Friday, May 17, 2013
As I noted yesterday, the Delaware Coalition for Open Government and the Chancery Court were before a panel of the Third Circuit arguing the merits of Delaware's arbitration procedure. Tom Hals of Reuters was there and he thinks the Chancery Court scored some points. I've said it before and I still believe it: if the arbitration procedure survives, someone will look back in 10 years or so and shake their head. It's still a bad idea for Delaware and Delaware's franchise.
Thursday, May 16, 2013
The question of the constitutionality of Delaware's Chancery arbitration program is before the Third Circuit today. I think my position on this program is pretty clear -- I'm for openness. See here for past posts on the topic. I've got a paper appearing in Spring 2013 issue of the Cardozo Journal of Conflict Resolution arguing more or less the same thing.
We'll see what the panel thinks.
Wednesday, May 15, 2013
The survey covers 40 sponsor-backed going private transactions with a transaction value (i.e., enterprise value) of at least $100 million announced during calendar 2012. Twenty-four of the transactions involved a target company in the United States, 10 involved a target company in Europe, and 6 involved a target company in Asia-Pacific.
Here are some of the key conclusions Weil draws from the survey:
- The number and size of sponsor-backed going private transactions were each lower in 2012 than in 2011 and 2010; . . . .
- Specific performance "lite" has become the predominant market remedy with respect to allocating financing failure and closing risk . . . . Specific performance lite means that the target is only entitled to specific performance to cause the sponsor to fund its equity commitment and close the transaction in the event that all of the closing conditions are satisfied, the target is ready, willing, and able to close the transaction, and the debt financing is available.
- Reverse termination fees appeared in all debt-financed going private transactions in 2012, . . .with reverse termination fees of roughly double the company termination fee becoming the norm.
- . . . no sponsor-backed going private transaction in 2012 contained a financing out (i.e., a provision that allows the buyer to get out of the deal without the payment of a fee or other recourse in the event debt financing is unavailable).
- Some of the financial-crisis-driven provisions, such as the sponsors’ express contractual requirement to sue their lenders upon a financing failure, have diminished in frequency. However, the majority of deals are silent on this, and such agreements may require the acquiror to use its reasonable best efforts to enforce its rights under the debt commitment letter, which could include suing a lender.
- Go-shops remain a common (albeit not predominant) feature in going private transactions, and are starting to become more specifically tailored to particular deal circumstances.
- Tender offers continue to be used in a minority of going private transactions as a way for targets to shorten the time period between signing and closing.
Monday, May 13, 2013
Gilson, Enriques, and Pacces have a new paper in which they propose a neutral takeover regime for the EU. Rather than adopt a director centered approach (as in Delaware) or a shareholder centered approach (as in the UK), Gilson and his co-authors try to split the difference by adopting default rules and menus that permit firms to opt into the approach of their choice. Interesting, though I suspect that the challenge to a private ordering approach will be collective action problems that appears to make it difficult for shareholders to influence private ordering solutions at the IPO stage here in the US. Here's the abstract:
Abstract: Takeover regulation should neither hamper nor promote takeovers, but instead allow individual companies to decide the contestability of their control. Based on this premise, we advocate a takeover law exclusively made of default and menu rules supporting an effective choice of the takeover regime at the company level. For reasons of political economy bearing on the reform process, we argue that different default rules should apply to newly public companies and companies that are already public when the new regime is introduced. The first group should be governed by default rules crafted against the interest of management and of controlling shareholders, because these are more efficient on average and/or easier to opt out of when they are or become inefficient for the particular company. The second set of companies should instead be governed by default rules matching the status quo even if this favors the incumbents. This regulatory dualism strategy is intended to overcome the resistance of vested interests towards efficient regulatory change. Appropriate menu rules should be available to both groups of companies in order to ease opt-out of unfit defaults. Finally, we argue that European takeover law should be reshaped along these lines. Particularly, the board neutrality rule and the mandatory bid rule should become defaults that only individual companies, rather than member states, can opt out of. The overhauled Takeover Directive should also include menu rules, for instance a poison pill defense and a time-based breakthrough rule. Existing companies would continue to be governed by the status quo until incumbents decide to opt into the new regime.