January 10, 2013
Autopsy of a Merger
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.
January 8, 2013
Corporations in the HOV lane
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!
Delaware arbitration update
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.
January 7, 2013
Paul, Weiss partner Ariel Deckelbaum on the forces driving M&A in 2013
Cross Border Reverse Mergers
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.