Thursday, January 30, 2014
According to the NYTimes, William Baer threw cold water on the prospects of a wireless merger between Sprint and T-Mobile:
“It’s going to be hard for someone to make a persuasive case that reducing four firms to three is actually going to improve competition for the benefit of American consumers,” he said, without referring to any specific merger proposal. “Any proposed transaction would get a very hard look from the antitrust division.”
Ditto for any potential Charter-Time Warner Cable deal. In the current environment, getting either of those deals past antitrust authorities will be a long, hard pull.
Yesterday afternoon following a 30 minute confirmation hearing, the Delaware Senate unanimously confirmed Chancellor Leo Strine as the next Chief Justice of the Delaware Supreme Court. That's a marked difference from Strine's initial appointment to the Chancery Court, which was quite controversial at the time. Yesterday's event was a much smoother affair, according to Reuters:
The outspoken head of the state's nationally important business court was confirmed unanimously as the chief justice of Delaware's Supreme Court on Wednesday after breezing through legislative approval.
Leo Strine was confirmed by a 20-0 vote in the state Senate's Executive Committee. He said he expected to be sworn in as chief justice in the coming weeks.
DelawareOnline noted that the confirmation - quick as it was - touched on non-corporate subjects, too:
Strine spoke about a number of issues in his confirmation hearing in committee, saying at one point that Delaware policymakers must discuss ways to reduce the state’s levels of incarceration.
“We cannot continue to have the increases in percentage of our population that’s incarcerated as an answer. That cannot be the long-term answer for our society,” Strine said. “It’s a very complex thing. No one has an easy solution. But the idea that we can continue to incarcerate more and more of our population without having an adverse effect on economic growth and even our feelings about ourselves as a community isn’t realistic.”
OK, so that's that. Next up ... nominating a replacement for Strine on the Chancery Court.
Wednesday, January 29, 2014
The Litigation Insider (reg req'd) offers a rare interview of Vice Chancellor Laster. It's worth a read. He comments on the Chancery Court's ability to act swiftly (ahem...Chancery Arbitration supporters should pay attention to the answer there), the amount of attention the work of the Chancery now gets, as well as things he has learned over the past five years or so:
Q: Five years later, what have you learned the most as a judge? What do you wish you had known then that you know today?
A: Five years later, I am more sympathetic to small firm attorneys and solo practitioners than I was when I arrived on the court. I had the good fortune to learn the practice of law at Richards, Layton & Finger, one of Delaware’s largest and best-known firms. We litigated primarily against other large firms who had the resources to do things well. Even when I started my own small firm, we worked on cases with and against big firm lawyers, and we maintained high standards. Having been on the bench, I have now seen the wide range of resources that parties can bring to cases. It is not always possible for a small firm lawyer or solo practitioner to devote the resources to a case that a large firm could with a well-heeled client. I would like to be able to send myself an inter-temporal memo with that information. I would also give myself a heads up about the decisions where I’ve been reversed so I could try to get them right.
Ditto that thought about the inter-temporal memo. How do I get one of those?
Monday, January 27, 2014
Two recent cases provide examples of the Obama administration's aggressive antitrust policy. Unlike the previous administration, almost from day one the Obama administration has been more likely to pursue transactions post-closing for antitrust violations. In the first of the two, the FTC won a victory in a Federal Court in the district of Idaho:
Idaho's largest hospital chain and physician group must unwind their merger, a federal judge ruled, siding with U.S. regulators seeking to broaden antitrust enforcement in health-care acquisitions.
The combination of St. Luke’s Health System Ltd. and the Saltzer Medical Group would raise prices for consumers even though it would improve patient care, U.S. District Judge B. Lynn Winmill in Boise, Idaho said today, ruling in a pair of cases brought by the Federal Trade Commission and local hospitals.
In the second case, the DOJ was able to work out a settlement with Heraeus Electro-Nite LLC that will require it to divest itself of certain assets it acquired from Midwest Instrument Company. Both companies manufactured measurement technologies critical in steel manufacturing.
In both cases the transactions giving rise to the government's antitrust investigations were below the HSR filing thresholds, so pre-closing merger clearance was not required. But, as we are learning, just because your deal may not trigger filing requirements, it doesn't mean that the government won't seek divestiture remedies, including "unscrambling the eggs" in the event the government believes the transaction is anticompetitive.
Saturday, January 25, 2014
Friday, January 24, 2014
Lyman Johnson and his co-authors have a paper, The Dwindling of Revlon, appear in the W&L Law Review. Here's the abstract:
This article traces the dramatic dwindling of the iconic Revlon doctrine. Over the past several years, we observe a paradox in M&A litigation. The number of challenges to “done deal” transactions has skyrocketed, but the number of successful Revlon claims - those procuring a remedy - has plummeted. Having set out to suggest, as a theory and policy matter, that Revlon might be extended into the attempted but failed “no deal” context, we conclude, ironically, that today there is little remedial clout to the Revlon doctrine in any setting.
The overly exalted place of Revlon in the law thought to govern M&A deals endures because it is regarded in narrow, silo-like doctrinal isolation even though it can only be understood as one part of a legal landscape that has dramatically changed since 1986. Revlon, for example, no longer sets the standard in damages cases. Thus, oft-cited statements from the QVC case regarding enhanced substantive scrutiny by courts, and the planning of an initial burden of proof on directors, are outmoded doctrinal vestiges in the personal liability context. As to injunctive relief, only one injunction - out of numerous claims - was granted on a Revlon theory in the six year period from 2008-2013.
By adopting a remedies perspective on Revlon, we thus see that the ongoing debate over what “triggers” Revlon in mixed consideration deals is a debate with small stakes: only pre-closing relief is up for grabs anyway, and that is rarely granted. We should stop regarding Revlon as a robust standalone doctrine. Delaware courts should go further, however. They should renounce Revlon’s faulty focus on short-term value maximization. Then, the corporate objective in the sale setting - of whatever kind - would be the same as it is (and should be) outside the sale setting: to pursue the best option for achieving long-term value.
Thursday, January 23, 2014
OK, so I don't think the odds of SCOTUS taking the Delaware arbitration appeal are high -- there isn't an obvious circuit split of the type that generally attracts the court's attention. That said, it's possible that the court might take the case because they want to make more statements about the value of arbitration.
With that in mind, this little colloquy from EBIA v Arkison which was before the court earlier this month is interesting - if for no other reason that it allows us to do the most ridiculously vain thing ever: count potential votes on the court.
The issue for the court in EBIA was whether - with the consent of the parties - a Federal bankruptcy judge could enter a final judgment on a fraudulent conveyance claim rather than hear the claim and then make a recommendation for review by a Federal district court.
So, not directly on point, but close enough for this to play out (via Oyez):
Justice Elena Kagan: --Mr. Gannon, could you say a word about the relevance of arbitration here?
Because I've been trying to figure out, if there's an Article 3 problem irrespective of consent when Congress adopts some kind of scheme for alternative adjudication, why schemes of mediation and arbitration wouldn't similarly be constitutionally problematic.
Curtis E Gannon: I -- obviously, we don't think that -- that these schemes here in the bankruptcy judge context and the magistrate judge context, which are -- which are hedged around with lots of procedural protections and statutory protections, rise to that level.
But I do think that a principal difference, if the Court were looking to distinguish arbitration from these types of concerns, is that the arbitration is more purely private.
Although there's statutory authorization, the arbitrators are generally not Federal employees.
Bankruptcy judges, by contrast, are actually units of the district courts.
They are within Article 3.
Justice Elena Kagan: Yes, but that would suggest that arbitration is more constitutionally problematic because it -- it extends -- you know, it goes -- it's further away from the supervisory authority of the district court.
Curtis E Gannon: --I'm -- I'm loathe to say that it's further away because I think that there may be a separation of powers distinction between--
Chief Justice John G. Roberts: Arbitration is a matter of contract between two parties.
Nothing happens in an arbitration until you get a district court to enter a judgment enforcing the contract.
It seems to me totally different from the situation we're talking about here.
Curtis E Gannon: --Well, I do--
Justice Elena Kagan: A matter of contract versus a matter of consent?
Like I said, you understand the difference.
Chief Justice John G. Roberts: But you -- I'm posing a question to you, I guess.
Courts enforce contracts all the time.
They don't enter judgments beyond their Article 3 authority simply because the two parties before them agree that they should.
Curtis E Gannon: --That's true, Mr. Chief Justice.
OK, so one for. And maybe one against?
An announcement today that Lenovo has agreed to acquire the low-power server business of IBM reminds me that CFIUS just relased its Annual Report for 2012. OK, it's 2014! But remember, CFIUS is an ad-hoc committee without even a building in DC. We can give them a break for being a little slow on the reporting side.
The big news from this most recent report is that China is moving on up to the big time. Previously, the countries with the largest number of CFIUS filings were France and the UK. Now, they have been replaced by Chinese filings. Of course, the total number of transactions covered under the CFIUS regime remains small, but as the Lenovo/IBM deal suggests, these deals are in potentially critical technology areas.
Wednesday, January 22, 2014
So, last night Delaware filed a cert petition with the US Supreme Court asking the court to overturn the Third Circuit's ruling with respect to Delaware Chancery arbitration program. I've written about this before (here and even a law review article here). In any event, I'm on record that I believe Chancery arbitration is a bad idea that over the long-term will undermine Delaware's corporate law franchise. In any event, when challenged at the District Court, that court found that confidential Chancery arbitration violated the First Amendment's qualified right of access (District Court Opinion). In a 2-1 opinion on appeal, a panel of the Third Circuit agreed with the District Court (Third Circuit Opinion). In that opinion, the majority appears to have read my law review piece - no need to cite me, I'm not proud. In any event, the majority mimics many of the same arguments that I previously argued about the relative merits of the Chancery arbitration program.
Petitioners make a couple of policy arguments for why it's important why the Chancery arbitration procedure must survive. It's a matter of national competitiveness, otherwise parties will incorporate overseas and take their disputes overseas, too. That's a pretty dubious argument. There is no evidence that any Delaware firm. I looked at a pile of merger agreements to check to see if there was anything to this argument. Prior to adoption of the Chancery arbitration procedure, only a handful of mergers relied on anything other than the public courts to resolve disputes between the parties. There is no evidence that anyone contracted to resolve merger related disputes through international arbitration. It's just not an issue. There is no real competitive challenge to the position of the courts with respect to merger litigation at this point. In rushing to adopt the Chancery arbitration procedure, Delaware is fighting with ghosts.
The second argument for why preservation of the Chancery arbitration procedure is so important is a familiar argument about how the US courts are so inefficient that delayed justice will push parties to seek international arbitration rather than dispute resolution in the US. Gee, I guess, maybe, but are the Delaware courts arguing that the Delaware courts are so inefficient that the inefficiency of the Delaware courts is pushing Delaware corporations overseas? Really. Please. No.
A third argument -- and this one is tied to the question of confidentiality of arbitration procedure - is that if the court were to uphold the qualified First Amendment right of access the procedure would fall into disuse and that confidentiality is central to the success of the procedure. Confidentiality is the only real benefit to arbitration?
Well, honestly, I don't understand how that ties into the argument that the reason why parties are supposedly leaving Delaware is because of the inefficiency of the public courts. Frankly, it doesn't. It shifts the goal posts and makes confidentiality the central contribution of the arbitration procedure. To that I say hogwash.
OK, if the public courts had proven themselves incapable of protecting trade secrets and other commercially sensitive information, I might listen. But, under the Chancery Court' s rule 5.1, parties can seek confidential treatment for sensitive materials. Does Delaware think that its own rules for confidential treatment are inadequate? I don't think so. Anyway, to the extent arbitral confidentiality extend beyond areas that 5.1 typically will protect, then why does anyone in a policy position believe that keeping those kinds of facts (possibly management breeches of fiduciary duties or other bad acts by managers) from the public? I strain to see a policy rationale.
In any event, Delaware might get a day in court on this. I'd be surprised if they do - though as someone recently reminded me if the court wants to make a statement about arbitration (again), this might be a case they will take.
I'll rehash the actual legal arguments in another post later if the case gets picked up.
Friday, January 17, 2014
Emma Jacobs at FT has a take on why the recent fashion of limiting junior bankers hours is doomed to fail. In short it boils down to things: the nature of the clients and the nature of the people who work for banks. [By the way, everything I am about to write is equally true for lawyers.]
First, clients pay big money. They want service. And that typically means they will dump an assignment on you in the afternoon/evening and expect to hear from you the next day. That means you work all night. Or, they hand it to you on Friday and expect to see it on Monday. There goes your weekend. You don't want to do that? Fine, they'll find someone else.
That brings me to Jacobs' second point, the people in these kinds of banker and lawyer jobs are all alpha types. If you tell them not to work too hard, they will work hard just to show you they can. In these places there is a culture of hard work. If you take time off, you're a slacker and not up to par. For example, this is probably true in many, many places. You greet a co-worker in the morning and you say,"Hey Jim, how are you?" What does Jim respond? "Fine"? More likely, he says,"Busy!" Being busy is a sign of value and worth. You may feel terrible because you have worked two all nighters in the past week, but you are valuable because you are busy.
Anyway, limits on bankers' [lawyers'] hours are doomed to fail. They all have smartphones and laptops anyway. They may not be in the office, but they will be busy!
Wednesday, January 15, 2014
The Delaware Law Weekly has surveyed the field of potential replacements for Chancellor Strine once he moves up to the Supreme Court and comes up with four names:
Andre G. Bouchard, a partner with Bouchard Margules & Friedlander and current chairman of the Judicial Nominating Commission, is viewed as a front-runner to replace Strine. Others who have been mentioned as possible candidates include Superior Court Judge Jan R. Jurden, Chancery Court Vice Chancellor J. Travis Laster and Joseph R. Slights III, a former Superior Court judge and current Morris James partner.
Two things worth noting: First, Andre Bouchard is an Eagle (BC, '83) - so, that's good. Second, if Vice Chancellor Laster were to slide over to the Chancellor's seat, his position of Vice Chancellor would also have to be filled by someone so the nomination merry-go-round would continue for a few more months. The same rules with respect to non-partisan appointment of judges applies to the Chancery Court as applies to the Supreme Court.
Monday, January 13, 2014
A columnist at the News Journal/DelawareOnline weighs in on the Strine nomination:
Gov. Markell has certainly chosen someone whose national reputation gives new cachet to the court. Leo Strine, at age 49, should be able to tackle any challenge his Supreme Court is bound to face.
See update below.
Following BazaarVoice's acquisition of PowerReview in June 2012, the DOJ started an antitrust investigation. The BazaarVoice's acquisiton fell below the HSR size of person/size of transaction test so it wasn't subject to HSR premerger filing requirements.
Not being required to make HSR filings, of course, is not the same as being exempt from the antitrust laws. Turns out, no one (other than perhaps Major League Baseball) is exempt from the antitrust laws. The BazaarVoice litigation that was decided by a district court judge in San Francisco last week is another example of the Feds looking back at completed transactions for the anticompetitive effects. Last week in BazaarVoice, the DOJ was able to secure an order from the court to undo the transaction (BazaarVoice Opinion).
Though the remedy is extreme, it shouldn't really be a surprise. Why? Here's how the folks at BazaarVoice internally described the benefits of the acquisition of PowerReview:
"Eliminate [Bazaarvoice's] primary competitor and provide relief from ... price erosion."
Hmm. Eliminating your primary competitor and stopping price erosion. Sounds good to the business types, but to deal lawyers that should sound like fingernails on a chalkboard. But it gets worse...
Collins, then BazaarVoice's CFO suggested that ... BazaarVoice could either compete against PowerReviews and "crush" them, or dammit lets just buy them now"
Buying your primary competior to eliminate competition? Bad. Turns out when you buy your primary competitor, reduce competition and generate larger margins for yourself as a result, the DOJ takes notice, even if you weren't required to make an HSR filing.
Following the transaction, the anticompetitive effects of the deal were obvious to the court, and the DOJ got its order to unscramble the eggs. You can download the District Court's BazaarVoice Opinion here.
Update: OK, so apologies to those involved, the Court has not yet ordered the taking apart of the deal. What it has done is found that BazaarVoice violated Section 7 of the Clayton Act and has ordered the parties back on January 22, 2014 to discuss what remedy is appropriate. Clearly, unscrambling the eggs is one possible remedy, but there may be others acceptable to the government and BazaarVoice. Here's BazaarVoice's Press Release related to the court's decision.
Friday, January 10, 2014
The Delaware Grapevine pumps the brakes a bit:
As conventional a choice as Strine seems, his elevation would still be something of an act of faith, because he does not come with the standard judicious temperament. Instead, he is a grandiose and contradictory figure, as brilliant and comic as he can be defensive and browbeating.
When Strine went on the bench as a vice chancellor in 1998, he described himself as a "mad wizard," and it is never certain which Strine will show up, either the judicial wizard or the madman.
Wednesday, January 8, 2014
Reuters: Do you think that once you join the Supreme Court you’ll change the views you held on the Court of Chancery?
Strine: An absurd scenario, at best fit for a discussion by a Red Bull-fueled group of nerdy second-year law school corporate law junkies, who find themselves dateless (big surprise) on yet another Saturday night.
My guess is that we will have less of this on the Supreme Court than we had at the Chancery Court - the opportunities for judges to riff from the bench are more limited - so enjoy it while you can.
Tuesday, January 7, 2014
OK, all sorts of weird stiff going on. The Polar Vortex (didn't I see that in a movie about the end of the world?), Commutapocalypse (apparently the T in Boston doesn't work when it's cold), and then this:
"I am sure that I along with other shareholders in Sirius XM will be interested in a legal challenge to John Malone's company for lowballing Sirius XM's shareholder value," Nader said in a statement.
"Carl Icahn - take notice and interest."
Who said that? Ralph Nader. WTF?! This guy?? The guy who once said,"The liberal intelligentsia has allowed its party to become a captive of corporate interests." I don't know. Maybe he realized that he doesn't have a pension and that his retirement is funded from a 401(k) and he put it all into Sirius stock? I don't know. But, to see Ralph Nader using the language of shareholder value and calling upon Carl Icahn to save him is ... well ... it's ... I don't know what to say. Speechless.
OK, so I have emerged from my grading cave. I recently finished reading A Giant Cow-Tipping by Savages, a book by John Weir Close (founder of the M&A Journal). Now, it's a book with some faults. Most of all it could have used a strong hand as editor (plenty of typos and things that a good editor would otherwise catch), but that said, it's the kind of book that anyone who teachese corporate law or mergers should read. Why? Does it add much to my understanding of the doctrine? Not really, it's not a law book. But what it does do is point out all the personalities and characters since the 1980's who are the people behind the development of the law of mergers. And that's valuable. Why? Well, because the poison pill didn't just appear out of a word processor fully formed! No, it was the result of people/lawyers trying to figure out how to solve a client's problem. Close provides an account of Marty Lipton and how he came up with the first pill. The book is full of these kinds of stories. The title itself - A Giant Cow Tipping by Savages - is often ascribed to Ted Turner to describe the disastrous AOL/Time Warner deal. Close also introduces the reader to a host of real M&A characters and runs through the - mostly nonlegal - stories of the biggest deals: Unocal, Revlon (Perelman putting his cigar out on Bergerac's zebra skin rug), QVC, MacMillan, and a pile of others. This is a fun read for law teachers and probably for young associates who might find it useful to know who all the clients are!