Thursday, March 8, 2012
This weekend marks the annual Tulane Law M&A confab. All the cool kids are there. The fact that I'm sitting in Boston as I write this should tell you something ... Anyway, there are already some interesting reports from Steven Davidoff and Michael De La Merced. Check them out.
David Weidner of the WSJ has a good post today asking the question, "Is Leo Strine Serious?" Of course, I'll admit to being a fan of Leo Strine's wit. If you read a lot of case law, which is the punishment for being a law professor, it's a wonderful thing to occasionally read an opinion where the writer's personality comes shining through. That said, Weidner is expressing a frustration that's bigger than simply Chancellor Strine and El Paso. The frustration is with the corporate law itself. Reuter's Allison Frankel puts it this way:
But is this really how we want the court system to work? Strine said he was afraid to enjoin the shareholder vote because Kinder Morgan could then walk away from the proposed acquisition, costing El Paso stockholders billions in lost equity. Does that mean the Delaware courts are unwilling to act against any single-bidder deal, no matter how tainted the process that produced it?
That's a good question. I guess it depends on how smart - or independent - we think shareholders are. If in cases like this one where there is a single bidder offering a premium, do we think shareholders are smart enough to read Strine's opinion and decide for themselves that it's a bad deal and reject it? Remember, the arguments and opinion are all before the shareholder vote. If I were an El Paso shareholder, I'd read the opinion and vote "no". Then, I'd try to find a way to eject Foshee from the board. But I'm not an El Paso shareholder, at least not directly.
but, maybe we think that shareholders are simply fools. Unthinking types who couldn't be bothered to vote "no" - because they are rationally apathetic or because they aren't paying attention. That's possible, too. In which case, shareholders need Chancellor Strine to stand up on their behalf and rule - this goes too far. Maybe.
But, if that's what shareholders are really like - and who's to say they aren't - then why do we spend so much time arguing for increased shareholder access to proxies, majority voting, and a host of other good governance measures that put the shareholders at the center of events? If shareholders are too checked-out to vote down the El Paso transaction following Strine's opinion, why do we think they'll be any better at selecting an attentive board?
I feel Strine's pain. Really, I do. It's a no win. He does his best to shame the executives (Prof Bainbridge on corporate shaming) and make it clear to shareholders that they should vote down the transaction, but without sticking his judicial nose too far in. It's a balance that leaves no one all that happy, especially him.
Wednesday, March 7, 2012
The El Paso transaction is getting uglier. Now that the vote has been delayed for a couple of days and Goldman has been publicly dragged out for criticism in dealing with the conflicts of interest, the focus has turned to the lawyers.
On that count, according to the WSJ, El Paso's lawyers say, don't look at us! We told El Paso to dump Goldman and they didn't listen to us:
Energy company El Paso Corp.'s decision to maintain Goldman Sachs Group Inc. as an adviser last year amid deal negotiations was made over the objections of El Paso's legal counsel, Wachtell, Lipton, Rosen & Katz, people familiar with the matter said.
Wachtell urged El Paso not to retain Goldman because, among other things, the bank had a 19% stake in Kinder Morgan Inc.
El Paso raises a legitimate question about the role of legal counsel in managing risks and conflicts in these kinds of transactions. Of course, it's ultimately up to the client which risks it wants and is willing to bear. It may well be that legal counsel is limited to simply raising issues. But, one lesson of El Paso might also be that legal counsel need to be more assertive in pointing out and managing investment banker conflicts when those conflicts generate risks for their corporate clients. With respect to El Paso, one might well think that El Paso's legal counsel should have been more aggressive in ensuring that when El Paso brought in a second investment bank to cleanse the Goldman conflict that the terms of that engagement created more freedom for the second banker to reject the preferred Goldman transaction and propose an alternative.
Conflicts will forever be with us, but we need to be better about dealing with them. Nothing new there, I suppose.
BTW: Steven Davidoff at The Deal Prof has a very good post on the problem of CEO narcissism. It's a real risk and one that legal counsel need to keep in mind. Just another headache for legal counsel...a client who believes they are morally entitled...
Monday, March 5, 2012
K&L Gates has posted a nice overview of the general issues one needs to consider when negotiating non-disclosure agreements and standstills (here), inclduing the limits on their enforceability. The authors of the memo also point out the hole in the indirect protection argument that Vulcan is attempting to make in front of the Chancery Court when they advise targets not to fall for the indirect protection argument when negotiating standstills:
When negotiating a standstill, the acquiror may argue that the target company does not need a lengthy standstill because it is already indirectly protected by the confidentiality agreement providing that the proprietary information to be provided to the acquiror may only be used in connection with the currently negotiated transaction and not for any other purpose. Targets should resist such argument—the target’s board wants certainty that the acquiror cannot launch a hostile bid and does not want to get into an argument about whether the acquirer is misusing the proprietary information.
If you want a standstill, ask for a standstill.