Thursday, August 25, 2011
Over at the VC, Orinn Kerr reports on an interesting survey of GW alumni regarding which elective courses lawyers wish they had taken in law school and what courses they found most interesting.
I'm not sure how useful the study is, given the small sample size (particularly after breaking down results by practice area, which is the most useful way to look at the data--after all (as an example) a transactional tax lawyer at an AM Law 100 firm and a litigator at a small white collar boutique will find different courses to have been helpful).
That said, it is interesting that alumni did not list negotiations or legal drafting as useful, given the handwringing over law schools failure to teach these types of practical skills.
My thoughts on what courses transactional lawyers should take can be found here.
Wednesday, August 24, 2011
For anyone who missed it, the latest issue of Transactions has several papers related to M&A deal-making. The issue includes Don Langevoort's insightful essay on The Behavioral Economics of Mergers and Acquisitions about which we blogged previously. The issue also includes an interesting response by Joan Heminway entitled A More Critical Use of Fairness Opinions as a Practical Approach to the Behavioral Economics of Mergers and Acquisitions.
Abstract: This paper responds to Professor Donald C. Langevoort's essay entitled "The Behavioral Economics of Mergers and Acquisitions" (12 Transactions: Tenn. J. Bus. L. 65 (2011)). Together with Professor Langevoort's essay and another responsive work written from the standpoint of behavioral psychology – Eric Sundstrom's "Tall Steps, Slippery Slopes & Learning Curves in the Behavioral Economics of Mergers & Acquisitions" (12 Transactions: Tenn. J. Bus. L. 65 (2011)) – this paper preliminarily explores solutions to behavioral issues in the context of mergers and acquisitions.
Specifically, this paper contends that changes in the contents, construction, use, and assessment of fairness opinions may better enable fairness opinions to counteract the potential and actual biases of corporate management and shareholders in M&A decision-making. The paper begins by briefly reviewing the nature (attributes, benefits and detriments), regulation, and utilization of fairness opinions in the M&A transactional process, including the ways in which fairness opinions manifest, support, and attempt to counteract behavioral norms. Next, the paper suggests best practices in the construction and use of fairness opinions that take into account our knowledge of behavioral psychology as it relates to M&A transactions. The net effect of these best practices is to transform what may be unconscious behavioral norms into conscious biases that, once exposed, can be confronted and, as desired, mitigated.
Tuesday, August 23, 2011
John Coates, IV has posted an interesting new paper Managing Disputes Through Contract: Evidence from M&A. The paper looks at dispute management provisions in a sample of 120 randomly chosen M&A contracts from 2007 and 2008. The paper examines contract terms “aimed at managing litigation, such as (a) clauses mandating and setting the scope for arbitration; (b) choice of law clauses, (c) forum selection clauses, (d) jury waivers, (e) clauses allocating legal costs in the event of a dispute, and (f) clauses attempting to increase or decrease the odds that a court will award specific performance as a remedy in the event of breach.”
Abstract: An important set of contract terms manages potential disputes. In a detailed, hand-coded sample of mergers and acquisition (M&A) contracts from 2007 and 2008, dispute management provisions in correlate strongly with target ownership, state of incorporation, and industry, and with the experience of the parties’ law firms. For Delaware, there is good and bad news. Delaware dominates choice for forum, whereas outside of Delaware, publicly held targets’ states of incorporation are no more likely to be designated for forum than any other court. However, Delaware’s dominance is limited to deals for publicly held targets incorporated in Delaware, Delaware courts are chosen only 20% of the time in deals for private targets incorporated in Delaware, and they are never chosen for private targets incorporated elsewhere, or in asset purchases. A forum goes unspecified in deals involving less experienced law firms. Whole contract arbitration is limited to private targets, is absent only in the largest deals, and is more common in cross-border deals. More focused arbitration – covering price-adjustment clauses – is common even in the largest private target bids. Specific performance clauses – prominently featured in recent high-profile M&A litigation – are less common when inexperienced M&A lawyers involved. These findings suggest (a) Delaware courts’ strengths are unique in, but limited to, corporate law, even in the “corporate” context of M&A contracts; (b) the use of arbitration turns as much on the value of appeals, trust in courts, and value-at-risk as litigation costs; and (c) the quality of lawyering varies significantly, even on the most “legal” aspects of an M&A contract.
Cerberus and Chatham Partners, LP have reportedly walked away (here: Deal Journal's coveragel) from their deal to acquire Innkeepers out of bankruptcy citing a MAC. You can find the bankruptcy filings here. There is no MAC in the APA. The MAC that the acquirers are citing can be found Term Sheet (Exhibit B to the Binding Amendment Commitment Letter - Exhibit F). Here's the relevant termination language from the Term Sheet:
Unless otherwise agreed by the Plan Sponsors in writing, the Plan Sponsors may terminate the Amended Commitment Letter and Term Sheet by written notice to the Company and the Special Servicer upon the earliest occurrence of the following events (each a “Termination Event”):
6. The occurrence of any condition, change or development that could reasonably be expected to have a material adverse effect on the business, assets, liabilities (actual or contingent), or operations, condition (financial or otherwise) or prospects of the Fixed/Floating Debtors taken as a whole; provided, however, that this Termination Event shall not apply to the chapter 11 case of Grand Prix West Palm Beach LLC;
This is mighty buyer friendly MAC language. No carveouts for anything except one specific contingency. That's pretty unusual these days. Cerberus and Chatham are apparently citing some change since May when they agreed to acquire Inkeepers. I think things have been generally bad since May, haven't they? OK, there has been a bit of recent volatility since early August, but hey ... isn't that just more of the same these days? You'd think that someone making an acquisition of a business out of bankruptcy would anticipate the effects of temporary volatility or an additional downturn on the business. In IBP Shareholders Litigation, the Delaware Chancery Court set the bar for invoking a MAC pretty high:
... [the MAC] is best read as a backstop protecting the acquiror from the occurrence of unknown events that substantially threaten the overall earnings potential of the target in a durationally-significant manner. A short-term hiccup in earnings should not suffice; rather the Material Adverse Effect should be material when viewed from the longer-term perspective of a reasonable acquiror.
Or maybe Cerberus is telling us something about their longer-term view on the state of the economy?
Reuters is reporting that DB's acquisition of the New York Stock Exchange has been approved by the US Committee on Foreign Investments. It didn't even cross my mind that a voluntary CFIUS filing would have been on the radar for this transaction. Though, I suppose control of the capital markets in the US is a question of national security.
Monday, August 22, 2011
Drafting guru Ken Adams has taken a look a the Google-Motorola agreement and shares his thoughts:
So, what do I think of the Google–Motorola merger agreement? It’s a mediocre piece of drafting. It’s bloated and hard to read, and that takes a toll at every stage—drafting, reviewing, negotiating, and monitoring compliance. And there might be lurking in the verbiage some bit of confusion that metastasizes into a dispute down the road.
Mediocre? How can that be! After all, Google is represented by the prominent law firm Cleary Gottlieb—presumably they did the bulk of the drafting. Well, the Google–Motorola merger agreement is mediocre because all big-time M&A drafting—or at least all that I’ve seen—is mediocre.
True enough. Imagine if Mark Twain tried to write The Adventures of Tom Sawyer by committee and using The Adventures of Hucklebery Finn as a template for the first draft? Wouldn't be much of a book, that's for sure. Ken offers up his thoughts on improving the drafting process - including commoditizing the process.