November 17, 2011
Steele on Pills and the Intermediate Standard
In early October, Chief Justice Myron Steele participated in a session in Canada about shareholder rights plans in the US and Canada. The International Law Office has posted summaries of the panel discussion. Steele's comments are interesting:
The chief justice suggested that the view that Delaware law allows a board of directors to 'just say no' to a hostile offer has been overstated. In the context of appropriate findings of fact that a poison pill is no longer reasonable or that there is no sufficiently articulated long-term strategy that requires protection, he suggested that a case could be made for a mandatory injunction removing a poison pill under Delaware law.
When Gilson and Kraakman wrote their paper, Delaware's Intermediate Standard for Defensive Tactics: Is There Substance to Proportionality Review?, they recommended that the court adopt a stance that would inject substance into proportionality review by requiring boards who wished to adopt and maintain defensive measures against an unwanted, but otherwise noncoercive offer, to articulate a long term strategy that they would have to live with. Could it be that Steele is open to a Gilson/Kraakman like approach to proportionality review? That might breathe new life into Unocal.
But those weren't the only comments made by Steele:
Steele noted that the analysis is determined primarily by the facts found in each decision. Findings of fact made by the Court of Chancery are accepted on review by the Delaware Supreme Court unless they are clearly erroneous. Steele suggested that, with appropriate findings of fact, a pill could be removed under Delaware law. ...
Steele noted that there was a tension between the view, on the one hand, that the board should have power to defeat an inadequate hostile offer and the view, on the other hand, that, once the board has discharged its duty to make clear to shareholders its view of the long-term value of the corporation and there is no likelihood that the poison pill could be used to generate an alternative offer, it should be the shareholders' responsibility to decide whether to accept the board's view of the corporation's value or accept the bidder's offer. Chandler's opinion appeared to show some sympathy for the latter position. However, he described his analysis as "constrained by Delaware Supreme Court precedent".
Steele took issue with the view that the Chancery is constrained in its ability to remove a pill in the appropriate circumstances. He suggested that if the chancellor had found facts that were inconsistent with it being reasonable to keep the pill in place, an injunction against maintaining the pill could be issued under Delaware law. Where there is a battle of valuations, rather than the defence of a long-term strategy, a case can be made for removing the pill and letting the shareholders decide.
OK, so if the question is one about the adequacy of a noncoercive offer, is Steele suggesting that a board could be ordered to pull its pill? That an inadequate offer on its own is not a cognizable threat? Personally, I tend to agree and would be happy with that result. But, I'd be surprised if the Supreme Court was already there intellectually and simply waiting for the Chancery Court to hand up an opinion for appellate review. Could it be that Chandler in Air Products just got it wrong?
November 16, 2011
Chancellor Chandler Forum
Cravath - M&A 2011
Cravath has released review of 2011 M&A developments. It's a nice 50 odd page read/overview of legal and market developments in the US. Read it in between servings of turkey!
November 14, 2011
There oughta be a law!
What would you do if Fed Chairman Ben Bernanke and Treasury Secretary Hank Paulson gave you a confidential briefing on the day before the 2008 financial crisis - a briefing in which they said everything was going to hell? Well, if you are Rep. Spencer Bachus (R-AL) the anwer is clear - you rush out and buy Proshares Ultra-Short QQQ the next day.
I suppose insider trading is illegal unless you are congressman. Unfortunately, this isn't even a new story! See papers from Donna Nagy and Stephen Bainbridge on congressional insider trading. Moving on.
November 13, 2011
Chancery Court Conference Rundown
Delawareonline has a very thorough rundown of the proceedings of the Chancery Court Conference at Columbia:
[O]n Friday, Columbia Law Professor John C. Coffee Jr. declared what he hoped was an armistice with Delaware -- on Veterans Day -- by hosting what amounted to a day-long celebration of the Delaware Court of Chancery's prestige and pre-eminence in corporation law, titled "Change and Continuity."
He said the debate about the value of Delaware's court is "dated" and largely over.
On one of the more controversial panels, professor Bernard S. Black of Northwestern School of Law said his analysis shows that Delaware's dominance might be fading. He said the state is starting to "lose cases" to federal courts and other states that have formed business courts, such as Nevada.
He conceded that the number of cases filed in Delaware's Chancery Court remains high and that some cases filed outside Delaware may be "junk," but argued "Delaware's share is not what it once was." He said 10 years ago, nearly 100 percent of certain types of cases went to Delaware and now some significant cases are going elsewhere.
But early in the conference, Gilson spoke for many presenters when he said the day was a bit unusual because he and others would be speaking on the meaning of decisions and actions by Chancery Court judges with the judges themselves in the audience.
He said it was like the scene in the movie "Annie Hall" when Woody Allen is arguing with someone about the work of Marshall McLuhan and pulls McLuhan himself from the crowd to tap the man on the shoulder and tell him he is wrong.
And at lunch, Strine got to play the role of McLuhan by telling the crowd that some of what he heard in morning sessions amounted to "fiction."
Sounds like a fun conference.