February 10, 2012
Arbitration procedure gets its day in court
The challenge to Delaware's arbtration procedure got its day in court yesterday in Philadelphia.
"You have a judge, a Chancery Court judge, paid for by taxpayers in a closed courtroom dealing with these things," said U.S. District Judge Mary A. McLaughlin, where the proceedings, paperwork and often the resolution are under seal. "It's difficult for me," she said.
One bit of information from the hearing - until now there have been 6 different cases heard via this procedure. Previously only the Skyworks case had been publicly known. Apparently there were a few others.
In any event, the following exchange -- all the constitutional issues aside -- really summarizes what's really at stake:
Andre Bouchard, a private attorney representing the Chancery Court, argued the secret arbitration make the court more efficient and generates revenue for the state. He said that if the law is overturned, businesses would instead seek private arbitration elsewhere that could be kept secret.
"What public good comes from opening up a proceeding if nobody's going to use it?" he asked.
But Finger said the fact that the state makes money off the secret arbitrations is no reason to infringe on the rights of citizens.
Judge McLaughlin indicated that she would have a ruling within 90 days.
February 9, 2012
Insider trading review -- 2011
MoFo has the definitive overview of insider trading prosecutions over 2011: Galleon, Octopussy, Kluger, all of it. Get it here.
OK, I'll admit it. I enjoy Chancellor Strine. He's got some freakin' interesting opinions that he's not freakin' afraid to share with you. And, whoa, when he freakin' lets his hair down (sorry), watch out. Evidence? He gave a freakin' talk to law students at York University recently and shared his views:
Chancellor Strine is blunt, witty and opinionated. He is by his own admission a left-winger on the U.S. political spectrum. He believes that the financial crisis was the product of too little regulation, that the U.S. tax system goes too easy on speculation, and that independent directors need to "show some spine" and stand up to financial "gimmicks" engineered by aggressive corporate controllers.
Salt those observations with a liberal use of the adjective "freakin'" and you pretty much capture his entire chat. Listening to him is part Harvard lecture and part pregame tailgate party.
The job of the corporate lawyer, he told students, is to help clients follow the better angels of their nature and resist actions that might provide immediate benefits in the short term, but cause greater harm in the long term. ...
"I think there should be a transactional tax that would create some useful friction against speculation," he said. He believes this transactional tax should be imposed internationally, perhaps across the Organization for Economic Co-operation and Development nations, to avoid arbitrage across countries.
He would also adjust the U.S. capital gains tax rate. The U.S. tax system makes a "longterm" rate of 15% available for investors who hold an asset for longer than one year. He suggests five years might make more sense - though he also questioned why capital gains deserve any discounted rate.
"I actually believe there's no reason why, in general, capital gains should be taxed at less than the same rate as sweat."
Strine will be hearing arguments for a preliminary injunction in the In re El Paso case today. I'm in a rush with respect to classes today, so I may not have time to drop in. But, don't wait for me. It'll be available on Courtroom View.
February 8, 2012
Exclusive forum provisions challenged in Delaware
Francis Pileggi brings to my attention a number of suits filed in the past two days against Delaware companies with exclusive forum provisions in the bylaws. The exclusive forum bylaws are typically adopted by boards and not shareholders. They purport to restrict any shareholder litigation based on state law claims to the courts of the state of incorporation. Recent interest in such provisions is a result of the recent rapid increase in transaction-related litigation. Steven Davidoff's paper on The Great Game is good background, as is Bernie Black's paper, Is Delaware Losing its Cases? and Randall Thomas & Bob Thompson's paper Litigation in Mergers & Acquisitions.
Here are two of the current complaints: Sutton_vs_AutoNation_Inc and Tejinder_Singh_vs_Navistar_Int. They both attack a bylaw provision that was unilertally adopted by a board - so no shareholder vote. A similar bylaw was struck down last year in Galaviz v Berg as lacking sufficient indicia of consent. These complaints are worth giving a read. There's merit to the argument that unilaterally adopted bylaws shouldn't bind shareholders. But the complainants also raise a number of other interesting questions. I'm already on record supporting exclusive forum provisions in corporate charters, so I'll be following these cases with great interest.
February 6, 2012
Marcus on Confis and Hostile Acquisitions
David Marcus at The Deal had an interesting piece over the weekend on the role of confidentiality agreements in the context of hostile acquisitions. He focuses on confidentiality agreements in the Vulcan/Martin Marietta transaction and the Westlake/Georgia Gulf transaction. It's a good read. Marcus also offers up the following chart from Dealogic:
I'm curious as to how Dealogic defines "successful" - I suppose that a deal that starts hostile and then ends up with a negotiated transaction is considered successful. That's one way to think about it. But that does an injustice to the power of the poison pill. I doubt there are any deals on this list of US targets where a hostile bidder has been successful over the continued protests of the target board with a pill in place.