April 8, 2011
Sanofi completes Genzyme acquisition
Sanofi said more than 237 million Genzyme shares were tendered in the transaction, representing 89.4 percent of outstanding shares. Sanofi then exercised a top-up option, resulting in ownership of more than 90 percent of Genzyme's shares.
Studying M&A in High School
I wish I had this class in high school. The NY Times dealbook has a rather heartwarming story about high school students figuring out the latest M&A deals in a business and entrepreneurship class at Martin Luther King Jr. High School of the Arts and Technology. The class splits its time between its retail business and its deal advisory projects, and even works on hypothetical deals like a purchase of the NY Times by Google. For those high school student readers of our blog (are there actually any??) or parents of high-schoolers (the more likely), you may also want to take a look at Whatrton's new Web-based project called Knowledge@Wharton High School which promotes financial literacy among students and teachers.
April 6, 2011
Pictorial summary of allegations
The SEC is alleging that the insider trading scheme began in 1994 while this guy was a summer associate and continued until very recently. That's really incredible. This guy apparently sat through a legal ethics class, presumably a corporate law class, and a securities reg class at NYU where he went to law school. I'm sure he was taught all about insider trading laws while there. Presumably, he also took and passed the MPRE where there is undoubtedly an emphasis on client confidences and the obligations of the profession. I'm also assuming he sat through countless CLE sessions at the various firms he worked where people were admonished to take client confidences seriously and where they were presumably instructed on their obligations with respect to inside information. All that ... and still ...
Here's a pictorial of today's allegations against the former M&A lawyer at WSGR(c/o the SEC):
More bad M&A lawyers...
This from NBC News:
The FBI has arrested a banker and a Washington, D.C., attorney on insider trading charges, law enforcement officials said.
Garrett Bauer was arrested Wednesday morning and was taken to the FBI offices in New Jersey. He is expected to be arraigned in federal court in Newark on the securities fraud charges.
Officials said for years, attorney Kluger revealed information about mergers his prominent law firm, Wilson, Sonsini, Goodnick and Rosato, was working on and they said Bauer was able to trade on that information.
Investigators said they believe more than $30 million in illegal profits were made over the years.
This arrest comes as some Justice Department officials have called insider trading on Wall Street "rampant."
According to Reuters, authorities are describing this as a "decades long scheme." Goodness.
From the wiretaps...
Hmm. Seems like a clever fellow...
More Sokol musings
By now, everyone and his brother has had an opinion on the l'affaire Sokol. I've poked around a little and given it some thought. I think there are two issues. First is the corporate opportunity issue. I think that's pretty clear. The second, and more ambiguous issue, is the potential insider trading liability. I have thoughts on that one, but I'm clearly still in the elevator stage of my thinking there.
I found it amusing that in his CNBC "defense" of his trading, Sokol took away from his experience the conclusion that in the future it would be better for managers not to share opportunities with their employers. Uh... no. That's not the right answer. The Lubrizol deal presents a pretty straightforward example of a corporate opportunity. Here's the clearest statement of the doctrine from Broz v Cellular Info. Systems:
The corporate opportunity doctrine, as delineated by [Guth v Loft] and its progeny, holds that a corporate officer or director may not take a business opportunity for his own if: (1) the corporation is financially able to exploit the opportunity; (2) the opportunity is within the corporation's line of business; (3) the corporation has an interest or expectancy in the opportunity; and (4) by taking the opportunity for his own, the corporate fiduciary will thereby be placed in a position inimicable to his duties to the corporation. The Court in Guth also derived a corollary which states that a director or officer may take a corporate opportunity if: (1) the opportunity is presented to the director or officer in his individual and not his corporate capacity; (2) the opportunity is not essential to the corporation; (3) the corporation holds no interest or expectancy in the opportunity; and (4) the director or officer has not wrongfully employed the resources of the corporation in pursuing or exploiting the opportunity.
Now, this doctrine is not a 'check-the-box' approach to corporate opportunities. Rather, directors must consider all of elements as a whole. In any event, Sokol apparently first learns about the Lubrizol in his corporate capacity at a meeting with Citigroup bankers who are pitching potential acquisition targets for Berkshire Hathaway. The bankers say they are "shocked" that Sokol bought shares after their meeting with them. It's hard to imagine too many things that will shock a group of bankers pitching deals, but there you have it. In any event, Berkshire Hathaway is clearly in a financial position to exploit the opportunity to acquire Lubrizol. Berkshire Hathaway is in the business of making acquisitions of promising targets and has an expectation that when such opportunities are presented to its agents that it [Berkshire Hathaway] will have first crack at them. Finally, when Sokol acquired $10 million worth of Lubrizol stock a week before presenting the deal to Buffet, he clearly put his thumb on the scale and put himself in conflict with Berkshire with respect to doing the deal. At the very least, he should have recused himself and not taken the lead with respect to the deal.
I think the case that Sokol, by buying ahead of Berkshire and then pushing the deal on his employer violated his duty of loyalty to the corporate by usurping a corporate opportunity. So what measure of damages is appropriate? Disgorgement of the approximately $3 million of profits he made on his $10 million investment would seem right. He should turn that over to Berkshire on his way out the door.
Now ... on the question of whether Sokol's trading constistutes insider trading, I haven't convinced myself to pull the trigger on that yet. But ... I don't think there is any question that when Citigroup presented a list to Sokol of potential targets for Berkshire that the content of this list was material information. I mean ... would a reasonable investor find it useful to know that of the thousands of companies out there, that Citigroup was pitching twenty or so to Warren Buffet's guys and that a deal might be in the offing? Let me venture a guess that if Rajaratnam knew what Sokol knew, he'd be trading on it and that can't be good for Sokol.
The Deal Professor has some very relevant thoughts on the question of materiality. They're right on point and worth reading.
April 5, 2011
Airgasmic court decisions!
"Airgasms", "Airgastic" ... what was going on in New Orleans at the annual Tulane M&A confab last weekend?! I know, I know, it was all in good fun! The WSJ Law blog has the complete run-down on the most recent Strinisms.
Antitrust Merger Efficiencies
Daniel Sokol (Univ. FL) and James Fishkin (dechert) has posted Antitrust Merger Efficiencies in the Shadow of the Law:
Abstract: This Essay provides an overview of U.S. antitrust merger practice in addressing efficiencies both in terms of actual practice before the agencies and in scholarly work as a response to Jamie Henikoff Moffitt‘s Vanderbilt Law Review article Merging in the Shadow of the Law: The Case for Consistent Judicial Efficiency Analysis.
April 4, 2011
Irreconcilable Differences in Delaware
Steven Davidoff (The Deal Professor, OSU Law) will be chairing a symposium sponsered by the Delaware Journal of Corporate Law at Widener Law School on Monday, April 11. The symposium, Irreconcilable Differences: Director, Manager, and Sharehyolder Conflicts in Takover Transactions promises to be a great event.
TAKEOVER TRANSACTIONS involving directors, managers, and shareholders are rife with conflicts. These conflicts can be stark as in a freeze-out or management buy-out. They can also be more subtle. Management can be requested to remain part of the management group, a so-called management buy-in. A controlling shareholder can receive a differential benefit in a takeover. Directors and management can skew the takeover process to preferred bidders through control of the sale process and negotiation of acquisition agreement lock-ups. From a buyer perspective, directors can structure the takeover to further entrench themselves. The Delaware courts have recently grappled with many of these issues. Recent opinions have addressed poison pills, the appropriate standard to govern judicial review of freeze-out transactions, differential treatment of controlling and non-controlling shareholders, the parameters of lock-ups, and issues arising from undue management influence in the management buyout process.
The Delaware courts are also grappling with the appropriate remedy when proper procedures are not utilized in a takeover. This conference hosted by The Delaware Journal of Corporate Law will bring together academics, judges, and practitioners to discuss the current Delaware case-law on these issues, appropriate standards to regulate these conflicts, and related research.
Steven and the folks over at the DJCL look like they've put together a really interesting group. It'll be a great day. If you're in the Wilmington area, drop by!