M & A Law Prof Blog

Editor: Brian JM Quinn
Boston College Law School

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Friday, May 30, 2014

Activist strategies in the merger context

MoFo has posted a brief overview of activist stategies in the context of the merger space.  It comes down to three basic strategies:

1.  Challenge an announced deal in an effort to force the board to regnegotiate for a marginally higher  price (e.g. Dell/Icahn).

2. Chase an appraisal remedy in an announced target (e.g. Dole/Merion Investment Management).

3. Try to put a company in play through an unsolicited offer ... and pray someone else comes along to top you (e.g. Icahn/Clorox).

This is obviously not an exhaustive list.  What were are witnessing in the Pershing Square/Valeant/Allergan bid is an interesting twist. 

-bjmq

May 30, 2014 | Permalink | Comments (0) | TrackBack (0)

Thursday, May 29, 2014

Candidates for open Delaware Supreme Court slot

According to the Delaware Law Weekly, there are seven candidates to replace retiring Justice Jack Jacobs: 

The candidates are said to be Superior Court President Judge James T. Vaughn Jr.; Superior Court Judges Jan R. Jurden and Calvin L. Scott Jr.; Widener University School of Law professor Lawrence Hamermesh; Family Court Chief Judge Chandlee Johnson Kuhn; Skadden, Arps, Slate, Meagher & Flom attorney Karen L. Valihura; and Grant & Eisenhofer attorney Megan McIntyre.

Jurden and Vaughn were recently under consideration for the Chief Justice position, so I suppose no surprise there.  Nice to see Larry Hamermesh on the list.  

-bjmq

May 29, 2014 in Delaware | Permalink | Comments (0) | TrackBack (0)

Wednesday, May 28, 2014

2013 HSR Report

Here it is ... right on time ... the FY 2013 HSR Report.  Over 1,300 reportable transactions and just 3.7% of them subject to a second request.

-bjmq

 

May 28, 2014 in Antitrust | Permalink | Comments (0) | TrackBack (0)

ATP, fee shifting, and transactional litigation

The ubiquity of transaction-related litigation is, I think, a real problem.   By now, 94%+ of announced mergers end up with some litigation. I think that most reasonable people can agree that not all 94% of transactions where there are lawsuits do the facts suggest that something has gone wrong.  Much of the litigation is really just flotsam intended to generate a settlement -- a settlment that directors are all too willing to grant in exchange for a global release.  

In any event, there have been a series of efforts, including exclusive forum provisions, which have been deployed in a self-help manner to try manage this issue and its multi-jurisidictional cousin. In the 2013 Boilermakers opinion, Chief Justice Strine gave his blessing to board-adopted exclusive forum bylaw.  Following Galaviz v Berg there was some question as to whether an exlcusive forum bylaw adopted by the board had sufficient inidicia of consent such that it would be enforceable against shareholders.  In Boilermakers, Strine noted that forum selection bylaws were consistent with both Delaware and federal law, and also that the mere fact that such a bylaw was adopted by the board does not render such a bylaw invalid:

The certificates of incorporation of Chevron and FedEx authorize their boards to amend the bylaws. Thus, when investors bought stock in Chevron and FedEx, they knew  (i) that consistent with 8 Del. C. § 109(a), the certificates of incorporation gave the boards the power to adopt and amend bylaws unilaterally; (ii) that 8 Del. C. § 109(b) allows bylaws to regulate the business of the corporation, the conduct of its affairs, and the rights or powers of its stockholders; and (iii) that board-adopted bylaws are binding on the stockholders. In other words, an essential part of the contract stockholders assent to when they buy stock in Chevron and FedEx is one that presupposes the board’s authority to adopt binding bylaws consistent with 8 Del. C. § 109. For that reason, our  Supreme Court has long noted that bylaws, together with the certificate of incorporation and the broader DGCL, form part of a flexible contract between corporations and stockholders, in the sense that the certificate of incorporation may authorize the board to amend the bylaws' terms and that stockholders who invest in such corporations assent to be bound by board-adopted bylaws when they buy stock in those corporations.

Boilermakers set the stage for the Delaware Supreme Court very recent opinon in ATP Tour.  ATP Tour, you know, the tennis guys.  The issue in the ATP is related both to the question of transaction-related litigation and unilaterally adopted bylaws. In ATP, the tour adopted a fee shifting bylaw that would eschew the "American Rule" and require that in the event of unseuccessful shareholder litigation - or litigation that "does not obtain a judgment on the merits that substantially achieves, in substance and amount, the full remedy sought" then the shareholder will be responsible for paying the corporation's litigation fees.  Here's the bylaw as adopted:

(a) In the event that (i) any [current or prior member or Owner or anyone on their behalf (“Claiming Party”)] initiates or asserts any [claim or counterclaim (“Claim”)] or joins, offers substantial assistance to or has a direct financial interest in any Claim against the League or any member or Owner (including any Claim purportedly filed on behalf of the League or any member), and (ii) the Claiming Party (or the third party that received substantial assistance from the Claiming Party or in whose Claim the Claiming Party had a direct financial interest) does not obtain a judgment on the merits that substantially achieves, in substance and amount, the full remedy sought, then each Claiming Party shall be obligated jointly and severally to reimburse the League and any such member or Owners for all fees, costs and expenses of every kind and description (including, but not limited to, all reasonable attorneys’ fees and other litigation expenses) (collectively, “Litigation Costs”) that the parties may incur in connection with such Claim.

Clearly, such a bylaw, if adopted and upheld, would bring the transaction-related litigation train to a screeching halt or at the very least dramatically alter the settlement dynamics. 

This bylaw ended up in front of the Delaware Supreme Court as a certified question from the federal district court in Delaware.  You'll remember that Delaware is one of the few state supreme courts that will accept certified questions of law.  The question before the court was whether the unilaterally adopted fee-shifting bylaw above was valid under Delaware law.  

That such a provision is legal under Delaware law isn't all that surprising, really.  What is surprising is that court would agree to wander into this hornet's nest of an issue entirely of voluntarily. Whether or not to accept a certified question is entirely within the discretion of the court and the court could have avoided deciding the question altogether had it wanted to.  But, apparently it wanted to decide the issue.  

The reaction to the opinion has been pretty incredible.  For example, Delaware litigator Stuart Grant remarked,"The Delaware Supreme Court seems to have caused Delaware to secede from the union." A little over the top, sure.  But, the just because plaintiffs hate the result, don't think that the defense bar is jumping up and down claiming victory and recommending widespread adoption of these provisions.  They're not.  In fact, many worry that adopting such provisions might just put their clients in the cross hairs.  No one wants a fight if they can avoid it.  And anyway, the global releases their clients get from settling otherwise trivial transaction challenges are valuable security blankets for directors.

The reaction by both plaintiffs and defendants to the ATP ruling has been a unique constellation of interests.  Ronald Baruch calls the reaction evidence of the "cozy" litigation community in Delaware.  Plaintiffs want to get paid and defendants want their releases.  In response the Corporation Law Section of the Delaware Bar has moved quickly to propose an amendment to elminate fee shifting under the DGCL.  The proposed amendment (with underlined insertion) is below:

Amend § 102(b)(6), Title 8 of the Delaware Code by making insertions as shown by underlining as follows: 

A provision imposing personal liability for the debts of the corporation on its stockholders based solely on their stock ownership, to a specified extent and upon specified conditions; otherwise, the stockholders of a corporation shall not be personally liable for the payment of the corporation's debts except as they may be liable by reason of their own conduct or acts.

The effect of the proposed amendment would make fee shifting impermissable under the DGCL and therefore rule it out as a bylaw.  If approved by the legislature in Delaware, the amended 102(b)(6) would go into effect on August 1.  Now that's swift justice.  

The battle against transaction-related litigation will have to be fought on other ground.

-bjmq

May 28, 2014 in Delaware, Litigation | Permalink | Comments (0) | TrackBack (0)

Friday, May 16, 2014

Go-Shops and the pricing of going private transactions

Antoniades, et al have a paper, No Free Shop.  There have always been two sides to the g0-shop issue.  On the one side, if a company has the right to proactively shop itself post-signing, that should be good, right? In Topps, Chief Justice Strine called the go-shop "sucker's insurance".   Generally, employing a go-shop provision is one of several ways that a board can, in good faith, reassure itself that it has received the highest price reasonably available in a sale of control. 

On the other hand, when one looks at the way go-shops are actually deployed, one wonders what is going on.  By now, they are regularly included in merger agreements with private equity buyers and rarely included in merger agreements with strategic buyers.  If you believe that private equity buyers have characteristics of a common value buyers and strategic buyers are more like private value buyers, then the go-shop takes on a different, less appealing light. 

The paper from Antoniades, et al backs up this view;  go-shops are associated with lower initial prices and fewer competing offers.  These results raise the question whether boards can reasonably rely on the go-shop to confirm valuations.  Here's the abstract:

Abstract: We study the decisions by targets in private equity and MBO transactions whether to actively 'shop' executed merger agreements prior to shareholder approval. Specifically, targets can negotiate for a 'go-shop' clause, which permits the solicitation of offers from other would-be acquirors during the 'go-shop' window and, in certain circumstances, lowers the termination fee paid by the target in the event of a competing bid. We find that the decision to retain the option to shop is predicted by various firm attributes, including larger size, more fragmented ownership, and various characteristics of the firms’ legal advisory team and procedures. We find that go-shops are not a free option; they result in a lower initial acquisition premium and that reduction is not offset by gains associated with new competing offers. The over-use of go-shops reflects excessive concerns about litigation risks, possibly resulting from lawyers' conflicts of interest in advising targets.

Guhan Subramanian's 2007 Business Lawyer paper, Go-Shops v No-Shops, came to a different conclusion with respect to the utility of go-shops.

-bjmq

May 16, 2014 in Leveraged Buy-Outs, Management Buy-Outs, Merger Agreements, Private Equity | Permalink | Comments (0) | TrackBack (0)

Thursday, May 15, 2014

Corporate governance's ring of fire

Ron Gilson and Jeff Gordon weigh in on activist pills and Sotheby's at the Blue Sky Blog:

Delaware corporate governance rests on two conflicting premises:  on the one hand, the board of directors and the management the board selects run the corporation’s business, but on the other the shareholders vote on who the directors are.  The board needs discretion to run the business, but the shareholders decide when the board’s performance is so lacking that it (and management) should be replaced.  All of the most interesting issues in corporate governance arise when these two premises collide – when the board’s assessment of how the company is doing is different than the shareholders’, and each claims that their assessment controls.  These collisions work out within a predictable range when, unexpectedly, new governance initiatives shift the underlying plate tectonics and disequilibrate the settled patterns.  Whether the particular earthquake is caused, as was the case in the 80s, by the emergence of a hostile tender offer or, as now, by activist investors seeking to change management, policy or both through a threatened proxy fight, the underlying question is the same:  when does the board’s discretion end and the shareholders’ power begin?  The boundary is the corporate governance ring of fire.

Gilson and Gordon suggest that the new distribution of share ownership, heavily weighted in favor of institutional ownership, may require a new approach to governance.  This new approach would recognize that institutional shareholders may well need less protecting from threats than would individual shareholders with less information.

-bjmq

May 15, 2014 in Takeover Defenses | Permalink | Comments (0) | TrackBack (0)

A controversial customary MAE Carveout

Students in my just completed M&A class will enjoy Rick Climan's latest installment of this series of mock negotiations with Keith Flaum.  This one on a potentially controversial customary carveout to the MAE.  

 The lesson -- even though everyone is including it, doesn't mean you have to!

-bjmq

May 15, 2014 in Material Adverse Change Clauses, Merger Agreements | Permalink | Comments (0) | TrackBack (0)

Wednesday, May 14, 2014

Corporate Governance in a Common-Law World

Over at Prawfslawblog yesterday - and hopefully bleeding into today - is the Bruner Book Club.  They are discussing Chris' new book, Corporate Governance in a Common-Law World: The Political Foundations of Shareholder Power.  Drop by a give it a read.

-bjmq

May 14, 2014 in Books | Permalink | Comments (0) | TrackBack (0)

Tuesday, May 13, 2014

The age of machines in the boardroom

 OK, I guess we are closing in on SkyNet territory.  A VC firm in Hong Kong just named an algorithim to its board of directors:

How does the algorithm work?

VITAL makes its decisions by scanning prospective companies' financing, clinical trials, intellectual property and previous funding rounds.

Groome says it has already helped approved two investment decisions (though has not yet cast its first vote), both of which resemble its own function: In Silico Medicine, which develops computer-assisted methods for drug discovery in aging research; and In Silico's partner firm Pathway Pharmaceuticals, which employs a platform called OncoFinder to select and rate personalized cancer therapies. 

Via BetaBeat and BusinessInsider.

On the plus side, VITAL won't demand a corporate jet or fancy meetings at the Four Seasons with golf.  On the negative side, well ... billables for lawyers advising VITAL are going down ...

-bjmq

 

May 13, 2014 in Asia | Permalink | Comments (0) | TrackBack (0)

Monday, May 12, 2014

This time ... LinkedIn

This time it's LinkedIn!

It was late on a Tuesday in September last year when one of his young client service team handed him the daily transaction report and said: ''Boss, you better take a look at this.''

Mr Kerr’s team had noticed one of their clients, National Australia Bank associate director Lukas Kamay, was making sizable bets on the Australian dollar, minutes and sometimes seconds before the announcement of significant economic news. Mr Kerr, the founder and owner of Pepperstone Financial, looked up Kamay’s profile via his gold LinkedIn account and found he was friends with an Australia Bureau of Statistics employee Christopher Hill through Monash University. “That was when it suddenly clicked that this guy was only trading ABS data and had a man on the inside,” Kerr told Fairfax Media from his Gippsland farm on Sunday.

Years ago, connecting the dots for investigators was hard. It required lots of guys sitting around with index cards, cross-referencing names and schools and places of birth.  They were lucky to catch anyone.  Now?  They just look you up on LinkedIn.

OK, back to grading exams.

-bjmq

May 12, 2014 in Insider Trading | Permalink | Comments (0) | TrackBack (0)

Friday, May 2, 2014

Canadians reconsidering?

In Canada's Financial Post, Yvan Allaire makes the argument that Canada's approach to merger rules, which are close to exactly the US academic orthodoxy that board of directors should have only a very limited ability to stand in the way of shareholders accepting a tender offer, go too far and should be reconsidered:

Take the recent case of Inmet Mining Corp. and First Quantum Minerals. Inmet’s board was dead set against a takeover by First Quantum. The latter made a bid; no other bidder showed up. Despite the board’s opposition, Quantum simply put its offer to the shareholders. As enough of them handed in their shares the deal has been consummated. Under Canadian regulations, the board members of Inmet had no other recourse; they believed that it was not in the long-term interest of Inmet to be acquired by Quantum at the offered price but were powerless to act. That does not make any sense.

How can anyone defend this dysfunctional regime? How can one pretend that this system is best for stable, long-term shareholders?

In a world of financial derivatives, speed trading, arbitrageurs, momentum players and hedge funds of all sorts, as soon as a takeover offer is made public the shareholder base of the target company is swiftly and radically transformed. To consider these newcomers as the sole “deciders” of a company’s fate, needing the benevolent protection of securities commissions against malevolent, conflicted management, seems like an imaginative scenario of times past.

It's an advertisement to be careful what you wish for I suppose.

-bjmq

May 2, 2014 | Permalink | Comments (0) | TrackBack (0)

Thursday, May 1, 2014

Call for papers

Second Annual Workshop for Corporate & Securities Litigation: Call for Papers

The University of Richmond School of Law and the University of Illinois College of Law invite submissions for the Second Annual Workshop for Corporate & Securities Litigation. This workshop will be held on Friday, October 24 and Saturday, October 25, 2014, in Richmond, Virginia.

Overview

This annual workshop brings together scholars focused on corporate and securities litigation to present their works-in-progress. Papers addressing any aspect of corporate and securities litigation or enforcement are eligible. Appropriate topics include, but are not limited to, securities class actions, fiduciary duty litigation, or comparative approaches to business litigation. We welcome scholars working in a variety of methodologies, including empirical analysis, law and economics, law and sociology, and traditional doctrinal analysis. Participants will generally be expected to have drafts completed by the fall, although there will be one or more "incubator" sessions for ideas in a more formative stage.

 

Authors whose papers are selected will be invited to present their work at a workshop hosted by the University of Richmond School of Law in Richmond, Virginia, on Friday, October 24 and Saturday, October 25, 2014. Hotel costs will be covered. Participants will pay for their own travel and other expenses.

 

The workshop is designed to maximize discussion and feedback. The author will provide a brief introduction to the paper, but the majority of the individual sessions will be devoted to collective discussion of the paper involved.

 

Submission Procedure

If you are interested in participating, please send an abstract of the paper you would like to present to Verity Winship at vwinship@illinois.edunot later than Friday, May 30, 2014. Please include your name, current position, and contact information in the e-mail accompanying the submission. Authors of accepted papers will be notified by Friday, June 27.

 

Questions

Any questions concerning the workshop should be directed to the organizers: Professor Jessica Erickson (jerickso@richmond.edu) and Professor Verity Winship (vwinship@illinois.edu).

May 1, 2014 | Permalink | Comments (0) | TrackBack (0)