October 28, 2011
U.S. & E.U. Best Practices on Cooperation in Merger Investigations
Antitrust regulators in the U.S. and the European Union have long cooperated on antitrust matters (see the Antitrust & Competition Policy Blog for excerpts from several recent speeches on Transatlantic cooperation, here and here). Recently, regulators issued an updated set of best practices for coordinating merger review. According to the press release:
"The best practices, originally issued in 2002, provide an advisory framework for interagency cooperation when one of the U.S. agencies and the European Commission’s Competition Directorate review the same merger. The revised U.S.-E.U. best practices:
- Provide more guidance to firms about how to work with the agencies to coordinate and facilitate the reviews of their proposed transactions;
- Recognize that transactions that authorities in the U.S. and Europe review may also be subject to antitrust review in other countries; and
- Place greater emphasis on coordination among the agencies at key stages of their investigations, including the final stage in which agencies consider potential remedies to preserve competition."
For those interested in a summary of the revised best practices, Davis Polk has a useful memorandum setting out the key points.
October 27, 2011
Kodak - you have been warned
Apparently a group of creditors sent a letter to the Eastman Kodak board to remind them that they are required to get "fair value" for any assets they might sell, including the Kodak patent portfolio. In a sale of substantially all the assets of a firm its necessary for a board to ensure that it receives "reasonably equivalent value" for the assets sold. This is, in part, to prevent sellers from using the asset sale as a fraudulent conveyance. The fear from creditors of Kodak is that Kodak might sell its patent portfolio and then file for bankruptcy protection, leaving creditors to take a hit. The creditors are looking to put maximum pressure on Kodak's board before a sale to try to incentivize the Kodak board to get the highest price possible for those assets.
Hertz pulls offer, birds fly away
Hear that? That's the sound of the second bird flying away from the bush. The Delaware courts love the "bird in the hand" cliche. In this case, after a year of back and forth and fights between/among Dollar, Avis, and Hertz, it looks like a transaction with Dollar is just not going to happen. Dollar signalled as much earlier this month when it halted the sales process and announced a share buyback plan (here).
Thanks to all our readers who voted for us! Apparently, there's more voting to be done - here.
October 26, 2011
Another target for Galleon prosecutors
Raj Gupta was arrested early this morning at his home by FBI agents and has been charged with insider trading as part of the Galleon investigation. He posted $10 million in bail and was released this afternoon. Here's the criminal complaint.
Selecting a lead plaintiff
I was cleaning off my desktop and came across an interesting letter opinion in which the Chancery Court deals with the question of selecting a lead plaintiff (SEPTA v Rubin et al). Selecting a lead plaintiff and the problem of multi-jurisdiction litigation in the context of transaction-related litigation is a recent interest of mine. While this can be difficult problem when there is multiple litigation in different jurisdictions, it's less complicated with respect to litigation within a single jurisdiction.
Delaware has long not followed the old "first to file" rule in determining the identity of lead plaintiffs. Rather, it has a two step approach. First, the courts encourage plaintiffs to organize themselves and work it out internally. That's a pretty successful approach. When it fails, however the court has to make a determination as to which of the competing plaintiffs should be the lead plaintiff. The court does does by applying the so-called "Hirt factors":
- the quality of the pleading that appears best able to represent the interests of the shareholder class and derivative plaintiffs;
- the relative economic stakes of the competing litigants in the outcome of the lawsuit (to be accorded great weight);
- the willingness and ability of all the contestants to litigate vigorously on behalf of an entire class of shareholders;
- the absence of any conflict between larger, often institutional, stockholders and smaller stockholders;
- the enthusiasm or vigor with which the various contestants have prosecuted the lawsuit; [and]
- the competence of counsel and their access to the resources necessary to prosecute the claims at issue.
Rather than encourage a race to courthouse, the Hirt factors are intended to create incentives for parties to bring quality claims and to weed out low quality, knee-jerk claims that appear in the wake of many deal announcements.
October 25, 2011
Arbitration system challenged in Delaware (updated)
Reuters is reporting that the Delaware Coalition for Open Government has sued the Chancery Court in the federal district court in Delaware for holding "secret hearings." The secret hearings they are worried about are confidential arbitration hearings held pursuant to Delaware's recently adopted arbitration rules. The basic outlines of the Open Government Coalition's argument are that arbitration is okay, but that if it is going to be conducted by sitting chancellors of the Chancery Court, then it must be open to the public. I'll post the complaint when it's available.
Update: Here's the Complaint (Delaware Coalition for Open Govt v. Leo Strine, et al). The essence of the complaint against all the chancellors and the State of Delaware goes as follows:
Pursuant to the First Amendment to the Constitution of the United States (ratified by Delaware on December 7, 1787), the public has a presumptive right of access to judicial proceedings and records, civil and criminal. This right of access is considered to be a right of contemporaneous access, meaning that the public has the right to attend judicial proceedings (as opposed to merely reviewing a transcript at a later time) and to review documents as they are filed with the Court or introduced into evidence.
10 Del. C. §349 and Chancery Court Rules 96, 97 and 98 deny plaintiffs, and the general public, their right of access to judicial proceedings and records. Although the statute and rules call the procedure “arbitration,” it is really litigation under another name. Although procedure may vary slightly, the parties still examine witnesses before and present evidence to the Arbitrator (a sitting judge), who makes findings of fact, interprets the applicable law and applies the law to the facts, and then awards relief which may be enforced as any other court judgment. The only difference is that now these procedures and rulings occur behind closed doors instead of in open court.
Because arbitration proceedings are conducted by judges, presumably in the courthouse, the Open Government Coalition is arguing that they must be public proceedings, notwithstanding the prior agreement of the parties to engage in a confidential arbitration proceeding.
Who will buy Yahoo?
Your guess is as good as mine. It seems like everyone is turning up with a proposal these days. The good folks over at Next Media try to put it all in context for you.
October 24, 2011
News Corp votes are in
OK, so the votes are in, and it's not pretty. First things first, the board was voted in. Is that any surprise? Of course it isn't. Here's the real surprise: James and Lachlan Murdoch received only 63.5% and 64.6% respectively. Natalie Bancroft received only 64.8%. On the other hand, Rupert Murdoch got a rousing 82.3% votes in favor. Remember, though the Murdochs control 40% of the vote right out of the box, so 60% isn't a rousing vote of confidence from unaffiliated shareholders.
On the question of splitting the Chairman from the CEO role - a common enough corporate governance reform, a surprising 99.7% of shareholders voted against it. While the say-on-pay vote passed with a substantial majority, shareholders decided that they'd like to keep News Corp on a short leash - 96% approved of holding annual, rather than bi- or tri-annual say-on-pay votes.
And that's it from the News Corp shareholder meeting.
Here's the 8-K with the breakdown of the numbers.
October 23, 2011
News Corp shareholder meeting
If you haven't already, you should find the time to listen to at least part of the recent News Corp shareholder meeting. You can access the webcast here. I had a couple of impressions while listening to it. First, the number of people who actually ask questions at News Corp meetings is very small - in fact less than a dozen. Second, most of those who asked questions were well known to the board. Indeed, from the back and forth it seems clear that News Corp engages with the questioners outside of the annual meeting.
Third, Murdoch can be a rude character. When a representative of the Church of England stood up to speak in support of the proposal to split the Chairman/CEO positions - by now this is a pretty common corporate governance reform proposal - Murdoch immediately insults the questioner. Interrupting him to say, "You're investments haven't been that good, either." The questioner is a bit taken aback - wait, did he just insult me? - and then Murdoch tells him to let it go and get on with his question. It's pretty incredible how little Murdoch is interested in hearing from the shareholders who are present at the meeting. Or, how little interest he seems to have in being responsive to their concerns -- except when the animal rights activist stands to complain about Australia's live animal export policies. Then Murdoch commits to looking into it and doing something about it. (I can't imagine that's true, given the importance of the export of live sheep to the Islamic world is to Australian farmers.)
In any event, it's clear from the webcast that Murdoch is particularly uninterested in hearing from Tom Watson, the member of Parliament who has been heading up the investigation of the phone hacking scandal in the UK. He turned up at the meeting asked questions intended to either embarrass or at least put Murdoch on the spot. Now that he wasn't before the Parliament and he (Murdoch) was running the meeting, Murdoch wasn't all that interested in hearing from Watson, either. I'd venture a guess that Murdoch is a supporter of Prof. Sjostrom's and Prof. Hammermesh's proposals to reduce the number of annual shareholder meetings.
Finally, I was also struck by the presence of religiously-affiliated shareholder representatives at the meeting. Not that they were there, but that there were so many of them.
Anyway, the summaries of the meeting don't do the meeting justice. You should listen to some of it. I'll post the transacript when it becomes available. In the meantime, just to give you more flavor of the meeting there were two exchanges with shareholders that stick out.
In one exchange, a shareholder questioned how Viet Dinh could be an independent director given that he is the godfather of Lachlan Murdoch's son. In response to this challenge, Prof. Dinh emotionally defended his integrity - making it clear that he was behold to no one. I imagine that if the questioner was standing within arm's length of Prof Dinh that Prof Dinh might have been less restrained in his response to the challenge to his independence.
In another exchange, a shareholder complained about the use of share buybacks to entrench Murdoch control over the corporation. I got a sense that Murdoch was willing to benignly ignore this question with a "thanks for your comment, next question," but Sir Rod Eddington, a director, interjected. Something along the lines - I'll have you know we've done $1.8 billion in share buybacks and we haven't purchased a single Class B share! Apparently, he misunderstood the question - or he misunderstands how share repurchases can be used as defensive/entrenchment devices. If everyone other than Murdoch (Class B shares) is selling their shares back to the corporation, that raises Murdoch's control share. Anyway...