March 5, 2011
Over at WSJ's Law Blog last wek they expressed some good natured surprise at the fact that a lawsuit has been filed in an attempt to block the NYSE - DB merger. They post a link to the complaint filed in a NY court.
Of course, it wouldn't be a merger unless there were multiple suits -- and there are. Bloomberg previously noted that two cases were filed challenging the NYSE - DB merger more than two weeks ago (Feb 16) - one each in NY and Delaware. Well, another one got filed in Delaware last week, so by my quick count there are now at least four complaints challenging this transaction.
I've read these a couple of times, and to be completely honest, there doesn't look like there is much to them. There are vague allegations of violations of fiduciary duties and onerous deal protections. Claims that the directors didn't include a go-shop in the merger agreement in violation of their fiduciary duty. I'm not sure how that is supposed to work, but whatever. Onerous deal protections? They include what looks like a standard no-shop with a fiduciary out; termination fee of 250 million Euros (on a deal worth $10 billion); and a match right. Again, it's hardly a compelling set of facts.
I can't imagine these suits will go anywhere. They are like the litigation flotsam I write about in a draft paper I've got circulating. Rather than be about vindicating shareholder rights in the face of a bad set of facts, these look more like place-holders intended to ensure that litigators keep their place in line in the "filing Olympics."
March 4, 2011
Outbound Acquisitions by Indian Firms
I have written previously about the increase in outbound M&A activity by Indian firms. As I noted in my article “Rising Multinationals: Law and the Evolution of Outbound Acquisitions by Indian Companies,” changes in India’s regulatory regime have played an important role in the emergence of Indian multinationals. Extensive legal reforms since economic liberalization have set the stage for outbound acquisitions by Indian multinationals. However, I also argue that Indian law continues to impose significant constraints on the ability of Indian firms to engage in outbound acquisitions. Legal constraints limit the size of outbound deals as well as the methods that Indian multinationals use in pursuing outbound acquisitions, including limiting their ability to be creative in undertaking different types of acquisition structures.
It appears that the Confederation of Indian Industry (the CII is India's leading business association) has also turned its attention to these issues (HT: Indian Corporate Law Blog). In a recent press release, the CII points to some of the hurdles for Indian firms. According to the press release, the CII has submitted suggestions to the Department of Industrial Policy and Promotion, Government of India for creating a more “facilitative environment for transnational M & A activity of Indian corporates.” It will be interesting to see how the Indian government responds to the concerns expressed. In the past, the CII has had significant influence over the trajectory of Indian corporate law reforms.
March 3, 2011
Dollar's toothless defense
The ink on the Airgas opinion has barely dried and Family Dollar looks like it's trying to use the Just Say No defense to stave off an offer by Nelson Peltz. Peltz announced his offer to the world in a recent 13d filing:
On February 15, 2011, the Trian Group contacted Howard Levine, Chairman of the Board and Chief Executive Officer of the Issuer, and advised him that it beneficially owned approximately 8% of the outstanding Shares and believed that it was the largest beneficial owner of Shares. The Trian Group also advised Mr. Levine that it proposed that the Trian Group or one of its affiliates acquire the Issuer at a price in the range of $55 to $60 per Share in cash.
The Family Dollar board considered the offer and responded (Form 8-K):
by a unanimous vote of those present, determined that continued implementation of the Company’s strategic plan remains the best way to deliver value to all Family Dollar shareholders. The Board also determined that the unsolicited, conditional proposal from Trian Group to acquire Family Dollar substantially undervalues the Company and that pursuit of a sale of the Company is not in the best interest of shareholders.
The Family Dollar board also adopted a shareholder rights plan. It's an imperfect defense, though. Family Dollar's board is elected annually. It does have a 90 day advance notice provision in its bylaws for nominations, but no classified board. The effectiveness of the rights plan as a defensive measure comes from the combination of the pill and the classified board. Family Dollar is going with just the pill and not the staggered board. I guess we'll soon see how that works for them.
Update: The Deal Professor tweets (Steven Davidoff has a Twitter account - @StevenDavidoff) that the 10% threshold on Family Dollar's pill might be more about keeping away hedge funds than Peltz. He's probably right because without a staggered board the pill isn't doing much else.
... really? That can't be true. Maybe it is. I don't know, but it's pretty ridiculous. From the SEC's order against Rajat Gupta:
Gupta dialed into the October 23, 2008, Board meeting around the time it was scheduled to start and remained on the call until 4:49 p.m. Just 23 seconds after disconnecting from the call, Gupta called Rajaratnam. The call lasted approximately 13 minutes. The following morning, just as the financial markets opened at 9:30 a.m., Rajaratnam caused the Galleon Tech funds to begin selling their holdings of Goldman Sachs stock. The funds finished selling off their holdings — which had consisted of over 120,000 shares — that same day at prices ranging from $97.74 to $102.17 per share. The same day (October 24, 2008), in discussing trading and market information with another participant in the trading scheme, Rajaratnam explained that Wall Street expects Goldman Sachs to earn $2.50 per share but that Rajaratnam had heard the prior day from a member of the Goldman Sachs Board that the company was actually going to lose $2 per share. As a result of Rajaratnam’s trades based on the material nonpublic information that Gupta provided, the Galleon Tech funds avoided losses of over $3 million.
This is a guy who was the former head of McKinsey, sat on the boards of Goldman and P&G and apparently, still feels the need to show how important he is buy sharing inside information with a hedge fund trader.
March 1, 2011
J.Crew MBO Approved
So, despite the flawed process, the useless fairness opinion, the fig-leaf go shop, and the problematic disclosure, the J.Crew MBO was approved by almost 64% of the company's outstanding shares. Looks like many of the large institutional investors in the company voted for the deal, even though ISS recommended that they reject the proposal. At the end of the day, the shareholders' meeting on the deal was typically short (a total of 4 minutes) and undramatic. Not much of a surprise...
Go-shop just a fig leaf?
Andrew Ross Sorkin notes what others have been suspecting for some time -- that the go-shop is just a fig leaf to insure against potential liability in management-led buyouts. Reminds me of the paper on go-shops by Guhan Subramanian from two years ago, Go-shops vs. No-shops. In part he found:
I also find no post-signing competition in go-shop management buyouts (MBOs), consistent with practitioner wisdom that MBO's give incumbent managers a significant advantage over other potential buyers. Taken as a whole, these findings suggest that the Delaware courts should generally permit go-shops as a means of satisfying a sell-side board's Revlon duties, but should pay close attention to their precise structure, particularly in the context of go-shop MBOs.
February 28, 2011
Buying a sports franchise
Now that spring training is well under way, all good M&A attorneys should brush up on what's needed to get that acquisition done. Foley & Lardner provide an overview of the due diligence requirements of buying a professional sports team.
In related news, the Red Sox beat BC 6-0 in their annual spring outing.
February 27, 2011
Barry and Hatfield on takeover defenses
Before Airgas gets too far into your rearview mirror - Jordan Barry and John Hatfield have recently posted a paper, Pills and Partisans: Understanding Takeover Defenses. Although Chancellor Chandler's opinion in Airgas may be the last word on the question for now, that doesn't mean we have to stop asking the questions!
Abstract: Corporate takeover defenses have long been a focal point of academic and popular attention. However, no consensus exists on such fundamental questions as why different corporations adopt varying levels of defenses and whether defenses benefit or harm target corporations' shareholders or society generally. Much of the disagreement surrounding takeover defenses stems from the lack of a fully developed formal analytical framework for considering their effects. Our Article presents several formal models built upon a common core of assumptions that together create such a theoretical framework. These models incorporate the reality that target corporate insiders have superior information about the target but are imperfect agents of its shareholders. They suggest that modern defenses enable target shareholders to extract value from acquirers by empowering corporate insiders, but that takeover defenses do not benefit society as a whole. They also suggest why corporations with different characteristics may choose to adopt varying levels of takeover defenses. Our findings have implications for the longstanding debate about who is best served by state-level control of corporate law and the desirability of increased federal involvement in corporate law.