October 7, 2011
Acquisitions and Corporate Lifecycle
Arikan and Stulz have posted a new paper, Corporate Acquisitions, Diversification, and the Firm’s Lifecycle. Young public firms from the 1990's IPO wave are more acquisitive than other firms. It's interesting to think what about the 1990's IPO wave made the firms from that period more acquisitive than others. Perhaps over-valuation of equity prices gave those firms a cheap currency to go on a buying spree?
Abstract: Lifecycle theories of mergers and diversification predict that firms make acquisitions and diversify when their internal growth opportunities become exhausted. Free cash flow theories make similar predictions. In contrast to these theories, we find that the acquisition rate of firms (defined as the number of acquisitions in an IPO cohort-year divided by the number of firms in that cohort-year) follows a u-shape through their lifecycle as public firms, with young and mature firms being equally acquisitive but more so than middle-aged firms. Firms that go public during the merger/IPO wave of the 1990s are significantly more acquisitive early in their public life than firms that go public at other times. Young public firms have a lower acquisition rate of public firms than mature firms, but the opposite is true for acquisitions of private firms and subsidiaries. Strikingly, firms diversify early in their life and there is a 41% chance that a firm’s first acquisition is a diversifying acquisition. The stock market reacts more favorably to acquisitions by young firms than to acquisitions by mature firms except for acquisitions of public firms paid for with stock. There is no evidence that the market reacts more adversely to diversifying acquisitions by young firms than to other acquisitions.
October 6, 2011
Proposed Del Monte Settlement
In an example that not all transaction-related litigation is created equally, Reuters is reporting Del Monte and Barclays have agreed to a settlement in the pending challenge to the Del Monte transaction. You'll remember that Vice Chancellor Laster's earlier opinion in this case raised eyebrows when he pointed out the deficiencies in the Del Monte board's sale process. The proposed settlement includes a payment of $84.3 million, including a whopping $23.7 million payment in attorney fees. Vice Chancellor Laster still has to approve the settlement and the fees, but he previously approved an interim $2.75 million fee in this case and he has hinted that he is not opposed to large fee awards in cases where it is deserved. This may be one of those cases.
Weil, Gotshal survey of sponsor-backed going private transactions
Weil, Gotshal has just released its fifth annual survey of sponsor-backed going private transactions, analyzing and summarizing the material transaction terms of going private transactions involving a private equity sponsor in the United States, Europe and Asia-Pacific. Have a look.
October 5, 2011
RIP Steve Jobs
"Remembering that I'll be dead soon is the most important tool I've ever encountered to help me make the big choices in life. Because almost everything — all external expectations, all pride, all fear of embarrassment or failure - these things just fall away in the face of death, leaving only what is truly important. Remembering that you are going to die is the best way I know to avoid the trap of thinking you have something to lose. You are already naked. There is no reason not to follow your heart."
Past, Present, and Future of Shareholder Activism
Armour and Cheffins have a new paper, The Past, Present and Future of Shareholder Activism by Hedge Funds. Given the recent seeming uptick in activity of shareholder activists, this paper is well-timed.
Abstract: The forthright brand of shareholder activism hedge funds deploy emerged by the mid-2000s as a major corporate governance phenomenon. This paper explains the rise of hedge fund activism and offers predictions about future developments. The paper begins by distinguishing the “offensive” form of activism hedge funds engage in from “defensive” interventions “mainstream” institutional investors (e.g. pension funds or mutual funds) undertake. Variables influencing the prevalence of offensive shareholder activism are then identified using a heuristic device, “the market for corporate influence”. The rise of hedge funds as practitioners of offensive shareholder activism is traced by reference to the “supply” and “demand” sides of this market, with the basic chronology being that, while there were direct antecedents of hedge fund activists as far back as the 1980s, hedge funds did not move to the activism forefront until the 2000s. The paper brings matters up-to-date by discussing the impact of the recent financial crisis on hedge fund activism and draws upon the market for corporate influence heuristic to predict that activism by hedge funds is likely to remain an important element of corporate governance going forward.
Nixon Peabody's 2011 MAC Survey is available. Here's a useful chart from the survey highlighting the various elements of MACs.