M & A Law Prof Blog

Editor: Brian JM Quinn
Boston College Law School

Wednesday, July 3, 2013

Getting the highest price possible

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).

The figure below is developed by Andrade, Mitchell, and Stafford as examined in a chapter of Masterminding the Deal (August 2013):
  1973-1979 1980-1989 1990-1998 1973-1998
Premium (Median) 47.2% 37.7% 34.5% 37.9%
Bids/Deal 1.6 1.6 1.2 1.4
All Cash 38.3% 45.3% 27.4% 35.4%
Own Industry 29.9% 40.1% 47.8% 42.1%
Hostile Bid* at any point 8.4% 14.3% 4.0% 8.3%
N 789 1,427 2,040 4,256


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.


July 3, 2013 | Permalink | Comments (1) | TrackBack (0)

Countrywide arguments

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. 



July 3, 2013 | Permalink | Comments (0) | TrackBack (0)

Adoption of exclusive forum bylaw provisions

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:

Unless the Corporation consents in writing to the selection of an alternative forum, the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of the Corporation, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director or officer or other employee of the Corporation to the Corporation or the Corporation’s stockholders, (iii) any action asserting a claim against the Corporation or any director or officer or other employee of the Corporation arising pursuant to any provision of the Delaware General Corporation Law or the Corporation’s Certificate of Incorporation or Bylaws (as either may be amended from time to time), or (iv) any action asserting a claim against the Corporation or any director or officer or other employee of the Corporation governed by the internal affairs doctrine shall be the Court of Chancery of Delaware or, if the Court of Chancery does not have jurisdiction, another state court located within the State of Delaware or, if no state court located within the State of Delaware has jurisdiction, the federal district court for the District of Delaware.
I understand that Chancellor Strine's decision in Chevron may be appealed.  If it is, then we aren't quite done with this subject. 

July 3, 2013 | Permalink | Comments (0) | TrackBack (0)

Monday, July 1, 2013

Your boyfriend's a bum

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.



July 1, 2013 in Insider Trading | Permalink | Comments (1) | TrackBack (0)

Countrywide derivative litigation

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.




July 1, 2013 | Permalink | Comments (0) | TrackBack (0)