Friday, December 9, 2011
Delaware Chief Justice Myron Steele speaking at Stanford Law School last month on what is remains the central question in the corporate law. In this talk, Chief Justice Steele looks forward and lays out what he thinks are the next big issues (i.e. fiduciary implications of the changing nature of share ownership; state-based proxy access regimes, etc.).
Thursday, December 8, 2011
Jenter and Lewellyn have a new paper, CEO Preferences and Acquisitions. It reminds me of the throw-away line in Smith v Van Gorkom where the court reminds the reader that Van Gorkom was approaching the mandatory retirement age when he agreed to sell TransUnion to Pritzker. If you ever wondered what the court meant by that, here's your answer.
Abstract: This paper explores the impact of target CEOs’ retirement preferences on the incidence, the pricing, and the outcomes of takeover bids. Mergers frequently force target CEOs to retire early, and CEOs’ private merger costs are the forgone benefits of staying employed until the planned retirement date. Using retirement age as an instrument for CEOs’ private merger costs, we find strong evidence that target CEO preferences affect merger patterns. The likelihood of receiving a takeover bid increases sharply when target CEOs reach age 65. The probability of a bid is close to 4% per year for target CEOs below age 65 but increases to 6% for the retirement-age group, a 50% increase in the odds of receiving a bid. This increase in takeover activity appears discretely at the age-65 threshold, with no gradual increase as CEOs approach retirement age. Moreover, observed takeover premiums and target announcement returns are significantly lower when target CEOs are older than 65, reinforcing the conclusion that retirement-age CEOs are more willing to accept takeover offers. These results suggest that the preferences of target CEOs have first-order effects on both bidder and target behavior.
Wednesday, December 7, 2011
Back in the summer, there was a 'to-do' about the Massey shareholder litigation. You'll remember that shareholders brought a derivative suit against the directors for violations of their fiduciary duties in the running of the company that ended with a disaster at the Upper Big Branch mine in West Virginia. Twenty-nine miners lost their lives. Chancellor Strine dismissed the case after Massey was acquired by Alpha, refusing to allow the shareholders who had lost standing to maintain the case. Although the shareholders' attorney were volubly upset at the decision, Strine made it clear first, that there were still other avenues to find justice for the victims, and second, the shareholders weren't the victims. They had benefited from the directors' bad acts.
Now, we get word that the Federal Mine Safety and Health Administration and the US attorney have reached settlements with Alpha, Massey's successor. Alpha will pay $209 million in civil and criminal penalities to resolve its liability with respect to the UBB disaster. This settlement includes $46.5 million in payments to the families of the victims of the UBB disaster. While this settlement resolved any corporate criminal liability, it left open the possibility of personal criminal liability for executives of Massey.
This seems like a start.
Monday, December 5, 2011
We noted previously that the no-cross talking provisions in Yahoo's confidentiality agreement made it difficult for bidders to communicate with each other about possibly putting together a joint bid for Yahoo. At the time, I suggested there might come a time when it might be unreasonable for the Yahoo board to sit on that provision. Now, Kara Swisher notes that the inevitable lawsuits challenging the no-cross talk provisions have been filed. Here's the complaint in M&C Partners v Yang, et al.
While in some circumstances, a No Cross Talk Provision promotes vigorous competition among a host of interested parties, it can only have the opposite affect in the case ofYahoo, which is the classic “difficult sell.” Indeed, no bids for the entire company had been announced as of December 1, 2011. On November 30, 2011, it was reported that Yahoo had received a bid for a minority stake from private equity firm Silver Lake and several partners (including Microsoft) that values the Company at $16.60 per share, and a somewhat higher bid of about $17.50 per share from TPG Capital. This is far below Yahoo’s fair value. For example, David Loeb of Third Point, LLC (a 5% Yahoo shareholder) has placed Yahoo’s value at $27-28 per share.
The No Cross Talk Provision constitutes an unreasonable anti-takeover device, designed to entrench and favor Yang and the current Board. It tilts the playing field unreasonably in favor of Yang, who is working to attract investors who will take a large minority position in Yahoo (less than 20%, but enough to effectively block any future proxy contest), and who can be expected to support Yang’s desire to retain a disproportionate influence over Yahoo’s business and affairs.[citation] The favoritism toward Yang in this process is both irrational and unreasonable. Since 2000, Yang has been the architect of policies which have driven Yahoo’s market value down by an astounding 85% (from $140 billion in 2000 to the present $19.5billion). Indeed, it is fair to say that Yahoo would be worth little or nothing without minority investments it has made over the years in companies managed by neither Yang nor Yahoo.
The basic argument is that the no-cross talking provision should be analyzed as a defensive measure under the Unocal standard. Plaintiffs are hoping that the court will determine that the no-cross talking provision is an unreasonable defense that precludes any potential joint bid from appearing and thus not grant the board's decision to demand the provision as part of any confidentiality agreement is not subject to the business judgment presumption. My guess is that while this argument has some merit, we're probably not there, yet.