Tuesday, July 30, 2013
Wednesday, July 24, 2013
No surprise, I guess. The board seems to be doing what it can to ensure this deal doesn't go down in flames. I suppose they see the company's future without the deal as so bleak that they are willing to take some extraordinary steps to get it through. New today: Dell and Silver Lake have "upped" their offer by $0.10. Not much. Certainly not enough to move some of the loudest critics off their positions. In any event, here's the new offer:
Our proposed amendments to the merger agreement are as follows:
1. increase the merger consideration to $13.75 in cash per share of Company common stock, representing an increase in the consideration to be paid to unaffiliated stockholders of approximately $150 million; and
2. modify the “Unaffiliated Stockholder Approval” requirement in the merger agreement to provide that the voting requirement is the approval of a majority of the outstanding shares held by the unaffiliated stockholders that are present in person or by proxy and voting for or against approval of the merger agreement at the stockholder meeting.
This is our best and final proposal. We are not willing to discuss any further increase in the merger consideration nor are we willing to increase the merger consideration to $13.75 per share without the change to the Unaffiliated Stockholder Approval requirement described above. If the Special Committee believes that it would be appropriate to reset the record date for the special meeting in connection with this change to the Unaffiliated Stockholder Approval requirement, we would be ready to accept a new record date so long as the resulting delay in the special meeting is the minimum required by law.
We believe our proposed change to the Unaffiliated Stockholder Approval requirement is fair and reasonable to the Company’s unaffiliated stockholders, particularly in the context of our willingness to increase the merger consideration. There is simply no rational basis for shares that are not voted to count as votes against the merger agreement for purposes of the unaffiliated stockholder vote. If a majority of the shares held by unaffiliated stockholders who vote are voted in favor of the merger agreement, it would be unfair to deny these stockholders the merger consideration they wish to accept solely because shares not voting are counted as votes against the transaction.
Hmm. Number 2 is very interesting. A couple of weeks ago, Chancellor Strine was asked to rule on a motion to expedite prior the shareholder vote (Transcript: Motion to Expedite). His reaction? No. He ruled that there were sufficient procedural safeguards ( see e.g. In re MFW) in place such that if unaffiliated shareholders felt that this deal was not in their interests, they had the power to vote the deal down, so no injunction. I wonder what he would say today. He certainly couldn't be as confident that unaffiliated shareholders now have the power to vote down the deal, because they no longer do. Now, it may be that the fact that Dell has effectively neutralized his 16% vote through a voting agreement is enough to get them over the line in front of a judge, but it's not a slam dunk. The Chancellor's confidence stemmed from his feeling that a majority of the minority were "fully able to protect themeselves" given the combination of Dell's neutralized vote and the voting requirements. Now, one of those protections is gone.
My guess is this transaction will be back in court before August 2. I suspect it may go less well for the board the next time if the Special Committee agrees to this change in the voting rules, but that is a risk it looks like the board feels it might have to take.
Prof. Lynn Lopucki has helpfully annotated the DGCL to make it more readable. This is a great resource for students wading through the code for the first time and for junior associates who took corporate law, but for some reason survived the class without ever having cracked the code (tsk, tsk...). You can download it here.
Thursday, July 18, 2013
OK, so the Dell board adjourned today's meeting rather than face the indignity of having to announce to the world that Icahn had won this battle and that it had come up 150 million votes short. So, now the board has until July 24th to round up as many of non-votes as possible to get over the hump. Remember that courts when asked to review a board decision to adjourn a shareholder meeting to round up more votes in favor of their preferred transaction will rely on the business judgment standard. So, it's deferential of board actions - short of coercion or improper vote buying boards are permitted to adjourn in this manner.
What might coercion or improper vote buying look like? Well, I invite you to jump into the Way-Back Machine to 2002 and the HP-Compaq merger. Sensing that HP shareholders wouldn't vote in favor of the controversial merger, Fiorina organized a conference call with DB bankers and their asset management group (that had just voted against the deal) to discuss DB's continuing relationship with HP. During the call, Fiorina said, “This is obviously of great importance to us as a company. It is of great importance to our ongoing relationship.”
An executive from DB on the call then reminded the asset management folks that HP is an “enormous” customer and then tells them they would have to defend a “no” vote to the highest levels of the bank. According to the transcript the DB executive said to the team, “Obviously, if you don’t want to change your vote, that’s your call. I would suggest to you — and I’m not trying to put undue pressure — but make sure that you have a very strong documented rationale for why you voted the way you did.”
After the call DB changed enough votes to help the merger pass.
Good times, good times.
Tuesday, July 16, 2013
For those of you who have been following developments in the litigation surrounding Delaware's arbitration procedure, the following paragrahs from a recent Letter Opinion by Vice Chancellor Glasscock are illuminating. All all I can say is, "Yes, and all of these arguments are equally valid when applied to the question of Chancery Court arbitration." Here:
Court of Chancery Rule 5.1 exists to “protect the public’s right of access to information about judicial proceedings” and “makes clear that most information presented to the Court should be made available to the public.” The public’s right to access judicial records is considered “fundamental to a democratic state” and “necessary in the long run so that the public can judge the product of the courts in a given case.” Accordingly, under Rule 5.1, only “limited types of information qualify for confidential treatment in submissions to the Court.” The party seeking confidential treatment of the record must demonstrate “good cause” for such treatment:
For purposes of this Rule, “good cause” for Confidential Treatment shall exist only if the public interest in access to Court proceedings is outweighed by the harm that public disclosure of sensitive, non-public information would cause. Examples of categories of information that may qualify as Confidential Information include trade secrets; sensitive proprietary information; sensitive financial, business or personnel information; sensitive personal information such as medical records; and personally identifying information such as social security numbers, financial account numbers, and the names of minor children. ...
Rule 5.1 also “implements the powerful presumption of public access providing that ‘[e]xcept as otherwise provided in this Rule, proceedings in a civil action are a matter of public record.’”21 Thus, the party seeking to “obtain or maintain Confidential Treatment always bears the burden of establishing good cause for Confidential Treatment”22 and must demonstrate that “the particularized harm from public disclosure of the Confidential Information in the Confidential Filing clearly outweighs the public interest in access to Court records.”
The arbitration case is presently under consideration by the Third Circuit.
Monday, July 15, 2013
Here is the Dell Special Committee's official response to Icahn warrant offer from last week:
“We are today reviewing the fifth proposal from Carl Icahn, which would include issuance of warrants in connection with the self-tender proposal he previously outlined. We are working with our advisors to evaluate whatever benefits might flow to shareholders from the warrant he has proposed to include in his structure. We would note that a portion of any value attributed to the warrants would be offset by a reduction in the value of the recipients’ stub equity, as well as the fact that receipt of the warrant would likely be a taxable event. We have been and remain willing to meet or talk with Mr. Icahn about his various proposals, including at a meeting scheduled earlier this week which he requested and subsequently cancelled.
“More broadly, it is important to note that all of Mr. Icahn’s various proposals require abandoning an all cash transaction at a substantial premium with a high degree of closing certainty that shifts all of the risks of the business to the buying group in exchange for a highly speculative recapitalization concept that relies upon the future value of a leveraged public technology company. We have studied variations on this theme for months and continue to have substantial reservations about that value proposition.
“Most important, we believe it is critical that Dell shareholders not be distracted from the clear choice they must make next week – take $13.65 per share in cash or bear the risks of continuing to hold their Dell shares.”
Shorter version: We are thinking about it because our fiduciary obligations require us to, but there is nothing really here of any interest to us. Move along.
Friday, July 12, 2013
For all this talk now flying around about somehow using the appraisal remedy as a free option in the Dell transaction for shareholders who hold to eke out more from the deal, I'll say wait a minute. Slow down. First things first, pursuing an appraisal is not like heading down to the local pawn store and asking Chumlee "Hey, Chum, how much for my stock?"
Even if it were that easy, everybody knows that Chumlee and his buddies aren't going to give you the highest price for your stock, just a fair price. There's a big difference.
A recent opinion in the Delaware (well worth reading...Merion Capital v. 3M Cogent) suggests how an appraisal could go down:
This is the post-trial decision in an appraisal brought pursuant to 8 Del. C. § 262 and arising out of a merger in which a global technology conglomerate and its acquisition subsidiary acquired a biometrics technology company at a price of $10.50 per share. Relying upon a discounted cash flow ("DCF") analysis, the petitioners claim that each share of the biometrics company's common shares was worth $16.26 as of the merger date. By contrast, the respondent contends that the biometrics company's common shares were worth only $10.12 apiece as of the merger date. For the reasons set forth below, the Court concludes that, as of the merger date, the fair value of the biometrics company was approximately $963.4 million or $10.87 per share.
Catch that? The dissenting stockholders were looking for $16.26, the company argued that $10.12 was fair and in the end, the judge awarded the dissenters $10.87, just $0.37 more than the original merger consideration. Geez, that's not even splitting the difference between the competing valuations! Another thing with knowing -- Merion took almost 3 YEARS to get to this point. That's three years out of your life for an extra 37 cents per share. That might be worth it to some investors, but not to many/any retail investors.
Anyway, I am neither for or against anyone pursuing their rights to an appraisal in connection with the Dell deal, just be aware it takes time and it might not even be all that valuable an option in the end.
Wednesday, July 10, 2013
So, it's starting to look like an end game scenario for Dell. Carl Icahn is now pushing supporters to seek appraisal for their shares. Here's the thing about seeking an appraisal. I tell my students its like going to the professor to ask him to regrade your exam. Sure, you might get a higher grade...but then again... you might get a lower grade too... It's a long hard slog and for most, that is for those shareholders with relatively small stakes, it usually makes more sense to take the money and move on.
Here's selected text of the letter from Icahn:
Dear Fellow Dell Stockholders:
We are in the process of perfecting our right to seek appraisal of our Dell shares and we believe that you should also perfect your appraisal rights. Under Delaware law if a merger occurs and you did not vote for it, you are entitled, through appraisal, to the fair value of your shares as determined by a Delaware court. We have done a great deal of due diligence concerning the value of Dell, and as we have said in the past, we believe the $13.65 merger price substantially undervalues your Dell shares, and we believe if you seek appraisal, you will receive more. BUT WHAT IS MOST IMPORTANT ABOUT SEEKING APPRAISAL IS THAT YOU CAN CHANGE YOUR MIND ABOUT APPRAISAL UP TO 60 DAYS AFTER THE MERGER AND STILL TAKE THE $13.65 PER SHARE. During the "free 60 day period" we believe Dell may wish to negotiate with those that sought appraisal and possibly pay a premium over $13.65 to get them to settle and drop their appraisal claims, as explained below. To add a new twist to an old saying, "you can have your cake and eat it too".
Those Who Seek Appraisal May Get Lucky
In many merger transactions, if over a certain number of stockholders seek appraisal rights, this gives the purchaser the right to opt out of the transaction and thereby avoid the uncertainty created by appraisal. However, Michael Dell and Silver Lake did not obtain this opt out right. This leaves Michael Dell and Silver Lake VERY exposed. Because they neglected to obtain this right, no matter how many stockholders seek appraisal, if the merger is approved, Michael Dell and Silver Lake are obligated to close or pay a $750 million penalty. We would certainly like to be present to hear the discussion between Michael Dell/Silver Lake and their lenders as they consider the impact of a substantial exercise by stockholders of their appraisal rights. Will the lenders use this as an excuse to refuse to close claiming this is a material adverse change, especially in light of the terrible time Dell is having in the PC market as so often stated by Dell themselves? We think that there is a good chance that none of them will want to face the overhang of a large number of stockholders seeking appraisal. I therefore believe there will be significant pressure on Michael Dell and Silver Lake to resolve the appraisal rights, and possibly seek a settlement during the "free 60 day period". Even if you want the Michael Dell/Silver Lake offer to be accepted, unless you believe your shares will tip the balance, why vote for it? Why not seek appraisal and have the benefit of the "free 60 day period"? Dell may well pay a premium over $13.65 to settle with those seeking appraisal.
THE PROCESS TO SEEK APPRAISAL RIGHTS TAKES TIME, SO ACT NOW IF YOU WISH TO PERFECT YOUR APPRAISAL RIGHTS AND IMMEDIATELY CONTACT YOUR BROKER AND OTHER ADVISORS.
Wednesday, July 3, 2013
No surprise to me or anyone thinking about the auction literature, from QZ.com:
Generally thought of as unwritten sell-side tactics, the relationships between the total number of bids, the designation of the deal as ‘hostile or not was studied in detail in 2001 by Andrade, Mitchell, and Stafford (“New Evidence and Perspectives on Mergers,” Journal of Economic Perspectives. 15:2, 103-120).
|Hostile Bid* at any point||8.4%||14.3%||4.0%||8.3%|
The above exhibit suggests that in order to extract the highest price, sellers should seek to both expand the total number of prospective bidders and also the number oftimes that each suitor submits a separate bid—the separate and identifiable “bid cycles” of today’s tactics.
Want to get the highest price? Get lots of bidders.
Thanks to our friends at Courtroom View Network, I'll be watching the arguments before the Delaware Supreme Court in the Countrywide litigation. I'm not exactly liveblogging cause I just walked out of a meeting, but I'm "almost live blogging." Is that a thing.
OK, we're off. Looks like the Chief Justice will be watching this feed later too. He's wrapped up in a meeting with Governor and will catch up later.
OK, right out of the box, "noted legal scholar Theodore Geisel" gets quoted. Who is he? I didn't know either, but then came the quote: "I meant what I said and I said what I meant, And an elephant's faithful, one hundred per cent!" Yeck...starting with Dr. Suess references and bad puns... all down hill from here?
Thankfully, it gets better. Justice Jacobs is looking for Stuart Grant to help him understand whether a derivative claim that is eliminated because of loss of standing following closing might proceed as a direct claim.
In the absence of the Lewis fraud exception, is there a direct claim - based on a theory that the value of derivative claims was not included in the merger consideration - that survives closing? Grant thinks no.
Where the economic reality is that the damage caused by the defendants drove the stock price into the ground for the benefit of the managers because the inevitable result is that the claims should survive through the Lewis fraud exception - paraphrasing Grant.
"Just because some liar...I mean lawyer tries to be creative..." [audible chuckles from the bench following the Freudian slip.] OK, back to more serious argument.
No damage to the surviving entity, BoA, so they would never seek to pursue these claims. Unless the claim survives for Countrywide shareholders, the defendants may never face any justice in this case. That's pretty compelling.
Grant still talking the fraud exception -- the merger was the inevitable result of the ongoing fraud. The fraud gave rise to the merger, so in this set of facts the Lewis fraud exception should be applicable. The fraud necessitated the merger. No alternative to the merger other than bankruptcy, therefore Grant argues, the Lewis exception applies.
Grant wants to call the surviving claim a "quasi-derivative claim" - not direct or derivative, but a new animal without the baggage that accompanies both direct or derivative.... references to quantum mechanics brings Grant's argument to an end.
Countrywide up next.
OK, so this guy wants no part of any 'newfangled' quasi-derivative anything. The concept of a quasi-derivative claim has no underpinning under Delaware law. Tooley says there are only two types of claims. That's it. The existing structure is fine.
Countrywide is arguing that if anything is left after closing, it's a direct claim, but since those claims weren't made previously, the shareholders can't bring them now.
The Justices seem to like Grant's idea of a new quasi-derivative claim.
Berger is looking for Countrywide to explain to her why Grant's concept of a new quasi-derivative class of claims is a bad idea.
Countrywide counsel warns against crafting an exception that swallows the rule -- no quasi-derivative litigation, please. He warns of decades of litigation should this new class of claims be adopted. Suggests that going with Grant would be a judicial re-writing of Sec 259.
Stuart Grant back to the podium. Arguing that Countrywide's previous shareholders, rather than BoA shareholders should be the recipient of any damages - why? Well, because BoA shareholders weren't ever damaged (in fact they benefited!), while the Countrywide shareholders were. Shouldn't they be compensated? The quasi-derivative action ensures the benefit goes to the shareholders, not the suriving corporation. Grant says - call it what you want, but make sure the benefit of any of these cases goes to the people who were damaged - as between old shareholders and the acquiror, damages should go to the former shareholders of the target.
And...that's it. Court is in recess.
As sure as night follows day, now that the Chancery Court has blessed exclusive forum bylaws, firms are starting to adopt them again. Remember there was an initial surge last year, but most of the firms that adopted , except Chevron and FedEx, them pulled them in the face of shareholder pressure and pending resolution of the Chevron challenge. Now that that is over, firms are starting to adopt them again. First up: Jos. A. Bank (Form 8-K).
On Monday, the board of Jos. A. Bank amended its bylaws to include the following provision:
Monday, July 1, 2013
Maybe it's just me, but there have got to be other fish in the sea. You want my advice? Don't marry him, dump him. He's a bum.
On July 1, 2013, the Securities and Exchange Commission announced that it charged a former officer of The Dow Chemical Company (Dow), his long-time friend, and a broker with insider trading that generated more than $1 million in illicit profits based on confidential information ahead of Dow's acquisition of Rohm & Haas Co. (Rohm)....
The SEC's complaint alleges that [Mack] Murrell, who was the Vice President of Information Systems for Dow, obtained confidential details about the acquisition of Rohm from his then live-in girlfriend, now wife, who was the administrative assistant to Dow's Chief Financial Officer at the time. Murrell's girlfriend knew about and worked on the pending acquisition. The complaint alleges that the day after learning from his girlfriend of a special Board meeting at which the Rohm acquisition was discussed, Murrell tipped his long-time friend [David] Teekell during a telephone call. Immediately following the telephone call, Teekell called [Charles] Adams, his broker at Raymond James, and tipped him.
The complaint further alleges that the next business day after learning of the pending acquisition, Teekell and Adams began purchasing common stock and call options in Rohm. In addition to purchasing call options in his own account, Adams purchased stock in two discretionary customer accounts. Teekell's and Adams' purchases continued until the day before the acquisition announcement on July 10, 2008, when the price of Rohm stock jumped 64 percent. Teekell made an illicit profit of $534,526 and Adams and his discretionary customers made illicit profits of $107,043 through the insider trading. Raymond James made illicit profits of $373,497 when Teekell and Adams decided not to keep certain Rohm options that Adams had purchased in Teekell's account.
Here. Call options...again with the call options...sheesh.
For those of you paying attention to these kinds of things, the Delaware Supreme Court will take up an important case this Wednesday before the holiday. The issue for the court in the Countrywide litigation relates to whether and how and under what circumstances derivative litigation can survive the closing of a merger. You'll remember that DGCL Sec. 327 requires that a stockholder plaintiff in any derivative litigation maintain standing. One way to eliminate standing is to close a merger. Of course, there are limits. One can't undertake a fraudulent merger solely to deprive stockholders of standing in any derivative litigation (Lewis v Anderson). Recently, in Primedia, Vice Chancellor Laster ruled that plaintiffs whose standing to pursue derivative insider trading claims had been extinguished by merger had standing to challenge directly the entire fairness of that merger based on a claim that the target board of directors failed to obtain sufficient value in the merger for the pending derivative claims.
On Wednesday, the Delaware Supreme Court will take on the issue again, this time in the form of a certified question from the Ninth Circuit. Delaware is one of the few state supreme courts that accepts certified questions. The court is permitted to hear certified questions under Article 11, Section 8 of the Delaware State Constitution:
8) To hear and determine questions of law certified to it by other Delaware courts, the Supreme Court of the United States, a Court of Appeals of the United States, a United States District Court, the United States Securities and Exchange Commission, or the highest appellate court of any other state, where it appears to the Supreme Court that there are important and urgent reasons for an immediate determination of such questions by it. The Supreme Court may, by rules, define generally the conditions under which questions may be certified to it and prescribe methods of certification.
The Delaware Supreme Court used this power in CA, Inc. v. AFSCME Employees Pension Plan in 2008 when it ruled on the validity of proposed bylaws in response to a certified question from the SEC. On Wednesday, the court will hear arguments relating to a question certified to it by the Ninth Circuit:
Whether, under the “fraud exception” to Delaware’s continuous ownership rule, shareholder plaintiffs may maintain a derivative suit after a merger that divests them of their ownership interest in the corporation on whose behalf they sue by alleging that the merger at issue was necessitated by, and is inseparable from, the alleged fraud that is the subject of their derivative claims.
It will be interesting to see how the court approaches the Countrywide questions. Arguments are going to be streaming online so I'll keep you updated.