June 7, 2012
Man bites dog in CVR suit
Looks like some shareholders have sued the board of CVR Energy and are looking for the court to order the board to adopt a poison pill to protect the corporation from Carl Icahn's pending freeze-out of minority shareholders. Here's the Complaint. Here's a summary of the allegations from the complaint:
This case arises from the efforts of Carl Icahn, CVR’s controlling shareholder, to effect a creeping tender
offer that is designed to freeze out the Company’s minority stockholders for inadequate consideration.
After acquiring control of the Company through a Tender Offer (defined below), and replacing CVR’s Board
of Directors, Icahn has now embarked on a plan to acquire 90% of the Company’s outstanding stock
through public purchases at depressed prices as a precursor to a shortform merger that will eliminate any
minority position in the Company without providing them the statutory protections to which they are entitled
as long as the minority stake in the Company exceeds 10%. The CVR Board, comprised entirely of Icahn
loyalists, is facilitating Icahn’s unlawful scheme.
If the Icahn controlled board were ordered by the court to adopt a poison pill, then this would end Icahn's creeping freeze-out. There are two issues: First, these facts fall into the uncomfortable Siliconix/Lynch divide. Remember in Kahn v Lynch, if a controlling shareholder takes out minority shareholders in a statutory merger, then entire fairness applies and minority shareholders get procedural protections. However, if a controlling shareholder decides to take out the minority via a tender offer, then there is no entire fairness review (Siliconix). Chancellor Strine tried to make sense of the differing standards in Cox Communications. Vice Chancellor Laster adopted Strine's approach to tender offer squeeze outs in CNX Gas Corporation and invited the Delaware Supreme Court to weigh in:
Likewise under the Cox Communications framework, if a first-step tender offer is both (i) negotiated and recommended by a special committee of independent directors and (ii) conditioned on the affirmative tender of a majority of the minority shares, then the business judgment standard of review presumptively applies to the freeze-out transaction. [...] As with a merger, if both requirements are not met, then the transaction is reviewed for entire fairness.
The relevant question for the court is whether Icahn's open market purchases are akin to a first step-tender offer for purposes of the Cox framework. Applying the standard in Cox and CNX Gas would suggest that before Icahn moved forward with his open market purchases of CVR stock (following the closing of his tender offer and taking control of the board), an independent committee of his controlled board, with the power to say no, must negotiate and recommend the first step of the freeze-out plan - and that this freeze out plan (market purchases plus a short form merger) must be conditioned on a majority of the minority shares. Now, there's no evidence yet that either of these conditions have been met. Therefore, it's likely - absent evidence to the contrary - that entire fairness will be the standard here.
The remedy the plaintiffs are asking for is interesting. This is the "man bites dog" part of the case. The plaintiffs are asking for an order to require the board to adopt a poison pill to stop Icahn from acquiring more shares. Now, these days the typical case that shows up in court involves shareholders asking courts to order boards to pull pills so that a takeover can proceed. For the same reason courts are loathe to order boards to drop pills, they are going to be loathe to order boards to adopt pills.
June 4, 2012
Supreme Court Protects Credit Bid in Cramdown Bankruptcy Plan
On May 29, 2012, in RadLAX Gateway Hotel LLC v. Amalgamated Bank,the U.S. Supreme Court unanimously held that a debtor-owner of a hotel encumbered by a mortgage lien securing over $120 million of indebtedness could not obtain confirmation of a chapter 11 plan proposing to sell the hotel free of the lien to a stalking horse bidder offering $55 million cash, or to any bidder offering more, unless the mortgagee were allowed to credit bid up to its full claim.
Justice Scalia called it "an easy case" of statutory construction of Bankruptcy Code section 1129(b)(2)(A).
As this Ropes & Gray client alert notes, "[t]his decision resolves a split among the Circuits that caused uncertainty for lenders and encouraged forum shopping among debtors."
See this Proskauer client alert for some of the implications of the ruling.
UK Takeover Guide
Skadden has just released their annual overview of the UK takeover regime. It's a good read and at 44 pages is just long enough for the train ride home. Get it here.