August 18, 2012
Shnader on Squeeze-out Mergers in Pennsylvania
Standard learning has long held that a minority shareholder of a Pennsylvania corporation who was deprived of his stock by a "cash-out" or "squeeze-out" merger had no remedy after the merger was completed other than to take what the merger gave or demand statutory appraisal and be paid the "fair value" for his shares. No other post-merger remedy, whether based in statute or common law, was thought to be available to a minority shareholder to address the actions of the majority in a "squeeze-out." Now, after the Pennsylvania Supreme Court’s holding in Mitchell Partners, L.P. v. Irex Corporation, minority shareholders may pursue common law claims on the basis of fraud or fundamental unfairness against the majority shareholders that squeezed them out.
The full client alert can be found here.
August 16, 2012
More on Facebook's 3(a)(10) fairness hearing
I noted earlier in the week that Facebook will be issuing 23 million shares as consideration in its acquisition of Instagram pursuant to a 3(a)(10) fairness hearing exemption. There are lots of good reasons to issue shares pursuant to a 3(a)(10) exemption - cost, timing, etc. But, remember today is the day 270 million shares hit the market following the expiration of lock-ups, and FB has hit an all time low. I suspect the market won't be all that happy to absorb 23 million more shares at the end of next week...
If you're at all interested, Facebook's fairness hearing package should published on the CALEASI database. I just did a quick search and it's not there, yet.
Oh, I commented for the FT on the Facebook fairness hearing. I think I said something like "It was worth a billion at signing and now it's down by half, is that fair?" Since I asked that question, let me answer it. Uh...yes. Instagram was a company that sold for $1 billion (30% cash and 70% stock) despite having no revenue! Is it fair to shareholders that their revenueless company now gets only $350 million of stock (or some rough equivalent) and $300 million in cash now that Facebook's shares have declined in value? Sure it is. Is it the highest price the board could have gotten? Probably not. In hindsight, taking more of that in cash would have worked out better, but the Instagram board made a reasonable bet -- that FB shares might soar -- that turned out to be wrong. No penalities for that.
In any event, Instagram has only a handful of shareholders who are all extremely close to management - the CEO of Instagram holds 45% of the shares himself. I doubt any of them are going to show up at what will otherwise be a non-contentious hearing to demand more for their revenueless company.
August 15, 2012
Senators weigh in on EMI acquisition
In a letter to the FTC, Senators Herb Kohl (D-WI) and Mike Lee (R-UT) come to the defense of audiophiles everywhere. Their letter summarized findings of a hearing by the Subcommittee on Antitrust, Competition Policy, and Consumer Rights on the proposed acquisition of EMI by Universal. They point to the rapid shift in the structure of the music distribution market from CDs to online distribution and caution that the acquisition could potentially be anticompetitive - a combined Universal/EMI controls over 40% of US market share by revenue (and 51 of the 2011 Billboard 100). Sens. Kohl and Lee argue that the strength of a combined Universal/EMI's catalogue could form a bottle-neck in any online distribution and create market power for the combined entity, stifling potential competition and efficiency.
For its part, Universal's CEO told the committee that it would be "insane not to license, develop, make available through as many platforms through as many retailers as possible." I don't know...I seem to remember a time not long ago when all the major record labels were "insane" in precisely that way.
In any event, here's the full text of the letter to the FTC. The ball is in the FTC's court.
August 14, 2012
Facebook 3(a)(10) fairness hearing
For those of you paying attention during this hot (possibly hottest ever?!) summer, the California Department of Corporations has just scheduled a 3(a)(10) fairness hearing to pass on the fairness of the Facebook stock to be issued in connectin with Facebook's acquisition of Instagram.
The fairness hearing process has fallen out of fashion, but it hasn't gone away altogether. You'll remember that the 3(a)(10) fairness hearing, which was very popular during the height of the dot com bubble is an avenue for getting an exemption from registration of securities. You can find a description of the fairness hearing process at the Dept of Corporations website here.