June 3, 2011
OK, so let me get this straight. Last year, Groupon turned down a $6 billion acquistition offer from Google. Now the company is planning an IPO that values the company at $30 billion. The company also lost more than $400 million last year. And, insiders plan to sell up to $345 million worth of their own stock as part of the planned $750 million IPO. What do they know that we don't?
Did I miss something? Are sock-puppets back in fashion again? Aren't companies supposed to have profits before going public? Didn't we resolve that question already? Maybe this is why I did get rich during the dot com bubble. None of it made any sense back then and it still doesn't the second time around.
Here's the Groupon S-1. Have fun.
Advice for law graduates
Ronald Barusch over at the Deal Journal has some wise words for recent law graduates embarking on a career in M&A. It's definitely worth reading - but wait until after the bar!
June 2, 2011
Plaintiff's counsel in the Massey derivative suit, Stuart Grant, had the following comments to Reuters in reaction to Vice Chancellor's Strine's ruling in the Massey derivative suit:
“This ruling has me totally disgusted,” he said in an interview Wednesday morning. “What message is this sending to corporate boards? That there’s no accountability. What message does it send to shareholders and their lawyers? Christ, if you can’t win against Massey and [former CEO] Don Blankenship, you can’t win….These people are just going to walk. This ruling says you can be the worst CEO, you can violate all the laws you want, then you can arrange a sweetheart merger and just walk away.”
Poison Pill update
There's been a lot of clarification on the use of the shareholder rights plan over the past year - among others, see Chancellor Chandler's opinions in Air Products v. Airgas and eBay v Newmark, as well as the Surpeme Court's opinion in Versata v Selectica (all now available via the Google), . Bab and Neenan at Debevoise & Plimpton have posted Poison Pills in 2011 to review the current state of pills:
Abstract: Having been buffeted by sustained attacks from activists and proxy voting advisers in past years, the shareholder rights agreement is no longer as prevalent as it once was - a phenomenon that has been documented by many corporate governance observers like The Conference Board. However, the most recent case law confirms the validity of poison pills that are properly structured, adopted, and administered. This report discusses these new trends and provides guidance to boards considering whether to adopt a pill and how to formulate its terms.
Bab and Neenan focus, correctly, on the importance of the effective staggered board/shareholder rights plan combination. In the chart below they show that the recent trend of destaggering boards and dropping pills has continued. However, it's worth remembering that the ability of boards to adopt a pill very quickly at almost any point makes counting the number of firms with pills currently in place something less than a useful exercise. Best to simply assume that every company has a pill or could have one easily. The focal point for the effective defense is the staggered board. That's harder to implement.
June 1, 2011
Call for papers
It's never too late to start thinking about the August submission cycle:
The University of Michigan Law School is proud to announce its newest
publication, the Michigan Journal of Private Equity and Venture
The Journal is published semi-annually by the students of the
University of Michigan Law School in conjunction with the ABA
Committee on Private Equity and Venture Capital.
The Journal addresses the regulatory, securities, corporate, tax,
intellectual property, and any other legal issues involved with
private equity and venture capital, including with respect to both
investments by funds and the formation of funds.
The Journal is currently accepting scholarly papers and paper
proposals for publication in our first issue. We anticipate publishing
the issue in late fall 2011. Articles for this issue are generally
between 25 and 40 pages long.
Please send drafts, proposals, or inquiries to Jeffrey Koh, Executive
Article Editor, at email@example.com, or via ExpressO.
Massey/Alpha and derivative claims
Care of our friends over at Courtroom View Network, I've been catching up on the arguments before Vice Chancellor Strine in the Massey Shareholder Litigation. Plaintiffs were seeking an injunction to block a merger between Massey Energy (of Upper Big Branch mine infamy) and Alpha Natural Resources. Alpha is proposing to acquire Massey for approximately $7.1 billion.
The plaintiffs here are plaintiffs in a derivative suit that predates the merger (here's the Massey-Derivative-Complaint). The plaintiff's suit seeks to hold the directors liable for Caremark-like failures related to the Upper Big Branch mine disaster. While Caremark claims are typically extremely difficult to win, the facts in this case a very friendly to the plaintiffs. If ever there was an opportunity to win on a Caremark/good faith claim, it would be with these facts - a rescidivist mine safety violator, a CEO who is on record essentially telling his subordinates to ignore safety rules if it were to slow production ("ignore them and run coal"), and the like.
All of this sounds good from the plaintiff's perspective. Of course, the proposed merger throws a wrench into the works for this derivative case. Under well settled law (e.g. Lewis v Anderson), plaintiffs in derivative claims will lose their standing in the case once the transaction closes and the plaintiffs are no longer shareholders of Massey. The only party with standing for a derivative claim following the closing of the transaction will be the then stockholder of Massey - Alpha. Of course, the plaintiffs and their attorneys desperately want to avoid that outcome. I''ll let you decide why.
The plaintiff's basic claim is that if the merger is allowed to close without carving out the derivative claims related to the Upper Big Branch mine and placing them into a trust to be litigated (presumably by the same attorneys now litigating the matter), then the corporation/shareholders will suffer a loss.
The Vice Chancellor was not at all convinced that Alpha would not pursue the derivative claims on its own, or at the very least use them to negotiate some sort of settlement with the former directors of Massey. Indeed, at one point during the plaintiffs argument Strine noted that Massey is facing potential liability from many different angles relating to the UBB disaster - victims' families, government regulators, etc. and that if the plaintiffs pursued their derivative case with vigour they might in fact cause more damage to the corporation by proving the case for third parties. He suggested that it might be better for the corporation - and intimated that Alpha might already be thinking this way - to wrap up all the third party litigation to get a sense of the total liabilities before coming back to the former directors for a settlement. That seems sensible.
I think the plaintiffs are characterizing their claim as an "easy" Caremark claim. Although the facts are good for them, I think it's best to approach any Caremark claims with real modesty. Few of them are "easy" claims to win.
At one point, counsel for the plaintiffs tried a "the whole world is watching Delaware" argument, but that didn't go over well and generated a mild rebuke and statement from Strine that the world shouldn't feel sorry for Massey shareholders. If anything they are the least sympathetic victims in this matter. If - as the plaintiffs argue - it was well known that Massey regularly skirted safety rules in the chase for profits, then why should the court show people who invested in "loathesome activities" much by way of protection?
Vice Chancellor Strine, not looking convinced.
Some random Strinisms
"Anyone named Leahy Judge has to be rich ..."
"Delaware directors cannot be exculpated from violations of the law. Our law is very clear."
"The least sympathetic victims here are the stockholders, on whose behalf the directors may have violated the law."
"If a jury finds you're a doofus ..., then the derivative claims are worth nothing."
VCS: "... I'm still wondering about what to do with the extra four and half months I have ... because I was told I wouldn't have to even worry about this argument..."
Counsel: "I'm sorry, I don't follow."
VCS: "Well the world was supposed to end...rapture...now we've got another four months or so..."
"Why would Alpha stockholders not kick the booty of their board if their board doesn't go after [former Massey directors]?"
"Let's not act like this is about miners not be able to file tort suits against Blankenship or Bobby Inman, because it's not. It's about the corporate law."
May 31, 2011
More on Revlon triggers
Every now and then we get a case that helps provide additional color to the perenial question - how much cash is enough cash to trigger Revlon obligations? Now comes Smurfit-Stone. In Smurfit-Stone, Vice Chancellor Parsons gives us another marker.
Two earlier cases provided some help with this question. First there is In re Santa Fe. in that transaction, consideration was compromised of 33% cash. There, the Delaware Supreme Court ruled that 33% cash consideration is not sufficient to trigger enhanced scrutiny under Revlon. On the other hand, In re Lukens, the court ruled that a transaction with 62% of the consideration in cash was sufficient to trigger Revlon obligations. That large area in the middle remained a gray zone with respect to the question of triggering Revlon. Now that range has been reduced. In Smurfit-Stone, the transaction consideration was 50% cash. Noting that the Delaware Supreme Court has not provided explicit guidance on where the line between Revlon and "non-Revlon" transactions, Vice Chancellor Parsons ruled that 50% cash consideration is sufficient to trigger enhanced scrutiny under Revlon. Here's the Smurfit-Stone opinion.