M & A Law Prof Blog

Editor: Brian JM Quinn
Boston College Law School

Thursday, May 31, 2012

Exclusive Forum Provision update

Inside Counsel has a good overview of the current state of the exclusive forum issue as well as the lawsuits in Delaware challenging the bylaw provisions.


May 31, 2012 | Permalink | Comments (0) | TrackBack (0)

GSK to go the hard way

So, GSK let the HGS annual shareholder meeting slip and didn't seek to replace the board when it had its tender offer open and a meeting before them.  Rather, it now appears that GSK will seek to replace the board of Human Genome by written consent.   Section 2.12 of the bylaws permit acts by written consent of the shareholders. It will require the HGS board to set a record date before GSK can begin to collect consents.  GSK will then have 60 days to collect and deliver consents sufficient to turn out the board. How ahard will that be?  Don't know.  But, it looks like 45% or so of the shares are held by just five investors: FMR LLC, T Rowe Price, TCW Group, Capital Research Global Investors, and Taube Hodson Stonex Partners.


May 31, 2012 in Hostiles | Permalink | Comments (0) | TrackBack (0)

Wednesday, May 30, 2012

HGS shareholder challenges pill

A shareholder of Human Genome Sciences has filed a lawsuit in Maryland challenging actions by HGS' board to adopt and maintain a shareholder rights plan to fend off an unwanted offer by GlaxoSmithKline.

Early in May GlaxoSmithKline commenced a $2.6 billion unsolicited tender offer for Human Genome Sciences.  HGS recommended its shareholder not tender and adopted a mild poison pill (it expires in one year).  Why a mild pill?  Well, i guess HGS hasn't taken GSK's offer all that seriously.  I mean, HGS didn't adopt the pill until May 16 -- almost a week after the tender commenced.  HGS doesn't have a staggered board, so a pill wouldn't survive a proxy contest in the event that GSK is successful in any event.  So it's all kind of milque-toast.  That's bad enough, but GSK's response, to HGS' pill is pretty weak-kneed: if the board leaves the pill in place, then it will drop its bid.  

I have to admit, I'm a little disappointed that GSK's board is so unserious.  No doubt, their counsel has advised them that absent a staggered board, the most the pill can do is delay a contingent tender offer/proxy contest for one election season. So, the pill, absent the staggered board, isn't all that strong a defense.  With that knowledge, GSK let slip the annual shareholder meeting, which was held on May 16 -- during the open tender offer and the same day the pill was adopted -- without putting up its own slate of directors. 

Anyway, in response to all this, a shareholder has filed a suit -- I know, that's not news.  In the suit, the shareholder alleges various violations of fiduciary duties attributable to the board adopting a pill and refusing to negotiate with GSK.   One would have thought that with Airgas, these kinds of suits would have disappeared. But no.  Perhaps that's why plaintiffs brought this case in Maryland rather than in Delaware (the state of incorporation).  Perhaps they thought a Maryland judge would not understand Delware law sufficiently to apply the "Just Say No" defense articulated in Airgas.  Perhaps.  Perhaps such a judge would rely on what that judge knows, for example the Maryland corporate law.  In particular, the judge might look to §2-405.1, delineating the standard of care required of directors of Maryland corporations.  If that's what the plaintiffs are hoping, they are going to be sorry.  Maryland is one of a large number of states that have written Unocal out of their code/common law.  In fact, in the context of an unsolicited proposal, board decisions to defend the corporation all get the protection of the business judgement presumption.  Here it is, right here:

§2-405.1(f)  No higher acquisition duty.- An act of a director relating to or affecting an acquisition or a potential acquisition of control of a corporation may not be subject to a higher duty or greater scrutiny than is applied to any other act of a director. 

No intermediate scrutiny, no enhanced scrutiny, just business judgment.  If this case were brought under Maryland law, it would clearly go nowhere.  OK, so other than fees to make them go away, it's not clear what the plaintiffs are looking for with this suit. Well, if the acquirer isn't going to be serious, I suppose it's too much to expect the plaintiffs to be serious.


May 30, 2012 | Permalink | Comments (1) | TrackBack (0)

Friday, May 25, 2012

Commencement Day

Congratulations to all the graduates of the class of 2012.  Today is your day.  Tuesday, you start studying for the Bar.

Best to all!


May 25, 2012 | Permalink | Comments (0) | TrackBack (0)

Thursday, May 24, 2012

Autonomy and H-P

Hot on the heels of H-P's announcement of layoffs comes news that the former CEO of Autonomy, Mike Lynch, will be leaving H-P.  Apparently, H-P is way too bureaucratic for the former head of this start-up: 

The signs that the takeover wasn't working became clear quite quickly as the head of financing, marketing and several sales chiefs left after the takeover completed in October 2011. "It's not just Mike," said a source who knew of the departures at Autonomy.

That HP was seen as too bureaucratic is ironic, as it was for years the company seen as the Silicon Valley touchstone for innovation – producing, among others, the inkjet printer, still one of its major sources of income.

Sources close to Lynch indicated that he and his former team had been unhappy at the scale of bureaucracy after the merger.

"It's not the kind of environment that helps this sort of company," said the source. "It was a clash of cultures. Mike was previously dealing with a small, nimble atmosphere. Whereas HP is the size of a small city. It's a hard place to do what you need to do."

You'll remember that H-P's acquisition of Autonomy came at the time just before the board ousted H-P's former CEO Leo Apotheker.  Apotheker described the bid as bold. But, the company was widely criticized for overpaying for the UK company and the bid led, in part of Apotheker's ouster.  In any event, Luynch's departure points to the problem of post-transaction integration.  It's always difficult to succesfully integrate targets and it's not all that uncommon for firms to get it wrong.  Looks like H-P, in the midst of transition got this one wrong.  Not that surprising, I suppose.


May 24, 2012 | Permalink | Comments (0) | TrackBack (0)

Tuesday, May 22, 2012

Recent Developments in Corporate and Alternative Entity Law

I'll be speaking on a panel today at the Corporate Law Section of the Delaware Bar Association's Recent Developments in Corporate and Alternativee Entity Law.  I'll be talking about corporate law updates via blogs.  If you're in town, drop by.  


May 22, 2012 | Permalink | Comments (0) | TrackBack (0)

Wednesday, May 16, 2012

More fun with top-up option math

Comverge announced the completion of its tender offer and the closing of its acquisition by a private equity group.  The transaction included a top-up option, described in Comverge’s 14d-9:

Top-Up Option

Pursuant to the terms of the Merger Agreement, the Company has granted Purchaser an irrevocable option (the “Top-Up Option”), upon the terms and subject to the conditions set forth in the Merger Agreement (including that the Minimum Condition has been satisfied), to purchase from the Company, at a price per share equal to the Offer Price, an aggregate number of Shares (the “Top-Up Shares”) equal to the number of Shares that, when added to the number of Shares then owned of record by Parent or Purchaser, constitutes one Share more than 90% of the sum of the Shares then outstanding and the Shares the Company may be required to issue on or prior to the Closing (as defined in the Merger Agreement) as a result of vesting, conversion or exercise of the Company’s stock options or other derivative securities, including convertible securities and other rights to acquire the Company’s common stock. However, in no event shall the Top-Up Option be exercisable if the number of Top-Up Shares would exceed the number of authorized but unissued Shares that are not already reserved for issuance as of immediately prior to the issuance of the Top-Up Shares. The Company has approximately 147,698,561 authorized but unissued Shares, after giving effect to all outstanding Options as of March 31, 2012.

According to Comverge’s amended 14d-9, when the tender closed, 65% of the outstanding shares were tendered, or 17,972,755 shares.  Now, that’s enough to meet the 50% minimum condition for the tender, but well short of the 90% required to effectuate a 253 short form merger.  And that’s where the top-up option comes in handy. But, go ahead and guess how many shares Comverge has to issue to the acquirer pursuant to the top-up option to get to 90%?  C’mon, it’s lawyer math -

(17,972,755 tendered shares [corrected]  + x option shares) / (27,650,392 outstanding shares + x option shares) = 90%

x = 69,310,020

 That’s a lot of stock!  Fortunately, Comverge was awash in authorized, but unissued stock.  Even though you might get queasy at issuing so much stock in order to avoid a shareholder vote, the courts have ruled on this question and, subject to certain conditions, have okayed it (see Olson v EV3).

More on top-up option math, see an earlier post from a couple of years ago.


May 16, 2012 in Going-Privates | Permalink | Comments (7) | TrackBack (0)

Tuesday, May 15, 2012

MoFo's inside view of earnouts

MoFo just released a survey of dealmakers on real deal activity. Probably most interesting are the respondents' views on earnouts:

Respondents had a surprisingly favorable (or at least grudgingly practical) view of earnouts as an acquisition technique. More than 80% said their company (or their client company) included earnout clauses in M&A agreements during the past two years. Among that group, over 30% reported that they've used earn-out clauses in over one-half of their transactions over that period.


A Recipe for Conflict?: Almost three-quarters of those who've used earnouts said such clauses have led to subsequent disputes or litigation; nearly one-fifth of respondents estimated there had been post-deal conflict over earnouts up to half of the time. An unlucky 10% of participants said that the use of earnouts had led to disputes or lawsuits more than 75% of the time.

Earnout Alternatives - Asked which other mechanisms might work for closing valuation gaps, respondents cited joint ventures, licensing agreements, and use of buyer or seller debt as viable alternatives.

One thing seems clear, if you're using an earnout, more likely than not you expect some sort of back-end dispute.  Why does anyone want that?


May 15, 2012 | Permalink | Comments (0) | TrackBack (0)

Monday, May 14, 2012

Public enforcement of director duties

My colleague, Renee Jones, has posted her new paper, Toward a Public Enforcement Model of Directors' Durty of Oversight.  One thing I really like about this paper is its suggestion that plaintiff in care cases should be asking for a different remedy.  Renee and her co-author point to bars on directors serving as a remedy.  It's potentially a credible sanction for bad director behavior in a world where 102(b)(7) removes monetary damages for care violations and procedural hurdles like Malpiede v Townson.  Here's the abstract:

Abstract: This Article proposes a public enforcement model for the fiduciary duties of corporate directors. Under the dominant model of corporate governance, the principal function of the board of directors is to oversee the conduct of senior corporate officials. When directors fail to provide proper oversight, the consequences can be severe for shareholders, creditors, employees, and society at large.

Despite general agreement on the importance of director oversight, courts have yet to develop a coherent doctrine governing director liability for the breach of oversight duties. In Delaware, the dominant state for U.S. corporate law, the courts tout the importance of board oversight in dicta, yet emphasize in holdings that directors cannot be personally liable for oversight failures, absent evidence that they intentionally violated their duties. 

We argue that some form of external enforcement mechanism is necessary to ensure optimal conduct from corporate leaders. Unfortunately, the disciplinary force of shareholder litigation has been vitiated by procedural rules and doctrines that make it exceedingly difficult for plaintiffs to prevail in derivative litigation. Because private shareholder litigation no longer fulfills its traditional role, the need exists for alternative mechanisms for director accountability.

We look to Australian corporate law for solutions to the problem of enforcing the duty of oversight. Australian corporate law encompasses a range of enforcement mechanisms for directors’ duties. The Australian Securities and Investments Commission (ASIC) has power to sue to enforce directors’ statutory duties. ASIC can seek a range of penalties for breach of duty, including pecuniary penalties and officer and director bars. ASIC has prevailed in a number of high-profile actions against directors of public companies in recent years. Despite the relative rigor of enforcement in Australia, capable directors continue to serve and its economy has thrived.

The Article explores several possibilities for incorporating public enforcement into the U.S. corporate governance system. We consider SEC enforcement of fiduciary duties and enforcement by states’ attorneys general. We also consider empowering state judges to impose bars on future service, as an alternative to tort-based damages awards. Regardless of the exact model of public enforcement, the reforms advanced here would help provide for greater director accountability and thus better motivate directors to perform their duties responsibly.


May 14, 2012 | Permalink | Comments (0) | TrackBack (0)

Friday, May 11, 2012

Laster gets innovative with settlement

In the recently decided Forsythe v ESC Fund Management, Vice Chancellor Laster approved an innovative settlement. The innovation entails the way in which he managed the 57 objectors to the settlement.  By his own reckoning the settlement offered was fair, though low.  Rather than approve the settlement straight up, VC Laster gave the objectors the option to post a bond, buy the settlement, and try their own hand at improving it:

Passing on the current settlement to seek more at trial carries substantial risk. The defendants have offered real money to settle the claims, and any future recovery could be substantially less favorable to the Fund, even nonexistent. Because the consideration falls within the range of fairness, I will approve the settlement unless the objectors make the equivalent of a topping bid. If they post a secured bond or letter of credit for the benefit of the Fund for the full settlement consideration of $13.25 million, then they may take over the case. If they later lose or obtain less than the full settlement amount, the Fund will be able to draw on the security and be made whole. If the objectors achieve a greater recovery, then both they and the Fund will benefit.

In approving this topping bid approach, VC Laster took some inspiration from a version of claim buying previously proposed by Jonathan Macey and Geoff Miller's.  As VC Laster noted: 

This approach draws on proposals to address agency cost problems in representative actions by auctioning claims. In one such proposal, the class or derivative claims would be sold at the outset of the case to the highest bidder (including potentially the defendants), and the net proceeds of the auction would be distributed to the class. The winning bidder would take over the rights of the plaintiffs, could pursue the action, and would keep any recovery for itself. If the defendants were to win the auction, they would simply dismiss the claims. ...

By settling, the defendants effectively are purchasing the claims for $13.25 million. If the objectors believe the claims are worth more, they can act on their belief, put real money on the table, and outbid the defendants. Compared to an auction conducted at the outset of a case, the objectors are well-positioned to make an informed decision. At the start of a case, participants have only limited additional information. Here, the parties have access to a thoroughly developed discovery record and multiple decisions from the Court.

For observers of the court who are interested in shareholder litigation and other kinds of representative litigation, this kind of approach to settlements is an innovative way to beat agency costs out of the system.  It will be worth following whether the objectors in this case ultimately post a bond and take over this case and what result they get in the end.


May 11, 2012 | Permalink | Comments (2) | TrackBack (0)

Thursday, May 10, 2012

Strine channels Cartman

In a recent hearing in the Bank of America shareholders litigation (Download In Re BOA transacript), Chancellor Strine channels Cartman. Apparently the powers of the Chancery Court wither in comparison ... 


May 10, 2012 | Permalink | Comments (0) | TrackBack (0)

Wednesday, May 9, 2012

Bad paralegal

What?! You think only lawyers can be idiots? The first two paragraphs of the SEC's complaint tells you more than you need to know:

This case involves insider trading in the securities of Semitool, Inc., a semiconductor manufacturer based in Kalispell, Montana that was acquired in a tender offer by Applied Materials, Inc. in December 2009. Beginning in at least October 2009, defendant Angela Milliard, a legal assistant at Semitool, learned confidential information regarding the terms and timing of the acquisition. Basedon this information, Angela Milliard secretly wired $38,000 to her boyfriend's account and purchased 5,400 Semitool shares in the account, as well as 300 Semitool shares in her own brokerage account. Angela also tipped her father, defendant Kenneth Milliard, about the then-secret acquisition, and he purchased 10,800 Semitool shares and helped other family members purchase another 4,000 Semitool shares.

When the acquisition was publicly announced on November 17, 2009, the company's stock price jumped over 30 percent, and defendants immediately profited that day, selling all of their Semitool shares for total realized profits of $68,160.

This being the end of exams and the start of graduation season, I suppose it's as good a time as any to give some good advice to recent law grads.  This year, I'll give it in the form of a link to a memo written seven years ago to employees of public corporations, titled Your Future (or Lack Thereof).



May 9, 2012 in Insider Trading | Permalink | Comments (0) | TrackBack (0)

Saturday, May 5, 2012

Strine rules against Martin Marietta

Here's the 139 page (?!) opinion.  I know, if you're like most people you have better things to do on a Spring weekend than read it, but the first few pages gives away the ending.  Strine enjoined Martin Marietta from proceeding with its hostile tender offer for Vulcan after finding that when one reads the NDA together with the JDA, the two documents limit use of confidential information only to a negotiated transaction between MM and Vulcan.   Strine found that MM had indeed relied on confidential evaulation material when it put together its hostile bid.  Therefore, the hostile tender would be enjoined for four months. 

That's a tough pill for MM, but there's a lesson here.  The lesson has to do with the procedures for using and maintaining confidential evauluation materials.  As we see from MM, it's hard, maybe impossible, to unring bells once they have been rung with respect to confidential information.  Strine took from MM's own actions that at the time, MM believed that it could not use confidential evaluation material in putting together its hostile bid, but it did anyway.  For example, there was evidence in the record that MM knew it was using confidential information (emails: "I don't think we should use this information...", board presentations, etc), but MM used it anyway.

One thing I think it suggests, if you move from a negotiated to a hostile deal, it may require an entirely clean team, including outside counsel and i-bankers for the hostile, rather than the friendly, deal.  Keeping the board and c-level types from the acquirer untainted by confidential information is harder though.  Board members who see a presentation with confidential evaluation material may not be able to expunge all they have seen from their minds when considering a subsequent hostile transaction. 


May 5, 2012 in Hostiles | Permalink | Comments (0) | TrackBack (0)

Wednesday, May 2, 2012

Milken Institute Private Equity Panel

Another interesting panel from the Molken Institute conference:


Leon Black, Founding Partner, Apollo Management, LP

David Bonderman, Founding Partner, TPG Capital

Jonathan Nelson, CEO and Founder, Providence Equity Partners

Jonathan Sokoloff, Managing Partner, Leonard Green & Partners

Scott Sperling, Co-President, Thomas H. Lee Partners, L.P.



May 2, 2012 in Current Affairs, Current Events, Deals, Europe, Interviews, Private Equity | Permalink | Comments (0) | TrackBack (0)

Martin Marietta and Vulcan Decision

Ronald Barusch at DealPolitik has an interesting theory behind Strine's lengthy delay in issuing his opinion in the Martin Marietta-Vulcan dispute.  May 3 is the day.  I'm convinced.

OK, back to grading exams ... yes, it's that time of year again.


May 2, 2012 | Permalink | Comments (0) | TrackBack (0)

Tuesday, May 1, 2012

Outlook on M&A

The always interesting Annual Milken Institue Global Conference is happening now.  Here is the panel on the outlook for M&A.


Anthony Armstrong, Co-head, Americas M&A, Credit Suisse

Maria Boyazny, Founder and CEO, MB Global Partners

James Casey, Co-Head of Global Debt Capital Markets, JP Morgan Securities LLC

Tilman Fertitta, Owner, Chairman and CEO, Landry's Inc.

Raymond McGuire, Global Head, Corporate & Investment Banking, Citi

Robert Harteveldt, Global Co-Head of Fixed Income and Global Head of Fixed Income Origination, Jefferies & Co. Inc.

May 1, 2012 in Current Affairs, Current Events, Deals, Mergers | Permalink | Comments (1) | TrackBack (0)