October 20, 2011
Apparently the various groups of potential bidders (strategics and private equity) for Yahoo! are balking at signing the NDA Yahoo! has offered up to them. According to Reuters, what's causing the consternation is the "no cross-talk" provision that permits potential bidders from engaging with other potential bidders about possibly putting together a collective bid. At $20 billion market cap, the thought is that none of the present potential bidders (save perhaps Microsoft) can pull off the deal on their own and that if a deal is to be done, the bidders will have to get together in some sort of consortium. Of course, from Yahoo's perspective, the more bidders it has out there preparing bids, the better. At some point, however, the board might decide that there is a risk that potential bidders will start walking away. At that point, I expect the board will re-evaluate its decision not to permit cross-talking. Meanwhile, off in the corner, AOL is apparently telling anyone who might listen that it would be happy to be part of a deal or almost any kind with Yahoo.
October 19, 2011
Who's Who Legal has a nice interview with Chief Justice Myron Steele of the Delaware Supreme Court. It's a pretty wide-ranging interview and worth a couple of minutes. Here's a sample:
How has corporate litigation and governance changed since you began practising over 40 years ago?
It’s a significant question, because I think it has changed more since 2002 than in any other decade. We did have a significant decade in the '80s when the takeover business hit its full stride and there was much intellectual debate and litigation that shaped the process for the acquisition business in publicly traded corporations. That was a significant decade. Fiduciary duty law began to be shaped by facts in individual cases to a sharper and more nuanced degree than ever before. Now, this decade has been a phenomenon of a different balance between the authority the board and the board’s accountability to the shareholders. Some people characterise it as the shareholder rights movement, the rise of the importance of the institutional investor as opposed to the individual investor. By institutional investor, I really mean the activist investor – often union pension funds, public employee pension funds, etc. So the debate of the last five to 10 years over perhaps reshaping the relationships between shareholders and the authority of the board is a very significant focus of keeping the right balance between the groups in order to improve performance. Too often, I think the arguments could be phrased as: "We want power," almost as if we should have it as a matter of right, when I think the focus should be: "How do we make adjustments that promote performance that result in not only a better investment for individual or institutional shareholders in a company but that strengthens the market overall?" The focus is not on who can shout the loudest or who has the right answer, but on working to get better performance. Society benefits from the wealth that the corporate world brings to the community.
Oh, and apparently it's no longer a secret: he'll be stepping down when his term expires in 2016.
October 18, 2011
Grupo Mexico Rundowns
There are a couple of good rundowns of the In re Southern Peru/Grupo Mexico decision out there worth reading. This case has been working its way through the Delaware courts since 2004. That's a long time in coming, but not unusual for cases where parties are not seeking an injunction, but rather a damages remedy. The Sourthern Peru opinion is worth taking a look at because Chancellor Strine issued a $1.2 billion (billion, not million) judgment against the controlling shareholder. Richards Layton & Finger have posted a useful summary of the issues as well as the opinion here. Steven Davidoff at The Deal Professor has a very good summary of the issues at stake in the case as well. You can find it here.
Me? I'm still working my way through the 106 page opinion.
Insider trading wrap
It looks like the Galleon investigations and trials are wrapping up. Raj Rajaratnam was sentenced last week to 11 years. Danielle Chiesi just started her 30 month sentance at "Camp Cupcake". Octopussy got 10 years, and his fellow small fish (Cutillo, Goldfarb, etc) got prison terms ranging from 2.5 to 3 years. The prosecutors wanted to send a message about insider trading and it's fair to say that ... well ... message sent. With the help of data collected by the WSJ, I generated the sentencing chart below:
It seems pretty clear that the sentences generated in the Galleon cases while not outrageous, are stiffer than the norm since 1992. It's worth noting the other 10 year insider trading sentence handed out went to Hasif Naseem who orchestrated a ring with friends overseas to trade ahead of pending merger announcements in the following transactions: TXU Corp., Hydril Company, Trammell Crow Co., John Harland Col, Energy Partners Ltd., Veritas DGC Inc., Jacuzzi Brands, Caremark Rx, Inc., and Northwestern Corporation. So, the Rajaratnam sentence, though heavy, may not be entirely at odds with sentences handed out in similar cases in recent years.
Acquisitions as Lotteries
Schneider and Spalt post a paper, Acquisitions as Lotteries: Do Managerial Gambling Attitudes Influence Takeover Decisions? The paper suggests that acquisitive CEOs might share some attributes with gamblers playing with other people's money.
Abstract: This paper analyzes takeover announcements for public US targets from 1987 to 2008. Consistent with the hypothesis that gambling attitudes matter for takeover decisions, both acquiror announcement returns and expected synergies are lower in acquisitions where the target's stock has characteristics similar to those of attractive gambles. Offer price premium and target announcement returns are higher in these deals. The effects are stronger in companies where managers are more entrenched, where the disciplining force of product market competition is lower, where recent acquiror performance has been poor, during economic downturns, for younger CEOs in the acquiring firm, and for acquirors headquartered in areas in which local gambling propensity is higher. Targets with lottery features are more likely to receive takeover bids and direct evidence from synergy disclosure data shows that the market reacts less favorably to higher synergy forecasts if they are issued in the context of a lottery acquisition. Overall, our results suggest that corporate acquisitions are influenced by managerial gambling attitudes and that value destruction for acquirors in gambling-related transactions is substantial.