June 24, 2011
Corporate Finance Roundtable
As they often do, the folks over at The Conglomerate are running a Corporate Finance Roundtable. It's a great discussion and worth reading. They are dealing with a question dear to my heart - the education of law students in the basics of finance. Drop by.
June 23, 2011
Sellers and deal certainty
Today's WSJ has a good example of why sellers are so focused on deal certainty:
Kirk Brundage opened his first T-Mobile store while he was still in college, added seven more in Idaho and Utah over the next half decade, and contemplated expanding into other states.
But by the end of next week, he'll be out of the wireless business.
Mr. Brundage's plans changed after AT&T Inc. unveiled its $39 billion deal to acquire T-Mobile USA. His business was already struggling, and he had considered getting out of it. But once the merger was announced, he decided it was time to sell quickly rather than try to turn the company around.
You hear this argument all the time and there is a certain amount of salience to it. Once a deal is announced, customers, distributors, suppliers, employees all start doing internal calculations about what the future will hold for them with a combined company. Some will decide that the future won't include them and will leave -- customers won't place orders, employees may look for other employment, and distributors, well, if they're like Mr. Brundage, they may decide that the distributorship isn't very valuable anymore. That's the essence of the 'damaged goods' argument that sellers will use to negotiate for deal certainty and why they are so often focused on getting the deal done once it's announced. Can't blame them.
According to DelawareOnline, Strine was unanimously confirmed by the Delaware Senate yesterday to be the Chancellor of the Chancery Court replacing Chancellor Chandler who has retired and will join Wilson Sonsini. According to the DelawareOnline:
Strine ... is widely known in the legal community as an intelligent and talented jurist who can be both comical and combative in the courtroom.
June 21, 2011
New DOJ merger guidelines
The Antitrust Division at the DOJ just released its new merger guidelines. You can find them here. Any M&A lawyer worth his/her salt download and read the new guidelines on the beach - cause it's summer.
June 20, 2011
The New Yorker has a very good piece running down the whole Galleon insider trading story. You read the whole thing home, but if you can't, read this. It's got everything in just a couple of paragraphs - wires, prepaid phones, and trading on your own account minutes after getting inside information...
In October, 2009, Rajaratnam and Kumar flew to Trinidad with their wives to attend a wedding. On their way home, they stopped in Miami to spend two days at Rajaratnam’s beachfront condominium. On the evening of October 6th, the men went out in Rajaratnam’s boat, then returned to shore and took a swim. They were lounging on deck chairs, reading and chatting, when Rajaratnam’s phone rang. Excusing himself, he walked down the beach to talk. Five minutes later, he came back, excited. “That was a Cisco executive,” he said. “Cisco is buying Starent”—an information-technology company. Kumar had never heard of Starent, and he wondered which Cisco executive was calling Rajaratnam.
Rajaratnam then gave Kumar a warning: a man named Ali Far, who had worked at Galleon, was rumored to be wearing a wire. “I have to be really careful,” Rajaratnam said. “I can’t believe he’s doing that and betraying me.” He instructed Kumar to start using unregistered prepaid cell phones for their calls. When they returned to the condominium, Kumar opened his laptop, went into his Charles Schwab brokerage account, and bought three hundred shares of Starent, worth about eight thousand dollars. The deal was announced a week later. It was Rajaratnam’s last known inside trade.
Cleaning out the closets at Skype
So late last week, the FTC granted early termination to Microsoft and Skype for their announced deal. Early termination of the HSR waiting period means that Microsoft and Skype can move towards closing that deal. Now, comes the news from Bloomberg that Skype has fired a number of executives prior to closing:
Skype Technologies SA, the Internet- calling service being bought by Microsoft Corp. (MSFT), is firing senior executives before the deal closes, a move that reduces the value of their payout, according to three people familiar with the matter.
The reasons for the letting go this group of 8 high level Skype execs prior to closing aren't known, but the Skype Journal blog reinforces what is hinted at in the Bloomberg report - that the firings were done in order to reduce the number of stock options that are vested at closing and thus raises the payout to venture investors.
Now, I have no way of knowing if increasing the payout for investors is in fact true or if the execs that were let go didn't get an equivalent cash payout on their way out the door. My guess is that they did, but I don't know. If on the other hand it's true, then it's pretty cheesy.
The prospect of getting a large cash payout from valuable options after an IPO or a when unvested options are automatically vested coincident with sale is a huge part of the incentive package that keeps talented people working at start-ups. If it's true, and I guess everyone in the Valley will know the truth soon enough, then it means that executives with unvested options will be spending more time than one might like ensuring their positions in the event of a sale rather than risk getting let go just before their big payout.