Thursday, June 28, 2012
Kevin LaCroix has notes from Chancellor Strine's talk at the annual Directors College, which tool place at Stanford Law School last week:
The centerpiece of his presentation was a discussion of the lessons for directors based on the cases he has seen over the years. As a preliminary matter, and actually throughout his discussion of these issues, he emphasized that it is very rare that outside directors are actually held individually liable. He pointed out that, for example, cops, teachers and doctors are held liable much more frequently. But even if an outside director’s chance of being held liable is low, the chance of “looking like a chump” or that you have “failed your mission” is very high if you don’t watch out for certain things.
"Don't be a chump" and other nuggets of advice for corporate directors.
Afra's new paper, A Shareholder's Put Option: Counteracting the Acquirer Overpayment Problem is now appearing in the Minnesota Law Review. Here's the abstract:
Acquisition transactions are often the most significant activity undertaken by corporations. Despite the plethora of acquisition transactions, numerous empirical studies find that large-scale acquisition transactions involving public companies result in significant losses for acquiring firms and their shareholders. Finance scholars have attributed these losses to managerial agency costs (such as personal benefits in the form of increased compensation for management) and behavioral biases (such as ego and hubris) of boards and management.
Curiously, corporate law has remained largely silent in the face of this evidence. Acquisition transactions involve fundamental questions pertaining to the allocation of power between managers and shareholders. While corporate law has robust doctrines pertaining to the rights of shareholders of selling firms, it gives little attention to shareholders of acquiring firms. Under current statutory schemes, acquirer shareholders rarely enjoy any decision-making role in acquisitions. Moreover, judicial doctrine’s deferential stance toward the acquirer’s management means that acquirer shareholders are unable to seek any redress through the courts.
The Article proposes a novel solution to alter the stark imbalances in power between managers and shareholders of acquiring firms: a shareholders’ put option. The market pricing and shareholder direct participation contemplated by this proposal offer a referendum and monetary mechanism through which shareholders of acquiring firms could participate in acquisition decisions. The Article also provides a market-oriented incentive and process through which boards of acquiring firms could meaningfully consider whether to acquire another firm and how to properly value it. A diligent board could in fact use the put option to signal a well-valued transaction. Moreover, if exercised, a shareholders’ put option would force the acquirer’s management to internalize the costs of a value-destroying acquisition. If successfully used, a shareholders’ put option may be an optimal way to alter the balance of power in acquisition transactions so as to address the destruction of value suffered by acquirer shareholders.
Download it now!
Wednesday, June 27, 2012
The FTC and Department of Justice have just released their HSR report for 2011.
Mayer Brown has issued a client alert analyzing the report, which notes (among other things), that
- A significant increase in Hart-Scott-Rodino (HSR) filings, continuing a trend from the low point in 2009 after the economic downturn;
- The Obama administration continues to investigate a higher percentage of mergers than did the previous administration; and
- As has been the case since 2009, once a full investigation is opened, there is a high likelihood that the investigation will result in the government challenging the transaction.
Based on the report, Mayer Brown warns that parties considering mergers and acquisitions should expect continued aggressive antitrust enforcement by the Obama administration.
Tuesday, June 26, 2012
With all the bad press law schools have gotten in the press of late, this bit of news out of Texas about Texas A&M acquiring a law school comes as a bit of an eyebrow raiser:
By this time next year, Texas Wesleyan School of Law could have a new name: Texas A&M University School of Law at Texas Wesleyan University.
The deal has been in the works since October 2011. Today both universities, as well as The Texas A&M University System, are announcing they signed a letter of intent for A&M University to pay $20 million to assume ownership and operations of Texas Wesleyan's law school; A&M would pay Texas Wesleyan an additional $5 million within five years of closing, says A&M System spokesman Steve Moore. Texas Wesleyan would remain the owner of the land and facilities and would rent them to A&M.
The deal would transform the Texas Wesleyan law school from a private to a public law school.
Here's the Texas A&M press release.
Monday, June 25, 2012
Apologies for the light blogging. With summer and travel schedules, it's been slipping. Back now. So expect me more often.
That said, perhaps a "Shareholder Spring" for the UK? It looks like the UK is going to take say-on-pay one step further and is now seeking binding shareholder votes. Vince Cable, the UK's business secretary announced the move last week ago because the government believed that the non-binding votes weren't working. By working, he meant that where shareholders voted "no", there was an expectation that boards would respond by reevaluating pay practices and adjusting downward. In fact, that didn't happen and pay went up. Part of that might be traced to board recalcitrance, but I suspect a larger part can be traced to the fact that in the say-on-pay environment there are many more datapoints with respect to what peers are paid that it the rachet effect sends pay up as even responsible boards strive to pay in the top half of the range of selected peers. From the Guide to Directors Pay:
Experience with the say-on-pay votes in the US has been pretty uniform -- shareholders vote them down. Prof John Coates believes that the fact in the first year or two of implementation that such votes aloready get about 30% opposition is a sign that over time shareholders will turn to negative pay votes as a way to signal discontent to boards. The UK experience suggests that even negative non-binding votes might not be enough for shareholders to really affect and influence board policy. Perhaps binding votes are in our future as well? In that case, best to pay attention to what is happening in the UK now.