July 19, 2012
Questioning the antitrust revival
On this blog and elsewhere there was a palpable sense of change with respect to the vigor of antritrust enforcement and pre-merger review when the Obama administration came to power. Now, a new essay at the Stanford Law Review Online by Prof Daniel Crane calls "BS" to that idea:
The merger statistics do not evidence “reinvigoration” of merger enforcement under Obama. Focusing on the last two fiscal years under Bush and the first two fiscal years under Obama, the numbers are comparable. In those periods, the Bush Administration conducted more total merger investigations (Bush 185, Obama 154) and more Hart-Scott-Rodino investigations (Bush 152, Obama 127). The two administrations had almost exactly the same number of “second requests” for information under Hart-Scott (an investigatory mechanism that delays the closing of a merger and often forces the merging parties to either negotiate with the government or abandon the merger). From 2007 to 2008, Bush made 52 second requests, and from 2010 to 2011, Obama made 53. The Obama Administration challenged slightly more mergers (Bush 16, Obama 19), and challenges announced by the Obama Administration resulted in more transactions restructured or abandoned prior to filing a complaint (Bush 9, Obama 15), although the numbers are small under both metrics.
These raw comparisons may not be sufficiently informative because of the reduced numbers of mergers due to the effects of the financial crisis. But even adjusted for the number of Hart-Scott filings, the numbers remain comparable, although with a tick up in second requests under Obama. The Bush Administration conducted 0.04 investigations per Hart-Scott filing; Obama conducted 0.05 investigations per filing. The Bush Administration made 0.013 second requests for information per Hart-Scott filing; Obama’s made 0.020—a 50% increase on a per capita basis.
Well. How about that. Prof Crane notes that statistics don't tell the entire story and that there may have been a change in attitude that prevented otherwise antitrust sensitive deals from going forward, etc. Still, it's eye-opening.
July 18, 2012
Tin parachutes at Chesapeake Energy
Cheseapeake Energy has not been a paragon of corporate governance these days. So no one should be surprised by the fact that Reuters is now reporting that Chesapeake has instituted "tin parachutes" for approximately 1,6000 mid-level employees. A tin parachute is a program in which a large number of mid-level employees are given payaments upon a change of control as a takeover defense. In the event there is a change of control and then employees with these tin parachutes are let go, then a large number of relatively small payments are triggered. In Chesapeake's case the estimate cost would be $140 million. By raising the back end costs of restructing a takeover target, it becomes more expensive for potential acquirers. Peoplesoft famously instituted a tin parachute while trying to fend off Oracle.
According to Reuters, Chesapeake has not disclosed the tin-parachutes in its SEC filings. That's strange. I did a quick search and couldn't come up with any description, but I imagine the folks over at Footnoted.com can find it if it's been filed.
July 16, 2012
Shareholders? What good are they?
Justin Fox and Jay Lorsch have a piece, What Good Are Shareholders?, in the new Harvard Business Review. They join Lynn Stout (The Shareholder Value Myth) and others call into question the question of whether pursuit of short-term stock prices is the best way to run a railroad. Fox and Lorsch conclude:
Given how many unintended and unwelcome consequences have flowed from the governance and executive pay reforms of the past few decades, we’re wary of recommending big new reforms. But we do think that giving a favored role to long-term shareholders, and in the process fostering closer, more constructive relationships between shareholders, managers, and boards, should be a priority. So should finding roles for other actors in the corporate drama—boards, customers, employees, lenders, regulators, nonprofit groups—that enable those actors to take on some of the burden of providing money, information, and especially discipline. This is stakeholder capitalism—not as some sort of do-good imperative but as recognition that today’s shareholders aren’t quite up to making shareholder capitalism work.
They, like Stout, recommend a new stakeholder capitalism. One that's focused on value, but long term value, and not necessarily social constituencies (though the two goals need not be mutually exclusive). Along the lines of long term shareholder value, Andrew Schwartz has an article, The Perpetual Corporation, that argues that directors have a legal obligation to manage for the long term. That might be a bit strong, but the article is a good marker for the long-term value argument.
Still 90+ degrees and melting in Massachusetts...