Friday, May 6, 2011
About six weeks ago, AMR and Kodak were the recipients of mysterious "bids." At the time, I noted that the man at the center of the "bid" - likely scrawled on the back of napkin or worse sent via Twitter - was already known to the SEC. By "known" , I mean he was already subject to previous enforcement effots by the agency. I suggested that if there were any market manipulation charges to be brought as a result of the Kodak and AMR bids, that the SEC could be trusted to move. Well, they have. Yesterday, the SEC broiught a compalint against Allen E. Weintraub in connection with each of those "bids". According to the complaint filed on Wednesday by the SEC:
Weintraub, the sole owner, officer, director, and employee of his company, Sterling Global, an inactive Florida corporation, emailed a written tender offer to Eastman Kodak Company (“Kodak”) for all its “outstanding stock” at a total price of approximately $1.3 billion. On March 29, 2011, Weintraub emailed substantially the same letter to AMR Corporation (“AMR”), the parent company of American Airlines, offering to purchase all “outstanding stock” of AMR for approximately $3.25 billion. Both offers represented almost a 50% premium over Kodak’s and AMR’s then closing prices.
Weintraub is a convicted felon on probation for fraud in the State of Florida, and is subject to a prior injunction issued by this Court against violations of the antifraud provisions of the federal securities laws, as well an Order of this Court barring him from acting as an officer or director of a public corporation. Weintraub and Sterling Global lack the means to complete the tender offers. Weintraub filed for personal bankruptcy in April 2007 and has not paid a nondischargeable prior judgment in favor of the SEC in the amount of $1,050,000. Weintraub and Sterling Global have substantially no assets.
Hey, it's not like this guy is totally without means. He tried to get financing for these purchases. Look, here:
Weintraub entered an Aventura-area branch of [a large commercial] bank, and represented to a customer representative that he was a significant shareholder in an unnamed public aviation company that he wanted to take private. In order to take the company private, Weintraub told each bank that he would need at least a billion dollars in financing. Weintraub also volunteered information about his own purported business experience. Since the banks’ local branch offices typically did not handle the type of financing Weintraub was seeking (which would generally be handled by the banks’ investment banking units), the local bank personnel initially tried to determine what Weintraub was requesting and whether other units of their respective banks might be able to address Weintraub’s requests. Each bank ultimately declined to go forward with any business relationship or financing agreement with Weintraub or Sterling Global.
What? Isn't that how you finance two large going private deals - by goign to the local branch of BoA or Citi for a loan?!
In any event, the SEC is not pleased. They are alleging all sorts of violations o fthe tender offer rules - mostly the ones dealing with fraudulent offers. I wonder why. I wouldn't have guessed that it was against the tender offer rules to make a fraudulent offer to purchase. For those students still studying for exams, it's a great set of facts to use as a review in preparation for your upcoming securities regulation exam.
Wednesday, May 4, 2011
In Liberty Media Corp v Bank of New York Mellon Trust, Vice Chancellor Laster explained the step-transaction doctrine as they apply to claims that a series of separate asset sales over a length of time. At issue is whether such sales can be aggregated in order to substantiate a claim that the corporation has engaged in a coordinated series of sales of assets of the corporation that would have the effect of shifting assets away from the corporation to the detriment of bondholders, and in effect be a sale of substantially of all the assets of the corporation.
In order to determine whether Liberty Media's strategy of engaging in acquisitions and spin-offs was effectively a sale of substantially all the assets, the court applied the step-transaction doctrine:
The step-transaction doctrine applies if the component transactions meet one of three tests.
* First, under the “end result test,” the doctrine will be invoked “if it appears that a series of separate transactions were prearranged parts of what was a single transaction, cast from the outset to achieve the ultimate result.” Id. (internal quotation omitted).
* Second, under the “interdependence test,” transactions will be treated as one if “the steps are so interdependent that the legal relations created by one transaction would have been fruitless without a completion of the series.” Id. (internal quotation omitted).
* The third and “most restrictive alternative is the binding-commitment test under which a series of transactions are combined only if, at the time the first step is entered into, there was a binding commitment to undertake the later steps.”
Applying this doctrine to the facts in the case, Vice Chancellor Laster concluded that one could not aggregate the transactions into a single asset sale for purposes of determining whether they constituted a sale of substantially all the assets.
Following a consistent business strategy and deploying signature M&A tactics does not transmogrify seven years of discrete, context-specific business decisions into a single transaction. Liberty has engaged in acquisitions and divestitures as part of the regular course of its business. Liberty did not engage in an “overall scheme” to sell substantially all of its assets. On the facts of this case, aggregation is not appropriate.
The Trustee recognizes that the Capital Splitoff, viewed in isolation, does not constitute a disposition of substantially all of Liberty’s assets. Accordingly, Liberty is entitled to a declaration that the Capital Splitoff [is not a sale of substantially all the assets of the corporation.]
(H/T Morris James)
Tuesday, May 3, 2011
K&E just published this "survey" of recent developments in public M&A deal terms. Unlike the broad, quantitative surveys put out by oganizations like the ABA or PLC, this one seems more impressionistic, so it may be biased by the universe of deals the authors were exposed to. Still, a worthwhile read.
This blog doesn't typically announce professional moves, but I'll depart from our standard practice for this:
Eckert Seamans Cherin and Mellott, LLC, a full-service national law firm, today announced that Francis G.X. Pileggi, a leading Delaware attorney and law blogger, has joined the firm as Member-in Charge of the Wilmington office. Mr. Pileggi, who previously served as the founding partner of Fox Rothschild's Wilmington office, practices primarily in the areas of corporate and commercial litigation.
As most of you know, Francis Pileggi runs the Delaware Corporate and Commercial Litigation Blog. Congratulations to Francis on the move.
Apologies for the light blogging in recent days. It's exam season. That's the semi-annual rush season for professors. It occupies more time than you can imagine.