Thursday, January 13, 2011
Wednesday, January 12, 2011
I am teaching M&A again this semester. In my first class yesterday, I tried to give my students a sense of how M&A deal activity has been faring over the past several years and where things are expected to go. It appears that the mood about M&A in 2011 is more buoyant than it was in the lull of the summer of 2010. After reading reports like this one from E&Y, I am feeling cautiously optimistic. I am not sure if all of this optimism will last, but for now, the new year is starting off pretty well. This week’s merger Monday included a host of M&A deal activity, with $21 billion in announced deals.
So far, so good…but it’s only January.
Tuesday, January 11, 2011
Turns out that trading on rumors doesn't pay. Who knew!? Just another reason to hold a low-cost index fund. From Bloomberg - if you hear a merger rumor, short the stock. You'll do better over time.
Electronic news services, brokerages and newspapers reported at least 1,875 rumors about potential buyouts of 717 companies between 2005 and 2010, according to data compiled by Bloomberg. A total of 104, or 14.5 percent, were acquired, the data show. While stocks that were the subject of takeover speculation initially jumped 2.9 percent, betting on declines yielded average profits of 1.2 percent in the next month, an annualized gain of 14 percent.
Monday, January 10, 2011
Rene Stulz and his co-authors have a new paper, Globalization, Governance, and the Returns to Cross-Border Acquisitions, examining the returns cross border acquisitions. Interesting, it looks like acquirers from countries where corporate governance is poor tend to over-pay. That makes sense. Also, it looks like the country of the acquirer doesn't explain as much of the stock returns as the industry and year of the acquisitions. Bubbles matter.
Abstract: Using a sample of control cross-border acquisitions from 61 countries from 1990 to 2007, we find that acquirers from countries with better governance gain more from such acquisitions and their gains are higher when targets are from countries with worse governance. Other acquirer country characteristics are not consistently related to acquisition gains. For instance, the anti-self-dealing index of the acquirer has opposite associations with acquirer returns depending on whether the acquisition of a public firm is paid for with cash or equity. Strikingly, global effects in acquisition returns are at least as important as acquirer country effects. First, the acquirer’s industry and the year of the acquisition explain more of the stock-price reaction than the country of the acquirer. Second, for acquisitions of private firms or subsidiaries, acquirers gain more when acquisition returns are high for acquirers from other countries. We find strong evidence that better alignment of interests between insiders and minority shareholders is associated with greater acquirer returns and weaker evidence that this effect mitigates the adverse impact of poor country governance.
Tenet Healthcare (a Nevada corp) is in the midst of fighting off an unsolicited $3.3 billion offer from Community Healthcare Systems. The Tenet board characterized the CHS offer (a 40% premium) as "inadequate and opportunistic" and "grossly undervaluing" Tenet and "not in the best interests of Tenet or its shareholders."
On Friday, Tenet announced that it had adopted a shareholder rights plan to protect its NOLs and ward off CHS. You'll remember that last Fall the Delaware Supreme Court approved rights plans intended to protect corporate assets like NOLs. The plan triggers at the 5% level. This level is low compared to typical shareholder rights plans geared toward warding off hostile bidders which more typically trigger at 15-20%. We could have a whole other discussion about the proper levels to trigger the pill, but let's leave that for another day.
What caught my attention was this:
On January 7, 2011, the Board approved the amendment and restatement of the Company’s Amended and Restated Bylaws (as amended and restated, the “ Bylaws ”), effective as of January 7, 2011. The principal change effected by the adoption of the amended Bylaws is to amend Section 2.2 of Article II of the Bylaws to remove the restriction that the annual meeting of stockholders must be held not later than 210 days following the Company’s fiscal year end and instead provide that the annual meeting of stockholders shall be held on the date and at the time as set by the Board.
The effect of course is to permit the board to delay the next shareholders meeting which should occur in May 2011 until November 2011. That gives the Tenet directors an annual term of 18 months - for this year at least. Now, when Airgas' shareholders did the reverse of this maneuver, the Delaware Supreme Court came to the rescue of the board in what - to be candid - was a confusing head-shaker of an opinion. Of course, delaying shareholder meetings is a common enough strategy, but it looks now like it's only a one way street. Boards will be free to delay meetings and get "annual" terms of 18 months, but following Airgas, shareholders are not permitted to move them up if moving them up shortens director terms to anything less than, I guess, 365 days. Of course, I'm assuming that the Nevada courts adopts the Delaware view, perhaps they will take a different view on this question if it ever comes before them.
Update: While the Delaware code (Sec. 211) requires that an annual meeting be held not later than 13 months after the previous annual meeting, there is no similar requirement under the Nevada corporate law. I suppose this means that while "annual" now means 365 days in Delaware, it still has a very expansive meaning in Nevada.