February 3, 2012
Carlyle backs off arbitration provision
“After consultations with the SEC, Carlyle investors and other interested parties, we have decided to withdraw the proposed arbitration provision,” Christopher Ullman, a Carlyle spokesman, said today in an e-mailed statement. “We first offered the provision because we believed that arbitrating claims would be more efficient, cost effective and beneficial to our unitholders.”
Steven Davidoff didn't think the SEC would ever let Carlyle go public with the arbitration provision intact. Looks like he was rigtht.
ABA private and public target deal points study
The ABA Subcommittee on M&A Market Trends just release their annual Deal Points study. This annual study is a must read for anyone interested in M&A. The Subcommittee has done great work over the years compiling this study. So ... what are you waiting for? Download the 2011 study right now. Given my current interest in earnout provisions, I found the increase in the appearnce of earnouts in private company deals to be a bit of a surprise, especially given the current state of the economy. You'd think that if parties believe that earnout performance may be tied to general economic conditions, you'd expect sellers to eschew them when markets are soft. Apparently, not so. Thirty-eight percent of private company deals in the sample include earnouts. That's a lot.
February 1, 2012
Facebook crashes EDGAR site
Apparently, it's not only Chinese hackers that we have to worry about. Apparently, we have to worry about hugely popularly S-1 filings! Apparently, interest in the Facebook S-1 filing was so large that it crashed EDGAR. I've been unable to get on so far. Maybe I'll wait til tomorrow.
Chinese hackers target law firms
Honestly, it hadn't occurred to me that Chinese hackers would be targeting law firms to get inside information on pending merger transactions, but then again I guess that's why I'm not head of someone's IT department:
Over a few months beginning in September 2010, the hackers rifled one secure computer network after the next, eventually hitting seven different law firms as well as Canada’s Finance Ministry and the Treasury Board, according to Daniel Tobok, president of Toronto-based Digital Wyzdom. His cyber security company was hired by the law firms to assist in the probe.
The investigation linked the intrusions to a Chinese effort to scuttle the takeover of Potash Corp. of Saskatchewan Inc. by BHP Billiton Ltd. as part of the global competition for natural resources, Tobok said. Such stolen data can be worth tens of millions of dollars and give the party who possesses it an unfair advantage in deal negotiations, he said. ...
Tobok said a law firm involved in the deal detected signs of the intrusion the same month, including network disruptions. Analyzing the attack, investigators found that the spyware designed to capture confidential documents -- and sent via spoofed e-mails -- was compiled on a Chinese-language keyboard and China-based servers were involved in the attack, he said.
January 31, 2012
Chadborne & Parke on Drafting Trends in Poison Pills
In its most recent Corporate Practice Newswire, attorneys at Chadborne & Parke report on their survey of 27 rights plans (commonly referred to as "poison pills") adopted during the 14 months ending on October 31, 2011 by U.S. companies with market capitalizations above $250 million . The stated purpose of the survey: to review how companies tailor their poison pills using recently developed technology. The authors reviewed the following provisions:
- Ownership Percentage Triggers
- Use of "Qualifying Offers"
- Coverage of Derivatives
- Use of a Trust to Facilitate an Exchange
- Window for Redemption or Amendment Post-Trigger
- Coverage of Persons Acting in Concert
According to the authors,
Companies that have older rights plans in effect or "on the shelf" and ready to be adopted in the event of hostile activity may find that their poison pills lack the diverse array of new provisions increasingly becoming prevalent in modern rights plans. Consequently, companies seeking to adopt a new poison pill or put one "on the shelf" need to consider whether their rights plans should be updated to take advantage of these new provisions.
The authors' goal is to demonstrate how boards can better engineer their poison pills to respond to the realities of today’s hostile acquirers.
Delaware's fragile network
I've blogged about Delaware's new arbitration procedure before. Now that the parties in the legal challenge to the procedure are preparing for arguments on a summary judgment motion, I thought it might be an appropriate time to chime in again. Delaware's value and the source of its competitive strength is its vast body of corporate common law. In order for Delaware to maintain this position, it has to ensure that it has a regular supply of cases that it can adjudicate. Where and when new fact patterns arise, the courts are then challenged to reinterpret the law to adapt to new circumstances. When there are a lot of cases, the changes tend to be marginal. No single move means much, but, like glaciers in stop motion, when you observe it from afar there can be big moves over time.
Anything that threatens to slow down the flow of cases to Delaware becomes a threat to the development and the maintenance of the Delaware's competitive position. That's why the whole multi-forum litigation question is a problem for Delaware. If litigants bring Delaware cases outside of Delaware, Delaware's common law machine will slow down. The same is true of private arbitration. Now, let me distinguish between what Carlyle is attempting to do with its mandate to arbitrate all shareholder claims and what Delaware is doing with it arbitration system. Delaware's arbitration system requires two consenting parties. That means that no shareholders bringing fiduciary duty claims against directors will be required to arbitrate against their will. Neither will hostile acquirers challenging director actions to protect the corporation against an unwanted offer. My guess is few (if any) of those kinds of cases will ever end up being submitted to the arbitration system.
Cases that will end up in arbitration are of a particular type: contract litigation between buyers and sellers in a merger transaction. That's all litigation about deals gone bad, MAC's, termination and other walk rights. Many of those kinds of cases are candidates for arbitration. Once parties become comfortable with the system they'll being to insert Delaware arbitration language in their agreements and this kind of litigation will begin to disappear from the courts. When they start to disappear from the courts, transaction planners will begin to see a decline in the positive externalities associated with the Delaware law, including its predictability. Even though the courts may continue to innovate and adapt to new circumstances in arbitration, the drawback of arbitration is that none of those innovations and adaptations become part of the public record and none of them can be relied on by transaction planners working on other deals. If arbitration becomes the norm for that subset of cases, Delaware's value will declines just a bit.
What's the alternative? I don't know yet. Of course, the US Supreme Court has expressed a decided preference for arbitration, so it's not like one can stand up and say, "No more arbitration!" That's just not going to happen. Perhaps, Delaware's policymakers took a look at the changing landscape and figured getting into the game was the least worst of the alternatives. That may be so, and if it is I sympathize with their position. It won't change the fact that by jumping onto the arbitration bandwagon, the state is giving away some its own value.
Oh, and Joe Biden was in Delaware yesterday praising its courts for "making us look so good for so long."