On the other hand, if more than a couple more AGs begin their own investigations of the AT&T/T-Mobile deal that could quickly spell the end of the deal. At least with the FTC/DOJ and the FCC clearance process the pathes are well trod. Not too many surprises will emerge from either of those bureacracies. The NY AG's office? Other AG offices around the country? Well, who knows what could result from that process.
When Revlon duties apply
Whenever I teach Revlon, I'll admit there is a tension. On the one hand, it's very tempting to simply say that when we're in Revlon-land, boards are required to turn into "auctioneers" and take the highest price they can get. On the other hand, that simple answer wouldn't be exactly correct. Revlon duties - to the extent there are any - are more subtle than that. Footnote 3 of Wells Fargo & Co. v. First Interstate Bancorp has a nice statement of what "Revlon duties" are:
What I take to be distinctive about this state of affairs [when “Revlon” duties apply] is three things principally. First, in this situation the board must seek to achieve greatest available current value; it may not, in effect, trade achievable current value for a prospect of greater future value, as it may normally do in the exercise of its good faith business judgment. Historically, one would say that courts would be slow to impose this limitation except in limited circumstances. See Robinson v. Pittsburgh Oil Refining Corp., Del.Ch., 126 A.2d 46 (1924). And indeed despite the fact that commentators tended to treat the Revlon case as revolutionary, recent cases have made clear that it did not deviate from this tradition very greatly. Second, when in this situation, a board's duty to be informed will require it to fully consider alternative transactions offered by any responsible buyer. Third, in part “Revlon duties” are not distinctive board duties at all, but a changed standard of judicial review. That is when “Revlon duties” are triggered a burden will shift to the directors and the court will undertake more active review of the traditional directorial duties of care and loyalty under a reasonableness standard. Paramount Communications v. QVC Network, Del.Supr., 637 A.2d 34 (1993).
Rather than create a special series of duties, Revlon falls within the established fiduciary duties of care that a board already has. More than anything else, Revlon takes the discretion of timing out of the hands of the board, but still leaves them with plenty of decisions to make and evaluates those board decisions against a reasonableness standard.
March 28, 2011
Clearwire jilted by their bankers
Preeta Das and Gina Chon have a story in this morning's WSJ highlighting the trouble Clearwire had with its bankers, Goldman Sachs.
Clearwire hired Goldman last summer to help the company's independent directors explore ways to raise more capital and evaluate a potential sale to Sprint or T-Mobile USA, people familiar with the matter said.
But the agreement didn't preclude Goldman from leaving Clearwire to work for Sprint. When Sprint sought Goldman's advice earlier this year, it was not specifically tied to an acquisition of Clearwire, according to these people.
They note that while Clearwire was considering selling to Sprint, Sprint said in a statement last December that it "continues to hold discussions with Clearwire regarding further investment in the company but has no plans at present to acquire Clearwire."
Banker conflicts are increasingly getting the attention of courts. Vice Chancellor Laster recently dinged Del Monte's board for its poor process - mostly involving its bankers.
Wise words from Omaha
All my students should make a habit of reading Warren Buffet's annual letters to his stockholders. Not only do they provide some interesting insight into awildly successful long-term investor's thinking, they also offer some wisdom and perspective that can sometimes be lacking with youth. From this year's letter to stockholders:
Last year – in the face of widespread pessimism about our economy – we demonstrated our enthusiasm for capital investment at Berkshire by spending $6 billion on property and equipment. Of this amount, $5.4 billion – or 90% of the total – was spent in the United States. Certainly our businesses will expand abroad in the future, but an overwhelming part of their future investments will be at home. In 2011, we will set a new record for capital spending – $8 billion – and spend all of the $2 billion increase in the United States.
Money will always flow toward opportunity, and there is an abundance of that in America. Commentators today often talk of “great uncertainty.” But think back, for example, to December 6, 1941, October 18, 1987 and September 10, 2001. No matter how serene today may be, tomorrow is always uncertain.
Don’t let that reality spook you. Throughout my lifetime, politicians and pundits have constantly moaned about terrifying problems facing America. Yet our citizens now live an astonishing six times better than when I was born. The prophets of doom have overlooked the all-important factor that is certain: Human potential is far from exhausted, and the American system for unleashing that potential – a system that has worked wonders for over two centuries despite frequent interruptions for recessions and even a Civil War – remains alive and effective.
We are not natively smarter than we were when our country was founded nor do we work harder. But look around you and see a world beyond the dreams of any colonial citizen. Now, as in 1776, 1861, 1932 and 1941, America’s best days lie ahead.
... and I didn't just stumble upon this letter while googling Anne Hathaway...