August 24, 2012
Navigating Conflicts in Change of Control Transactions
Peter D. Lyons, David P. Connolly and Zhak S. Cohen of Shearman & Sterling analyze a series of recently decided high-profile cases involving conflicts of interest in change of control transactions and conclude that these cases
have not changed our guidance for handling conflicts: identify them early, disclose them appropriately, determine whether they are disqualifying or can be mitigated and, when mitigation is possible, mitigate them effectively.
You can read the whole thing here.
Acquisition Agreement Issues
Byron Eagan of Jackson & Walker's annual Acquisition Agreement Issues is posted at JDSupra. This is a good wrap up of current issues and well worth downloading - especially for junior associates about to start in an M&A practice group. Something to read on your bar trip! I know it's 450 (?!) pages long, but that's why God made Kindles.
August 23, 2012
NY adopts Tooley test
Ok, news for corporate law geeks. The Corporate & Securities Law Blog reports this morning that the Appellate Division of the New York Supreme Court in Yudell v Gilbert has discarded its previous case-by-case approach to determining whether shareholder litigation is direct or derivative. Rather, it held that going forward the test to apply is the test announced in the Tooley v. Donaldson, Lufkin & Jenrette (Delaware Supreme Court). The Tooley test asks a court to consider two things: 1) who suffered the harm in question; 2) to the extent there is a remedy, who will receive it. Where the answers to those questions are "the corporation", then the litigation is derivative. Where the answers are "the shareholder", then the litigation is direct.
The question of whether shareholder litigation is direct or derivative is a go-to for law professors at exam time. I guess the beginning of a new academic year is the right time to iron our some of the jurisdictional differences in favor of a more "common sense approach" (NY's words).
August 22, 2012
FTC clears Instagram transaction
That according to Reuters. Here's a copy of the letter from the FTC to Facebook closing the investifation. Now on to the fairness hearing.
Synthes and Revlon
Last week Chancellor Strine handed down In re Synthes S'holder Litig last week. It's an interesting opinion that's getting some attention from Prof. Bainbridge and Larry Hamermesh among others. Prof. Bainbridge looks at the opinion from the perspective of Revlon. Prof. Hamermesh makes important points about the pleadings.
In Sythnes, the controlling shareholder sought to liquidate his position through a sale. His choices were between J&J (for 65% stock and 35% cash) and a PE buyer for cash. The PE buyer required that the controller (and no one else) roll over a portion of his equity into the continuing corporation. Not interested in hanging around longer than necessary, the controller opted to pursue the transaction with J&J. The plaintiff's theory was the in pursuing a transaction with J&J that did not require the controller to participate in the firm post-closing rather than a competing transaction with a PE buyer, which could have brought more for minority shareholders, that the controller violated his fidcuiary duties to the minority. Chancellor Strine ruled that controllers have no fiduciary obligation to pursue transactions that benefit minority shareholders at the expense of the controller and that in accepting an offer that gave the same pro rata consideration to all shareholders the controller had not violated his fiduciary duties to shareholders.
Also, Chancellor Strine observed that a deal in which consideration included 65% stock did not invoke Revlon obligations.
August 21, 2012
Coates, Jets, and Political Spending
If you are a reasonably regular reader of this blog, you'll know that I absolutely love studies that try to relate corporate governance issues to the use of corporate jets. Now, there's a new one! John Coates has posted a paper that is forthcoming in JELS. In Corporate Politics, Governance, and Value Before and After Citizens United, Prof Coates makes a number of interesting observations: first, companies whose CEOs use corporate jets for private travel are more likely to use the corporate machinery to engage in political activity; and second, firms that engage in political acitivity have lower valuations than firms that do not engage in political activity.
Abstract: How did corporate politics, governance and value relate to each other in the S&P 500 before and after Citizens United? In regulated and government-dependent industries, politics is nearly universal, and uncorrelated with shareholder power, agency costs, or value. But 11% of CEOs in 2000 who retired by 2011 obtained political positions after retiring, and in most industries, political activity correlates negatively with measures of shareholder power, positively with signs of agency costs, and negatively with shareholder value. The politics-value relationship interacts with capital expenditures, and is stronger in regressions with firm and time fixed effects, which absorb many omitted variables. After the shock of Citizens United, corporate lobbying and PAC activity jumped, in both frequency and amount, and firms politically active in 2008 had lower value in 2010 than other firms, consistent with politics at least partly causing and not merely correlating with lower value. Overall, the results are inconsistent with politics generally serving shareholder interests, and support proposals to require disclosure of political activity to shareholders.
August 20, 2012
Comparison of One-Step and Two-Step Mergers
Haynes and Boone has a short summary of the pros and cons of each here.