Friday, June 28, 2013
No surprise really. File this under "miscellaneous regulatory review (a.k.a. politics)". The Senate Agriculture Committee will hold hearings on July 10 to review the acquisition of Smithfield. On what basis? Who knows. Who cares, really. Here's the text of a letter a bi-partisan group of Seantors sent to Treasury Secretary Lew asking that acquisitions of food companies be submitted for national security review:
We are writing with regard to the proposed purchase of Smithfield Foods, the world's largest producer and processor of pork, by the Shuanghui Group. Although the Committee has not reached any conclusions with respect to this particular acquisition, it has raised a number of questions about how the foreign purchase of a major agriculture or food company is reviewed by the United States Government.
It has been publicly reported that the parties to this transaction are submitting it to the Committee on Foreign Investment in the United States (CFIUS) for review. The President has delegated to you the authority to add "the heads of any other executive department, agency, or office" that you deem appropriate to CFIUS on a case by case basis, and to designate a "lead agency or agencies" to "have primary responsibility" for that review.
We believe that our food supply is critical infrastructure that should be included in any reasonable person's definition of national security. As such, we strongly encourage you to include the Department of Agriculture and the Food and Drug Administration in any CFIUS review of this transaction, and consider designating the Department of Agriculture as one of its lead agencies. Further, any CFIUS review of this transaction should look beyond any direct impact on government agencies and operations to the broader issues of food security, food safety, and biosecurity.
Considering the potential for other foreign acquisitions of American food and agriculture companies, we also have a number of broader questions about how these transactions are reviewed and whether the appropriate authorities are evaluating potential risks and proposing sufficient mitigation measures to protect American interests. For instance, what measures should be considered to ensure that a company will maintain operations that comply with stringent American food safety and biosecurity standards? What measures should be considered to ensure that taxpayer supported research and development and any resulting intellectual property are properly safeguarded? Should trends in foreign acquisitions also be monitored to ensure the ongoing integrity of key components of the American food supply?
The United States has the safest, most efficient and reliable food supply in the world. It is one of our nation's great strengths, and we must ensure that it is preserved and protected. The Committee on Agriculture, Nutrition, and Forestry will further examine how this transaction is reviewed and how these transactions should be reviewed in the future. We look forward to your cooperation in that important effort.
"Biosecurity"... sounds scary. Strikes me that this is decidedly not a transaction that should be subject to CFIUS review.
The DOJ recently announced a $720,000 civil penalty against Macandrews & Forbes Holdings for violating premerger notice and waiting requirements under the Hart-Scott Rodino Act related to its acquisition of Scientific Games in June 2012. This is the second time in as many weeks that MAF has settled up penalties with the feds.
Tuesday, June 25, 2013
So, I'm already on record about what I think is next. So, forum selection bylaws that restrict litigation to the state of incorporation are helpful for managing the issue of multiforum litigation, which in recent years has become a real waste of resources. But, it's a very tricky - and perhaps impossible - balance.
The hard part of the balance involves arbitration. I'm already on record with respect to my opinions on the Delaware arbitration procedure (here and here), which I think goes too far. The forum selection bylaw, I think, may further open the door to widespread adoption of arbitration provisions in bylaws. If widespread adoption of arbitration includes confidential resolution of disputes and a restriction on the ability of shareholders to bring class actions, then that may be the beginning of the end of Delaware's position as corporate law leader - the end of Delaware's franchise. Seem extreme? Well certainly it won't happen overnight. It will be a long-term degradation of Delaware's competitive position and lowering barriers to entry for other states.
We'll see in 10 years. I've put down my marker.
Strine hands down a ruling upholding forum selection bylaws in Boilermakers Local 154 v Chevron. Surprised? Shouldn't be. The big issue will be whether courts of other states agree with Delaware's interpretation and enforce forum selection bylaws adopted by a board. I'm more confident about forum selection provisions in certificates of incorporation.
In this facial challenge to the exclusive forum bylaws, Chancellor Strine ruled that adopting such bylaws are well within the power of the board. First, they deal only with adjudicating the rights of shareholders as shareholders (internal affairs doctrine) and not any other rights. Shareholders who, for example, have tort claims against the corporation are not obligated in any way by the forum bylaws. Second, the unilateral adoption of a bylaw that regulates the manner in which the shareholder may interact with the board and the corporation is entirely within the power of the board. For example, the board may unilaterally adopt bylaws with respect to advance notice provisions. Third, the bylaw provision, though unilaterally adopted is part of the corporate contract. The question of contractual assent is a more flexible than the plaintiffs would have the court decide. When shareholders contract with the corporation, they assent with notice that the board may adopt new bylaws consistent with the law.
Of course, if shareholders want to bring a case and they believe the bylaw is illegal as applied to them, they are still free to bring a case. Alternatively, shareholders still have the ability to amend the bylaw through a vote or to vote out the board.
Get this ... Buzzfeed breaks merger news: Will Shuanghui back out of the Smithfield transaction now that Smithfield has walked away from Paula Deen? For those of you not paying attention, here's all the Paula Deen news you could possibly want. My guess is that Shuanghui is acquiring Smithfield for reasons that have nothing to do with Ms. Deen.
If you take a long term view of the economics driving Shuanghui's acquisition, losing Ms. Deen isn't even a blip on the radar. Given the standard that for a court to determine there has been a material adverse change sufficient to permit a buyer to walk, the event in question has to be one that "substantially threatens the overall earnings potential of the target in a durationally-significant manner." Frankly the loss of Ms. Deen just doesn't meet that standard, especially when one looks at the access Smithfield will have to new export markets in Asia once the aquisition is completed.
Monday, June 24, 2013
No surprise that the FTC is now investigating Google's acquisition of Waze. When Google annoucned the deal two weeks ago it pointedly did not seek HSR clearance - citing an exemption. Of course, just because you may not be required to seek premerger clearance, doesn't mean the antitrust rules don't apply.