Thursday, January 31, 2013
The Irving R. Kaufman Memorial Securities Law Moot Court Competition is seeking judges. If you happen to be around Manhattan in the second half of March and can help out as a judge, it's a worthy event. From the organizers:
Each spring, Fordham University School of Law hosts the Irving R. Kaufman Memorial Securities Law Moot Court Competition. Held in honor of Chief Judge Kaufman, a Fordham Alumnus who served on the United States Court of Appeals for the Second Circuit, the Kaufman Competition has a rich tradition of bringing together complex securities law issues, talented student advocates, and top legal minds.
This year’s Kaufman Competition will take place on March 22-24, 2013. The esteemed final round panel includes Judge Paul J. Kelly, Jr., of the Tenth Circuit; Judge Boyce F. Martin, Jr., of the Sixth Circuit; Judge Jane Richards Roth, of the Third Circuit; and Commissioner Troy A. Paredes, of the United States Securities and Exchange Commission. The competition will focus on two issues that arise in the fallout of Ponzi schemes: whether the “stockbroker safe harbor” of the Bankruptcy Code applies to Ponzi scheme operators, and the application of SLUSA, which was recently granted cert by the Supreme Court.
We are currently soliciting practitioners and academics to judge oral argument rounds and grade competition briefs. No securities law experience is required to participate and CLE credit is available.
Information about the Kaufman Competition and an online Judge Registration Form is available on our website, www.law.fordham.edu/kaufman. Please contact Michael N. Fresco, Kaufman Editor, at KaufmanMC@law.fordham.edu or (561) 707-8328 with any questions.-bjmq
Wednesday, January 30, 2013
Today, the EU officially blocked the acquisition of TNT by UPS. Here's the press conference announcing the commission's decision:
UPS and the EU tried - unsuccessfully - to work through the issues:
To address the Commission's concerns, UPS proposed to divest TNT's subsidiaries in the 15 relevant Member States, plus – under certain conditions - TNT's subsidiaries in Spain and Portugal, to further increase the volume of small package express deliveries that would be transferred to the purchaser. UPS also offered access to its air network for 5 years, should the purchaser not be a so-called "integrator".
However, to provide intra-EEA express deliveries from the 17 countries covered by the remedy package, the purchaser would have needed suitable networks or partners in these other countries. This requirement alone severely limited the number of potentially suitable purchasers, casting doubt over the effectiveness of the remedies. To dispel this uncertainty, UPS would have needed to sign a binding agreement with a suitable purchaser before the concentration was implemented. However, UPS did not propose this to the Commission and its last minute attempt to sign such an agreement before the end of the Commission's investigation did not materialise.
Moreover, the Commission had serious doubts as to the ability of the very few potential purchasers that expressed their interest to exercise a sufficient competitive constraint on the merged entity in intra-EEA express delivery markets on the basis of the remedies offered. In particular, a buyer that is not already an integrator would need the ability and incentive to invest in its own air transport solution and to upgrade its ground network in order to become a sufficient competitive threat on the merged entity. Without sufficient volume in express deliveries it is doubtful that such an incentive would exist.
Without EU sign off, UPS had to walk away from the transaction. UPS will now pay TNT a 200 million euro reverse termination fee due to the fact that the transaction was terminated because of a failure of the antitrust condition.
... and rightly so. From Bloomberg:
Michael Dell, the special committee of the company’s board and their advisers are finalizing details of the equity financing while making sure they have explored all possible alternative options, including a sale to other buyers, said two of the people familiar with the situation. Given the potential for conflicts in a deal where Michael Dell helps take his company private, financial advisers and Dell’s board are being extra cautious, said these people.
Evercore Partners Inc. (EVR), which is advising the special committee of the board, has approached other potential buyers and no alternative bids have emerged so far, said one of the people. Dell and its advisers have also explored the possibility of a dividend recapitalization, which would involve taking on debt to help pay for a special dividend, as a way to increase shareholders’ value, said another person.
What's the over/under on the number of suits filed once this transaction is announced regardless of how good the process? I say 9.
Friday, January 25, 2013
For many years, lawyers with too much time on their hands have debated whether there is a difference in effect between these two governing law clauses:
"This contract shall be governed by New York law."
"This contract shall be governed by New York law, without regard to conflict-of-laws principles."
Some believe that the first clause, which does not address conflict-of-laws rules, requires application of New York’s conflict-of-laws principles. As a result a court might apply the substantive law of a jurisdiction other than New York--despite the clear intent of the provision.
As this client alert from Shearman & Sterling notes, the debate is finally over. Now we can all get back to arguing about the permissibility of splitting infinitives.
Thursday, January 24, 2013
For all you law students out there who are mystified by the procedural niceties of derivative litigation (actually, I should include a pile of politicians and media types in this group as well), AIG has filed a copy of its demand refusal with the SEC. It's right here. You'll also find a copy of the plaintiff's demand letter that kicked this whole thing off. I'll probably be using these materials in the future when I next walk through derivative litigation.
What does the filing tell us? Well, after plaintiffs filed their demand that the board took its time and didn't rush its decision with respect to the litigation. When it took up the litigation, it had informed itself of the issues and decided that pursuing Starr's claims in any form wouldn't be in the best interests of the corporation. That's pretty straightforward.
For those of you paying attention to the back and forth related to the H-P/Autonomy acquisition, the question of the potential liability of advisors has popped up more than a couple of times. How could H-P's advisors (investment bankers, lawyers, and accountants) let slip by the alleged accounting fraud that caused H-P to write down more than $5 billion? Close on the heels of that question is whether the advisors should face any liability for not picking up on the fact that Autonomy might not be a good candidate for an acquisition.
Well, for a partial answer as to the liability exposure of M&A advisors when the transaction goes wrong look no further than Baker v. Goldman Sachs, just decided by a jury in federal district court in Boston. There, the founders with Goldman's assistance sold their company, Dragon Systems to Belgium-based Lernout & Hauspie for $580 million in L&H stock. Not long after the transaction closed, fraud at the acquirer was discovered and the acquirer quickly went bankrupt leaving Dragon stockholders holding worthless stock.
Having lost everything, including their tech company, founders Janet and Jim Baker sued Goldman for allegedly failing in its duties to them, their clients, when it brokered the deal. Here's the original complaint (Baker v Goldman) - filed in state court and then removed to federal district court. The jury heard the evidence and the arguments in this case and found that Goldman had not breached any duties to the Bakers.
If H-P is thinking about going after its advisors for its ill-fated Autonomy deal, it will have to be more successful than the Bakers were in convincing a jury that M&A advisors should bear liability for a deal gone wrong.
Tuesday, January 22, 2013
If you are in NYC on February 7, I'd encourage you to stop by Cardozo for its panel on the Delaware arbitration procedure. They have assembled a great panel, including David Finger, counsel for the Delawaree Coalition for Open Government. Mark your calendars!
The WSJ has a fascinating behind the scenes look at how H-P's acquisition of Autonomy went down. It's a must read for anyone who thinks about acquisitions. Issues were raised in diligence related to potential accounting irregularities but they never made up to the board level. Had they, would that have been enough to slow down the train. The internal dynamics driving H-P to make this acquisition suggest that perhaps not. That's part of what makes acquisitions so interesting. All rational analysis aside, sometimes large transactions pick up their own momentum and they become difficult - if not impossible - for those close to it to stop.
Monday, January 21, 2013
Thursday, January 17, 2013
Chancellor Leo Strine and Prof. Larry Hamermesh have recently posted a new paper, Putting Stockholders First, that is their contribution to the question of multi-forum litigation. Unlike his predecessor, Strine takes a more active approach to managing this problem:
Abstract: The prevalence of settlements in class and derivative litigation challenging mergers and acquisitions in which the only payment is to plaintiffs’ attorneys suggests potential systemic dysfunction arising from the increased frequency of parallel litigation in multiple state courts. After examining possible explanations for that dysfunction, and the historical development of doctrines limiting parallel state court litigation — the doctrine of forum non conveniens and the “first-filed” doctrine — this article suggests that those doctrines should be revised to better address shareholder class and derivative litigation. Revisions to the doctrine of forum non conveniens should continue the historical trend, deemphasizing fortuitous and increasingly irrelevant geographic considerations, and should place greater emphasis on voluntary choice of law and the development of precedential guidance by the courts of the state responsible for supplying the chosen law. The “first-filed” rule should be replaced in shareholder representative litigation by meaningful consideration of affected parties’ interests and judicial efficiency.
Dennis Berman at the WSJ has a piece at WSJ.com that asks the right question about the now simmering Dell going private transaction. Who is Dell working for?
Management buyouts are always fraught, precisely for this reason. Prodded by court rulings, boards have taken steps to minimize the most flagrant problems. Should a deal be announced, be prepared for a barrage of reminders about "independent committees," "go shops" and the like.
But these steps are ultimately cosmetic. No one will say it this way, but it's the way deals happen: The conflict is the opportunity.
For example, without Mr. Dell's stake, it would be nearly impossible to assemble the $22 billion to $25 billion needed to buy the company. It's also unlikely that another buyout shop or industry player would make a competing bid without Mr. Dell's consent.
In these situations, a powerful executive like Mr. Dell can effectively act as his own poison pill, guarding against outcomes he doesn't like.
Make no mistake. Once this deal is announced there will be multiple suits. So of course, the lawyers are being attentive to the requirements. But if the J Crew transaction from last year is any guide the deal will pasts muster. However, these going private transactions always raise a question with me. If Dell (or whoever is the continuing management) have such good ideas about how to run the company, why don't they just go ahead and implement them now for the public shareholders? Why keep all the good ideas and strong management for when the business goes private? It's a question without a real answer.
Wednesday, January 16, 2013
Is it me or since Versata v Selectica have we been seeing an unusual rgowth in the use of NOL pills? I mean, there are an awful lot of firms out there all of a sudden looking to protect net operating losses from the liklihood of an inadvertant "ownership change". Or maybe, it's a shift of what is now the new "market" from a 10-15% trigger down to a 4.99% trigger. Oh, Krispy Kreme adopted a NOL pill yesterday. It's not seeking to prevent a hostile takeover, just an inadvertant change of ownership.
Monday, January 14, 2013
The editorial board of The Business Lawyer asked that I share this announcement. It's a great publication and probably the premier place for a corporate law scholar to publish:
The Editorial Board of The Business Lawyer is soliciting submission of articles and essays for Volumes 68 and 69. TBL is the flagship scholarly journal of the American Bar Association Section of Business Law. It reaches 41,000 readers on a quarterly basis. Authors must submit exclusively to the journal and submissions are peer-reviewed. We generally give authors a response in about two weeks. TBL provides a good forum to reframe scholarly articles published elsewhere for an audience of judges and practitioners. Past authors include Bernard Black, Henry Wu, Lucian Bebchuk, Joseph Grundfest, Guhan Subramanian, Vice Chancellor Leo Strine, former Chief Justice of the Delaware Supreme Court Norman Veasey, Larry Hamermesh, Starvros Gadinis, Roberta Karmel, Jonathan Lipson, and Barbara Black.
Articles should be submitted to Diane Babal, Production Manager, firstname.lastname@example.org. Questions about submissions can be addressed to Associate Editor-in-Chief, Professor Gregory Duhl, email@example.com.
Thursday, January 10, 2013
From the "things I'm reading" file: Autopsy of a Merger by Willam Owen. Squeezed this in over the break after I finished grading. It's definitely worth reading if you find yourself standing in front of a classroom for a living.
Owen was an in-house counsel at Trans Union when the transaction with Pritzker went down. He provides a very detailed look at how the deal went down and the personalities involved. It goes without saying that his portrayal of Van Gorkom is much more sympathetic than the portrayal of Van Gorkom by the Delaware Supreme Court. It's also consistent with contemporaneous profiles of him. Two things of interest about Van Gorkom that come through clearly from the book. First, Van Gorkom was apparently an early advocate of shareholder value as a driving force for corporate decision-making. In fact, he scoffed at the idea that boards should make decisions that put other constituencies (managers, employers) over stockholders. Second, Van Gorkom took the question of conflicts of interest related to an MBO seriously and was of the mind that management should never engage in transactions that raised potential conflicts. That, perhaps, explains his resistance to the KKR/management offer that showed up after he inked the initial deal with Pritzker.
Of course, Smith v Van Gorkom is pre-Revlon, but if one were to apply modern Revlon jurisprudence to the rich set of facts one gets from Autopsy, the case would have/should have come out differently. Was the process perfect? Certainly not. But, Revlon transactions need not have a perfect process. Was a disinterested board motivated to get shareholders the best price reasonably available in the short-term? Yes.
Tuesday, January 8, 2013
Corporations are people, my friend. So says Jonathan Frieman in California. That's why he carries incorporation papers for his California corporation with him everytime he hops into the HOV/carpool lane. He figures, thanks to Citizens United, there are two "persons" in his car -- himself and his friend, his California corporation. Now, he is challenging the traffic ticket he was issued for driving in the carpool with his "friend". His defense? The California vehicle code defines "person" to include "a natural person, firm, copartnership, association, limited liability company, or corporation." Since, he argues, he was driving in a lane restricted to vehicles with 2 or more "persons" and he and his corporation were in the car, then there was no basis for the ticket. Ha!
The Delaware Coalition for Open Government has filed its brief in the appeal before the Third Circuit. (DELCOG-Appellee's Brief). They make two arguments in response to Delaware's appeal, first:
Delaware’s inability to provide confidential binding judicial arbitration will not cause a mass exodus from American private arbitration to foreign courts or arbitration, which have no claim to expertise in American business law or custom greater than American private arbitrators.
Neither Delaware’s desire to facilitate new revenue streams nor the business community’s desire to hide its conduct from public scrutiny justifies subverting the First Amendment.
I think counsel for the Coalition are right on both counts. More updates on this litigation as they pop up.
Monday, January 7, 2013
Just back from the annual AALS confab in (rainy) New Orleans. The theme of the conference this year was global engagement and the legal academy. In keeping with that theme, it's appropriate that I flag this paper by Siegel and Wang, Cross-Border Reverse Mergers: Causes and Consequences:
We study the set of non-U.S. companies that have used a reverse merger into the U.S. as a means to adopt U.S. corporate law (and sometimes also as the vehicle to adopt U.S. securities law). Most importantly, early adopters of cross-border reverse mergers and those firms which over time hired a Big Four auditor exhibited superior corporate governance outcomes. The later adopters of cross-border reverse mergers were more likely to strategically mimic the early entrants to gain access to the U.S. capital markets (that is, they took some governance actions but not others), and were shown over time to be more likely to have worse corporate governance outcomes. Whereas adopting Nevada’s corporate law in particular and having firm-level origins in China at first appear to be significant negative determinants of at least some corporate governance outcomes, adopting Nevada’s corporate law and having firm-level origins in China are two variables that lose their statistical power when examining the most comprehensive data set on cross-border reverse mergers yet assembled and when including a battery of relevant control variables. In summary, the evidence supports the existence of strategic mimicry which the capital market did not totally discern for many years, as well as the explanatory power of reputational bonding for reconciling the fact that adopting U.S. institutions can be used either to build reputation or to exploit relatively weak, formal U.S. cross-border law enforcement.
One lesson from this paper seems to be that if you are a Chinese company looking to access US capital market, don't adopt Nevada corporate law.
Friday, January 4, 2013
You remember that former Wilson, Skadden, Cravath, Fried Frank associate who pleaded guilty to insider trading last year? He got 12 years. Oh, and he just got disbarred, too. Word to the wise starting a new career...
Thursday, January 3, 2013
More CurrentTV corporate law thoughts. Is is possible that the managers of CurrentTV violated their Revlon duties in selling the company to Al-Jazeera? Glenn Beck seems to think so...
Beck was on his radio show today and made it known that he inquired into purchasing Current Media, Inc. on behalf of his Mecury Radio last year. That inquiry was, to put it politely, rebuffed by Al Gore:
GLENN: Let me ‑‑ let me tell you what happened. How many months ago? I don’t know how many months ago. When we found out that Current TV was going to go up for sale, it was rumored to be, what, $250 million is what they were asking, and I don’t have $250 million lying around, but we wanted access to 60 million households and so we discussed it and we thought we can somehow or another find $250 million, $300 million. Somehow or another we might be able to do it.
Now, we didn’t know if we were willing to trade whatever it is we would have to trade to be able to get access to that kind of money. Do I want that kinds of debt? Do I want a partner? What am I going to have to give up? So we were very ‑‑ we were exploring and we thought, well, before we put any real thought into this, let’s call Al Gore. Let’s call Current and find out. And I wasn’t involved in any of the negotiations by any stretch of the imagination. We have people who are negotiating all of these things. We called them and said let’s just look. Because wouldn’t I love to buy Current. And so our people called, and a rough outline of the conversation is this, and I’m only telling you this because the Wall Street Journal has said that it is there. We have conversations that are confidential and we don’t ‑‑ I’m not going to tell everybody’s story on the air. The Wall Street Journal is reporting this story. So I want to give you the full story.
So we call up, and I don’t even know who we talked to but, you know, it was the person handling the negotiations. And our person says, “We would like to talk to you about buying Current.” Great, great, fantastic. So who is Mercury exactly? “Umm… (mumbling)… but let’s talk about, so how much are you…” “Excuse me. Who is Mercury exactly?” “It’s a wholly owned subsidiary of Glenn Beck.” “Excuse me?” “It’s Glenn Beck’s company.” “It’s Glenn Beck’s company?” Silence. “That one is going to probably have to go to the vice president. Al Gore’s probably going to have to answer that one. I don’t… we’ll call and we’ll get an answer and then we’ll call you back.” No kidding, within 15 minutes, brrrppp, we get a call back. “Yeah, umm‑umm, no, not even interested. We ‑‑ our legacy is too important and there would quite frankly be too many people, too many friends that the vice president would have to explain why he’s selling to Glenn Beck.”
First thing: If they are selling the company for cash, should the political ideology of the buyer enter into equation if a director wants to comport with his obligations under Revlon? I'll spare you the details, but in his discussion, Beck makes a pretty good case that, no, if you are going to cash out, thoughts about your legacy aren't compatible with your obligations to shareholders under Revlon. Of course, there is no obligation to run an auction under Revlon, but the managers conducting the sale have to be motivated by maximizing shareholder value rather than the political ideology of potential acquirers.
Second, one might say, hey, it's a private company, who has standing to sue anyway? Turns out -according to an S-1 filed as part of Current's failed 2008 IPO that both DirectTV and Comcast were shareholders of the CurrentTV. They have standing. I wonder if they cared about the sale process?
So many corporate law questions in this simple little deal. Whodathunkit?