Monday, April 30, 2012
Third Biennial Conference on Transactional Education
Preparing the Transactional Lawyer: From Doctrine to Practice
November 2 – 3, 2012
Emory University School of Law
Emory’s Center for Transactional Law and Practice is delighted to announce its third biennial conference on the teaching of transactional law and skills. The conference, entitled “Preparing the Transactional Lawyer: From Doctrine to Practice,” will be held at Emory Law, beginning at 1:00 p.m. on Friday, November 2nd and ending at 3:45 p.m. on Saturday, November 3rd. We will welcome participants at a reception at 5:00 on Friday afternoon.
The registration fee for the Conference is $179.00. It includes a pre-Conference lunch beginning at 11:30 a.m., snacks, and the reception on November 2 and breakfast, lunch, and snacks on November 3. We are planning an optional dinner for attendees on Friday evening, November 2, at an additional cost. Attendees are responsible for their own hotel accommodations and travel arrangements. Further details about registration, hotel accommodations, and other logistics will follow.
As in prior years, the proceedings of the Conference as well as the materials distributed by speakers will be recorded and published in Transactions: The Tennessee Journal of Business Law, a publication of the Clayton Center for Entrepreneurial Law of The University of Tennessee.
CALL FOR PROPOSALS: We are accepting proposals immediately, but in no event later than June 15, 2012. We welcome proposals on any subject of interest to current or potential teachers of transactional law and practice. The sessions will address the following questions:
• What do law school graduates need to know in order to become effective transactional lawyers?
• How do we best teach law students what they need to know to become effective transactional lawyers?
• How do we assess the students’ progress toward becoming effective transactional lawyers?
• What does the future of teaching transactional law and skills look like?
In addition to proposals addressing the overarching questions listed above, we hope to receive proposals that address and update topics that we have considered in past conferences, such as:
• Teaching basic and advanced contract drafting
• Teaching other critical deal skills such as client interviews, negotiation, counseling, and due diligence
• Teaching transactions in an international setting
• Teaching transactional skills in a doctrinal course
• Ethics and professionalism in transactional practice
• Transactional centers and certificates
• Preparing students for transactional practice on day one
Each session will be approximately 80 minutes long. We invite you to present your topic individually or with a panel of other participants and we encourage you to make your presentation creative and interactive. We look forward to receiving your proposals so that we can finalize the Program.
Please submit the attached proposal form electronically via the Emory Law website at http://www.law.emory.edu/transconf on or before June 15, 2012
I'd like to use this public forum to thank Justice Carolyn Berger of the Delaware Supreme Court to taking the time to visit Boston College Law School last week. Just Berger spoke to our Business & Law Society's annual dinner. It was a great talk and the students and alumni who were in attendance came away with plenty to think about.
Kara Swisher of AllThingsD has the story of how Demand Media was considering a going-private transcation, but then decided against it:
One thing was true: “Demand was definitely at the altar, but it did not get to the vows,” said one source.
Another source noted that the board also determined that Demand’s situation was improving, and that new trends are showing that the bottom might be been reached. The company reports its first-quarter earnings on May 8, which is expected to show some traction related to its many challenges.
“There is nothing [Thomas H.] Lee could do that Demand could not do for itself,” said one person. “So throwing in the towel seemed premature for now.”
Somehow it's heartening that directors looked at a going private deal and decided that they, the directors, could generate value for the public shareholders by staying public.
Kevin Murphy has been very good on executive compensation issues over the years. Now he gives us the current state of the state of executive comp in his paper, Executive Compensation: Where We Are and How We Got Here:
Abstract: In this study, I summarize the current state of executive compensation, discuss measurement and incentive issues, document recent trends in executive pay in both U.S. and international firms, and analyze the evolution of executive pay over the past century. Most recent analyses of executive compensation have focused on efficient-contracting or managerial-power rationales for pay, while ignoring or downplaying the causes and consequences of disclosure requirements, tax policies, accounting rules, legislation, and the general political climate. A major theme of this study is that government intervention has been both a response to and a major driver of time trends in executive compensation over the past century, and that any explanation for pay that ignores political factors is critically incomplete.
Thursday, April 26, 2012
Rob Daines at Stanford has recently written a study of merger related litigation. Consistent with what others have observed, there's a lot of it:
“It’s one of the three inevitables: death, taxes and deal litigation,” said Robert Daines, a professor of business and law at Stanford Law School and a co-author of the report. “From a public policy perspective, it’s plausible to think there are problems with deals, but it’s really hard to believe there are problems with 100% of the deals.”
The Cornerstone report reveals how lawyers have made up for tighter restrictions on securities class actions — most such cases are now funneled into federal courts, where there are tougher pleading rules — by filing more merger suits in state courts.
And the results aren't necessarily good for shareholders:
In most cases, however, the lawyers negotiate minor changes in the Securities and Exchange Commission filings associated with the deal, or deal modifications such as eliminating so-called “no shop” agreements that restrict the selling company’s ability to seek a higher bid. The problem with these arrangements is they can paper over an otherwise collusive agreement between management and plaintiff lawyers to pay a fee for the litigation to go away.
Cornerstone found that only 5% of the 202 settlements reported in 2010 and 2011 involved cash payments to shareholders, down from 52% of settlements in a study of Delaware lawsuits in 1999 and 2000.
Tuesday, April 24, 2012
As Acting Assistant Attorney General for the Antitrust Division Sharis Pozen prepares to move on, she took some time this week to review the last three and half years at the DOJ's Antitrust Division. You're all aware that under the current administration, antitrust enforcement and pre-merger reviews are back. In this speech to an audience at Brookings, Pozen reflects on candidate Obama's committment to “to reinvigorate antitrust enforcement."
Monday, April 23, 2012
To encourage thought leadership, develop the next generation of corporate leaders, and apply the latest in academic theory to business practice, BlackRock, in association with the National Association of Corporate Directors (NACD), invites students (graduate and undergraduate) and Ph.D. researchers and faculty to submit original papers* regarding the relationship between investors and public companies in the areas of corporate governance and responsible investment.
- Abstract submission due June 1, 2012, via e-mail email@example.com
- Requirements: 500-word maximum, include a title, author’s name, contact information, category (undergraduate, graduate or post graduate), and academic affiliation.
- The evaluation committee will select the most promising abstracts and notify the authors by July 1, 2012, that they are being requested to submit a full paper.
- Paper and revised abstract submission by notified authors due September 30, 2012.
- The evaluation committee will recommend winners to the academic advisory council for final review, followed by notifications to the submitters in December 2012.
Incentive: Straight cash money.
- Undergraduate submission: $3,000
- Graduate student submission: $4,000
- Ph.D. researcher and faculty submission: $5,000
Friday, April 20, 2012
For those of us wrapped up in legal education, there has been a refocusing of attention in the way we envision the law school experience. More and more of what we do is thinking about how to fill the hole left by changing business models in legal practice. As firms become less interested in apprenticeship aspect of the first few years of legal practice by recent grads, the pressure is on law schools to make sure that grads come out of law school "practice ready." What does that mean? Who knows really, but that's the focus these days.
Clinics and the clinical experience plays a big part in creating client-based experiences for students. However, for all their usefulness, they remain heavily litigation oriented. That's fine for the students who see themselves practicing their craft in the courtroom. However, for many students they'll never be in a courtroom. Their transactionally oriented practice will benefit only modestly from traditional clinical experiences. To compensate, clinics have begun to add transactional clinical experiences for students. Now, Lucien Bebchuk has stepped into the clinical world. He recently posted an op-ed at the Dealbook about his new clinic, the Shareholder Rights Project, at Harvard Law School.
Post-Selectica and post-Airgas, "just say no" has more than solidified itself as legally viable defense against an unwanted tender offer. For those of us who believe having a robust market for corporate control is an important corporate governance backstop, this places the focus of the market for corporate control on the staggered board. The Shareholders Rights Project is focused on getting declassification proposals before shareholders at annual meetings and in that way taking some air out of the "just say no" defense. Although the clinic has attracted the ire of Martin Lipton, it's a creative way to generate real legal experiences for law students that don't involve litigation, but does engage a portion of the student body who have an active interest in corporate governance. It's a good addition to the mix.
Thursday, April 19, 2012
Facebook's billion dollar bet on Instagram is one of those deals that keeps me up at night. A billion dollars for a company with no revenues, hmmmm... I am even more worried now that reports indicate that the Facebook board was essentially absent in advising Zuckerberg on the decision to purchase Instagram.
Acquirer overpayment often occurs in these large transactions. While some papers connect these losses to classic agency cost problems, numerous finance scholars have studied the role that non-economic forces, such as ego and hubris, play in corporate transactions (for just some of these pieces, see here and here). Several of these studies find that empire-building preferences and overconfidence predict heightened managerial acquisitiveness, including acquisitions that result in losses in acquirer shareholder wealth. This is particularly true when managers have significant internal resources. Ulrike Malmendier and Geoffrey Tate demonstrate how CEOs can overestimate their abilities to generate returns and create value. In particular, they illustrate how overconfident CEOs are associated with an increased likelihood of conducting M&A transactions, and also poorer deals for their shareholders as measured by bid announcement returns. Simlilarly, Mathew Hayward and Donald Hambrick examined hubris as a determinant of the size of premiums that CEOs will pay for acquisitions. In their examination of 106 large acquisitions, Hayward and Hambrick find “losses in acquiring firms’ shareholder wealth following an acquisition, and the greater the CEO hubris and acquisition premiums, the greater the shareholder losses [following an acquisition].” Moreover, the study also indicates that the relationship between acquisition premiums and CEO hubris is stronger in cases where board vigilance is lacking, i.e. when the board has a high proportion of inside directors and a CEO who also serves as chair of the board. More recent papers build on these results. In an unpublished manuscript, John, Liu, and Taffler find that overconfident CEOs pay higher bid premiums and that this effect is reinforced when the target CEO is also overconfident. Similar findings are reported by Chatterjee and Hambrick who show that narcissistic CEOs in the computer industry carry out more and larger acquisitions.
None of this bodes well for Facebook's Instagram deal. It may be that at the end of the day the deal turns out ok. But I would be cautious when a young star CEO runs around spending the company's resources without any board involvment.
Congratulations to Afra! Her paper, Transforming the Allocation of Deal Risk Through Reverse Termination Fees was recently selected one of the Top 10 Corporate and Securities Articles of 2011 by the Corporate Practice Commentator. You're a star, Afra!
Wednesday, April 18, 2012
Not two years ago, reverse mergers with little known Chinese firms was all the rage. The reverse merger was a cheap way to get a private Chinese (or any other) company public. Chinese firms took a liking to this backdoor to the US capital markets more than anyone else. So much so that it caused the SEC to investigate the practice and toughen up some of the listing standards in this area.
Now, we are seeing more and more of the following:
Shengtai Pharmaceutical, Inc. (OTC Bulletin Board: SGTI) ("Shengtai" or "the Company" or "We" or "Us"), a manufacturer and distributor in China of glucose and starch as pharmaceutical raw materials and other starch and glucose products, today announced that its Board of Directors has received a preliminary, non-binding proposal from its Chairman and Chief Executive Officer, Mr. Qingtai Liu ("Mr. Liu"), which stated that Mr. Liu intends to acquire all of the outstanding shares of the Company's common stock not currently owned by him and his affiliates in a going private transaction at a proposed price of $1.65 per share in cash.
Of course, Shengtai wasn't always Shengtai Pharmaceuticals. In 2007, it was known as West Coast Car Company. Control was transferred to Shengtai when Chinese investors bought the majority of shares in West Coast Car in 2007.
In recent months there has been a growing string of Chinese firms listed in the US going private. Apparently, the US capital markets aren't laid with gold. Listing and disclosures standards make it expensive for a low quality company to stay public, so they go private. That should be a good thing. Of course, we now have the JOBS Act that will reduce the costs of staying public for so-called "emerging companies" so perhaps there will be an incentive for these Chinese rever merger companies to stay public if they can get themselves categorized as "emerging companies."
Monday, April 16, 2012
My colleague, Brian Galle, and his co-author Kelli Alces have just posted a paper, Is Inside Debt Efficient?. During the post-financial crisis there has been a lot of thought about executive compensation and the role that it might have played in encouraging excessive risk taking and what to do about it. One common suggestion is the use of inside debt to incentivize executives. Galle and Alces are less sanguine about the efficacy of inside debt to postively influence managers' behavior. Instead, inside debt may unnecessarily complicate manager incentives.
Abstract: The average publicly-traded firm pays its CEO millions of dollars in deferred compensation and defined-benefit pension commitments. Scholars debate whether firms use these payments to efficiently align managerial interests with those of creditors, or whether instead they represent “hidden” forms of rent extraction. Yet others recommend these forms of debt-like incentive compensation, sometimes called “inside debt,” as a way of controlling risk-taking in systemically important financial institutions.
We argue instead that inside debt is unlikely to be efficient in either setting. Inside debt is costlier and more complex than other tools for managing risk, such as covenants or simply cutting back on option pay, and gives managers opportunities to hedge their equity positions without revealing that fact to investors. Drawing on the behavioral literature, we also show that increasing pay complexity is likely to reduce the efficacy of all forms of manager incentives.
To test these hypotheses, we conduct a series of panel regressions utilizing matched CEO and firm data covering over 1300 firms during the period 2007 to 2009. Under most specifications, we find little evidence that current borrowing needs correspond with executive pay structures. We do find, however, significant relations between the use of pensions and markers of managerial power, markers of board risk aversion, and lagged firm debt levels.
Friday, April 13, 2012
regular readers know that Afra and I have a thing for reverse termination fees. The Practical Law Company just released a "what's market" study on reverse termination fees - Reverse Break-up Fees and Specific Performance: A Survey of Remedies in Leveraged Public Deals. There's a lot in there. One point of interest is the extent to which reverse termination fees are now making regular appearances in strategic deals - more than 51% of deals in their sample.
It's opening day in Boston - funny enough with a 1-5 start - people around here are already jumping on the panic button. Too early? Have a great weekend - spend as much of it at a ball park as possible.
Wednesday, April 11, 2012
Most analysis of the JOBS Act has focused on its implications for capital markets activity. Now, Davis Polk has a short client alert focusing on the implications of the JOBS Act for private company M&A. Worth a quick read.
Following up on a recent flattering feature on Leo Strine in The Globe and Mail, Conrad Black is sending warnings to his fellow Canadians not to fall for that " influential small-town American judge" in Delaware. I think he's still angry over the Delaware case against him in the sale of Hollinger:
Strine is, I am reliably told, conversationally and socially rather aggressive, and improbably, given his physical stature and Mr. Peepers likeness, is an ostentatious sports fan. He rules his court like a full-time martinet and constantly inflicts what he evidently considers to be his unfailingly rapier-like wit on all those to whom his judgments are too important to permit the groans that commend themselves. He will get to any plausible speaking event (including one in Toronto not long ago), if necessary by flapping his arms. He fancies himself a crusader for the little person, a holy terror against “hinky” boardroom and executive suite practices, a shoot-from-the-hip authority on almost anything, and a crack philologist, constantly adding funky new words to the language; what isn’t “hinky” is apt to be “freakin” and so forth. A bright, energetic little man, seeking attention and trying to become a celebrity despite his rather dry and technical occupation, is not unprecedented and need not be exceptionable.
In Strine’s case, there is cause for concern. While, (unlike Posner as far as I am concerned), he reads the papers filed in his court, he has an untrustworthy and even bigoted (not in any racial or sectarian sense), intuition and a whim of iron. Because few judges have the ambition to attract public attention as Strine does, and most are happy not to be bothered with the media, whom Strine pursues with the shameless tenacity of a vendor of fake religious relics hustling pilgrims in Bethlehem, he is becoming an eager go-to default source for the media on any aspect of commercial law, (and doubtless, would expand his repertoire of pontifical opinion to a range as vast as the great outdoors, if asked).
He goes on about how Strine is "feckless and flippant" and has little regard for shareholders when he inserts himself into board decisions. Given the recent result in El Paso, Black is either wrong in his broad characterization or Stine has changed since Hollinger.
Monday, April 9, 2012
Last month, Vice Chancellor Glasscock had an interesting opinion in the Delphi Financial Group case. You'll remember that in that case, Rosenkranz, a controlling shareholder, structured the transaction to generate a "control premium" for himself. To do that he had to amend the certificate of incorporation to eliminate the equal treatment provision in the charter that would have prohibited him from taking a premium. Glasscock didn't look favorably on that move. Now the litigation has been settled in what, at first glance, looks like a total victory for the plaintiffs. Larry Hamermesh asks the right question about the settlement and whether the shareholders really won:
The question the press release doesn’t quite answer, however, is what the source of the $49 million settlement payment is. If it’s Rosenkranz only, the “truing up” will have been accomplished. To the extent, however, that the acquirer or some D&O insurance carrier is providing some portion of the $49 million, Rosenkranz would be retaining some of the premium that the Court criticized.
Yermack continues his crusade against the corporate jet in his new paper, "Tailspotting: How Disclosure, Stock Prices and Volatility Change When CEOs Fly to Their Vacation Homes". Who would have guessed ... CEOs park the jet and stay in the office when the weather at their vacation homes is bad.
Abstract: This paper shows close connections between CEOs’ vacation schedules and corporate news disclosures. Identify vacations by merging corporate jet flight histories with real estate records of CEOs’ property owned near leisure destinations. Companies disclose favorable news just before CEOs leave for vacation and delay subsequent announcements until CEOs return, releasing news at an unusually high rate on the CEO’s first day back. When CEOs are away, companies announce less news than usual and stock prices exhibit sharply lower volatility. Volatility increases immediately when CEOs return to work. CEOs spend fewer days out of the office when their ownership is high and when the weather at their vacation homes is cold or rainy.
Thursday, April 5, 2012
Just because you received clearance to close from the FTC/DOJ through the Hart-Scott-Rodino process, don't think you're necessarily in the clear if your transaction is antitrust sensitive. Take the current case Express Scripts/Medco as an example. Express Scripts/Medco was cleared by the FTC with no conditions earlier this week, but it still faces the hurdle of a possible injunction in a private action brought by the National Association of Chain Drug Stores and the National Community Pharmacists Association under Section 16 of the Clayton Antitrust Act. The plaintiffs are seeking to hold up the transaction from closing, or in the event it closes to force the parties to hold separate all the merged assets until the case has been resolved. Here's their complaint.
The big lesson from the Express Script/Medco? Don't think that since the FTC passes on the deal that there are no more antitrust risks out there.
Wednesday, April 4, 2012
A new shareholder challenge to Chevron's exclusive forum bylaw has been filed in Federal district court in the northern district of California. You'll remeber that last year in Galaviz v Berg, shareholders succesfully challenged a similar exclusive forum bylaw in Oracle's bylaws. Federal coruts are not opposed to forum selection provisions in principle. In fact, the policy of the Federal courts since Bremen v Zapata is to defer to the selection of a forum in a contract. In Galaviz, the court looked at a bylaw that was unilaterally by a board after the acts challenged in the lawsuit and found that such a bylaw lacked suffcient indicia of consent to establish a contract and therefore the selection of Delaware as an exclusive forum was not binding on the shareholders. The court pointed out that had the forum provision been included in the firm's certificate of incorporation that the court would likely have reached a different result.
In this case, the court is asked to look at a narrower question than in Galaviz, namely absent bad acts, does a unilaterally adopted forum bylaw exhibit suffficient indicia of consent to be considered a contract. My guess is that the court will follow Galaviz in this case.
Tuesday, April 3, 2012