Thursday, July 29, 2010
I spent some of this week in Washington, D.C. at the XVIIIth International Congress of Comparative Law. The congress, which is presented by the International Academy of Comparative Law and the American Society of Comparative Law is taking place all of this week and is hosted by three local law schools, American University Washington College of Law, George Washington University Law School and Georgetown University Law Center. The conference is a wonderful gathering of jurists, lawyers and scholars from around the world.
Part of the week’s events involves the delivery of general and national reports on a variety of legal issues. This year the International Academy of Comparative Law has decided to deal with corporate governance in a session at its 18th International Congress on Comparative Law and has commissioned a general report, as well as various country reports on the matter. The general report, which is based on 32 country reports, focuses on (i) Corporate Governance: Concepts and General Problems; and (ii) the Board and the Shareholders as the Two Key Actors in Corporate Governance. There are also links to specific country reports. For those interested in a broad comparative survey of corporate governance issues, the reports are a useful summary.
Sunday, July 25, 2010
Seems like BP is aggressively seeking to shed assets in a bid to generate cash to fund the $20 billion compensation account for the damages associated with its ongoing mess in the Gulf of Mexico. BP started with series of sales of Alaskan, Canadian and Egyptian-based assets to Apache, raising $7 billion. Now comes word from the Vietnam News Agency that BP plans to sell its interests in Vietnam. These include the Lan Tay and Lan Do offshore gas fields which have been producing for more than a decade, the Nam Con Son gas field, as well as BP's 720MW Phu My gas-fired power plant The sale may generate an additional $1.3 billion for Gulf compensation fund.
Thursday, July 15, 2010
So I’ve been away for a while with a research trip to India and then madly trying to finish a couple of papers related to the trip. Before I left, I blogged about some of Vice Chancellor Strine’s comments during his lecture at Stanford’s Rock Center for Corporate Governance. I think that some of Chancellor Strine’s comments on the efficacy of independent directors should be a warning for those pushing for corporate governance reforms in other countries. I have written previously about the potential pitfalls of importing US-style corporate governance rules with respect to India. I’ve now posted another paper entitled "The Promise and Challenges of India’s Corporate Governance Reforms" which addresses some of the recent reform efforts following the Satyam scandal and the continuing barriers for effective corporate governance. The paper is forthcoming in the inaugural issue of the Indian Journal of Law and Economics.
Recently, there has been some very interesting work on independent directors in India, particularly arising out of unprecedented independent director resignations following the Satyam scandal. The Indian corporate law blog has a very useful post about recent academic literature on corporate governance norms, including the value of independent directors, in India. For those interested in India, all of the papers are worth a careful read.
I think that while the independent director model has much to recommend, there are serious constraints to the model for the Indian context. There is a danger that simply pushing for independent directors will not fully address some important corporate governance concerns in India, particularly the pervasive influence of promoters and controlling stockholders. Others, in particular Umakanth Varottil, have also written on this issue. I highly recommend Umakanth’s recent paper entitled “Evolution and Effectiveness of Independent Directors in Indian Corporate Governance” for anyone who is interested in corporate governance reforms around the globe.
I’ll soon be posting more on other projects related to this trip to India, including a paper on outbound M&A by Indian firms. Stay tuned…
Thursday, June 17, 2010
Thursday, May 27, 2010
Back in March, Prudential announced a $35.5 billion purchase of American International Assurance, the Asian arm of A.I.G. (for more info see this prior post). The deal hit some snags early on because of regulator concern about Prudential's capital. Prudential is also encountering serious resistance from investors as it tries to complete a $21 billion rights offering in order to finance the deal. The offering requires a shareholder vote (a whopping 75% of the shares that are voted) and the Prudential shareholder meeting is scheduled for June 7th. The economist magazine has come out in favor of the deal, seeing it as more about "uniting competitors in Hong Kong and Singapore, which comprise about half of the activities in Asia of both AIA and Prudential" than about destiny and empire building. But now RiskMetrics has now entered the fray and recommended a vote against the deal. The concern is that Prudential may be overpaying for this deal, and that post-acquisition many of AIA’s people may leave to join the company’s rivals.
Prudential's management has not done an amazing job selling this rather expensive deal to their shareholders. Will this be another big deal that goes bust?
Friday, April 16, 2010
Norton Rose has a memo on the in's and out's of M&A in Hong Kong. Transactions involving Hong Kong companies are governed by the Codes on Takeovers and Mergers and Share Repurchases. The Hong Kong takeover code is similar in many respects to the UK Takeover Code. The Norton Rose memo notes:
Although the Code does not have the force of law, compliance with the Code is, in practice, mandatory because the Panel can impose sanctions on market participants considered to be acting in breach of the Code. These sanctions can include: reprimand (both private and public); and "cold-shouldering" (prohibitions on certain persons from acting for the offending entity). In addition, any breach of the Code by a listed company will constitute a breach of the Listing Rules by that company.
The Hong Kong Takeover Panel website is here.
Monday, March 8, 2010
I’ve been blogging a lot about cross-border M&A, mostly covering Indian conglomerates purchasing firms outside of India. Emerging markets are not just experiencing outbound deals, there is also a lot of interest by western firms in acquiring targets in these markets. According to recent data by Thomson Reuters, 34% of deals announced thus far in 2010 involved a target or an acquirer (or both) in an emerging market. For example, just last week Prudential PLC, the British life insurance and asset management company, announced a $35.5 billion deal to purchase AIG’s Asian assets. The deal would fundamentally transform Prudential, making it a major player in the Asian insurance market.
These cross-border deals represent an important shift in deal-making and M&A activity. This is pretty exciting stuff especially given the overall decrease in M&A activity in the west. But cross-border M&A deals in emerging economies can also be somewhat thorny for deal makers. As articulated in this recent article “while optimism toward emerging-market deals is palpable, and the macroeconomic signs are positive, the reality for deal makers may not be so rosy. Deals in emerging markets often run into surprises like onerous government intervention or corporate management that, at the last minute, changes terms or tactics.”
Cross-border deals involve social, political, cultural and economic sensitivities that require sophisticated deal makers and counsel. For example, due diligence may involve an investigation into deal risks that are not always common in domestic deals (FX issues, political instability, etc.). Lawyers advising clients on emerging market M&A deals will need to be nimble and creative in their thinking, and have an understanding of the macro-economic and political environment beyond the typical domestic deal. Moreover, they must be ready to ask tough questions to which there may not be easy answers. It is not just the diligence process that is different. Deal documents will often look quite different from those used in typical domestic deals. I think some of the interesting questions for scholars and practitioners to investigate are whether, how and why deal documents differ, and to study the extent to which parties entering into acquisition deals in countries that seem to have very different legal rules nevertheless tend to develop roughly similar solutions to the characteristic problems that arise in acquisition transactions.
Friday, February 26, 2010
Sandeep Parekh at IIM recently posted a paper that includes a short introduction to takeover regulation in India, Indian Takeover Regulation - Under Reformed and Over Modified. Given the recent increase in cross-border transactions involving India, this paper is worth taking a look at.
Abstract: The takeover of substantial number of shares, voting rights or control in a listed Indian company attracts the provision of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations 1997. The regulations have been amended nearly 20 times since inception, though the amendments have mainly concentrated on areas which needed no amendment. At the same time a vast number of obvious problems have not been rectified in the regulations. The large number of amendments have also created requirement of a compulsory tender offer of such unnecessary complexity as to make it virtually unintelligible to even a well qualified professional.
This paper argues that the complexity in the trigger points for disclosure and tender offer introduced over the years lacks a philosophy, and most of the amendments can not only be deleted but a very simple structure can be introduced making compliance of the regulations straight forward and easy to understand by management of listed companies. Certain other areas which need amendments have also been discussed. Chief amongst these are the provisions relating to consolidation of holdings, conditional tender offers, hostility to hostile acquisitions, definitional oddities, payment of control premium in the guise of non compete fees, treatment of differential voting rights, treatment of Global Depository Receipts and disclosure enhancements.
This paper does not try to portray a particular combination of numbers as the best possible set of trigger points and compulsory acquisition numbers but advocates that whatever numbers are adopted should not be changed for several decades. Arguments that state that the changing economic condition requires constant changes with these numbers, it is argued is wrong.
Thursday, February 25, 2010
So it's hardly a surprise to anyone paying attention that GM's deal to seller its Hummer unit to an unknown privately owned company from the interior of China died yesterday. (GM announcement here) GM announced that it would begin to immediately shut down Hummer and its operations.
Though the terms of the proposed deal haven't been made public, I'm assuming the sale agreement included a customary regulatory condition to closing. Such a condition would permit either party to refuse to close and then terminate the transaction in the event the required regulatory approvals were not obtained by the deal's drop dead date. The way these conditions are often written, the parties can then walk away without either party paying a fee.
Monday, February 22, 2010
This morning I opened my email to see news on two multi-billion dollar deals by Indian conglomerates. Bloomberg reported that Reliance Industries Ltd., one of India’s largest companies and owner of the world’s largest oil-refining complex, raised its offer for bankrupt LyondellBasell Industries AF to about $14.5 billion. In addition, India’s Bharti Airtel has been able to line up almost $9 billion in loans for its $10.5 billion bid for Zain’s African assets. These types of large-scale deals generally receive a lot of positive popular press attention in India, some of it with nationalistic sentiments touting the rise of India Inc. Whenever I read these stories they make me wonder about a recent paper by Ole-Kristian Hope, Wayne Thomas and Dushyantkumar Vyas, entitled “The Cost of Pride: Why do Firms from Developing Countries Bid Higher?” which examines whether companies from developing countries bid higher (relative to companies from developed countries) in their quest for international expansion and national glory.
Abstract: Using an extensive panel of cross-border M&A transactions between 1990 and 2007, we find that firms from developing countries (versus those from developed countries) bid higher on average to acquire assets in developed countries. We are interested in why these higher bids occur. We find that bids of firms from developing countries are higher in cases where the transaction displays “national pride” characteristics, where national pride is identified through a manual examination of media articles. These results, which are robust to numerous specifications (including alternative measures of national pride) and control variables, are both statistically and economically significant and highlight a source of pride beyond personal hubris which potentially influences corporate decision makers.
In my opinion, the next stage of this research is to see whether deals with national exuberance create positive wealth effects for the shareholders of the bidding companies.
Although minority shareholders were vocally opposed to the transaction, it succeeded at the ballot box. It's all still a little fizzy what was going on here. The Hong Kong police have since raided Mr. Li's home apparently and sealed up the ballot boxes. At this point, there is no indication that Mr. Li violated any laws. It's an odd situation. It's hard to imagine the police intervening in a US corporate election, but there you have it.Bloomberg reports that the company's offices were searched by police earlier this month, along with those of Fortis Insurance Co. (Asia), a local insurer that was once controlled by Li through his Pacific Century Regional Developments (PCRD).
Hong Kong's Securities and Futures Commission won a court ruling in April, 2009 to block Li’s bid after the regulator alleged that hundreds of people, including Fortis Asia agents, were given shares in the phone carrier to boost support for the deal.Li, the son of Hong Kong's richest man, Li Ka-shing and a billionaire in his own right with a fortune we estimate at $1.1 billion, has not been implicated in any wrongdoing.
Monday, February 15, 2010
Many thanks to the M&A Law Prof Blog for inviting me to be a contributor. A devoted reader, I am very flattered to be among such fabulous company. Hopefully there will be much to blog about in the M&A world. At least according to the March 2010 issue of Bloomberg Markets Magazine, a recent survey of M&A professionals indicates that almost all expect a resurgence in M&A activity in 2010. Of course, no one expects a quick return to the dizzying heights of 2007, but hopefully 2010 will beat the dismal 2009 numbers. Given my interest in comparative law and outbound M&A deals, I was happy to see that the Asia-Pacific region is expected to be the leading hot spot for M&A activity in 2010. Asian companies have been quite active in cross-border M&A activity in this first quarter, see for example the recent $10.5 billion bid by Bharti Airtel, an Indian telecom company, for Zain’s African assets. I think that these types of South-South deals, and their political/legal challenges, will continue to be a major feature of M&A news in 2010. I'll try to keep our readers updated on the legal angles of these and other hot M&A stories.
Tuesday, January 19, 2010
Monday, January 11, 2010
Abstract: China's Anti-Monopoly Law went into effect
on August 1, 2008. Even
though enforcement authorities tend to build their capacity progressively, China has already seen three milestone case decisions in the past year: InBev/Anheuser-Busch, Coca-Cola/Huiyuan, and Mitsubishi Rayon/Lucite. In this article, we
elaborate the background of
each case and provide in-depth analysis of each decision. In particular, we explore the common characteristics of the cases, the economic theories on
which the merger control authority has relied in its merger decisions, and the patterns regarding China's merger policy. Along the same lines McDermott Will & Emery's China office has client memo on the new regulations on merger notification that went into effect on January 1, 2010. The regulations start to lay out premerger notification processes that corporations wishing to merge will have to comply with. -bjmq
Abstract: China's Anti-Monopoly Law went into effect on August 1, 2008. Even though enforcement authorities tend to build their capacity progressively, China has already seen three milestone case decisions in the past year: InBev/Anheuser-Busch, Coca-Cola/Huiyuan, and Mitsubishi Rayon/Lucite. In this article, we elaborate the background of each case and provide in-depth analysis of each decision. In particular, we explore the common characteristics of the cases, the economic theories on which the merger control authority has relied in its merger decisions, and the patterns regarding China's merger policy.
Along the same lines McDermott Will & Emery's China office has client memo on the new regulations on merger notification that went into effect on January 1, 2010. The regulations start to lay out premerger notification processes that corporations wishing to merge will have to comply with.
Friday, November 20, 2009
Here's a relatively recent empirical study of insider trading in India in advance of merger announcements, Merger Announcements and Insider Trading in India: An Empirical Investigation. Shorter version: insider trading is rampant. Don't be surprised. It's apparently rampant here. Why shouldn't it be in India as well?
Abstract: Insider trading activity is investigated prior to merger announcement in Indian capital market. An attempt is made to check it out whether trading takes place on the basis of asymmetric and private information. For examining the behaviour of stock prices a modified market model is used to estimate the parameters for the estimation window. These estimates are used to compute average return and cumulative average returns for the event window, which are measures of abnormal returns. Besides price run-ups, it is also common to see unusually high levels of share trading volume before public announcement of merger. Daily trading volume pattern of the target companies is also investigated. The analysis carried out in this study is based on a sample of 42 companies for which merger announcement date was announced during the period of 1996-1999. Based on the analysis for each company individually, we recommend investigation in six companies for existence of possible insider trading.
Tuesday, October 27, 2009
Yesterday, the FT carried a piece announcing that TPG would be investing $35 mln in a private Vietnamese company, Masan Group. I'm noting this for a couple of reasons. First, I have a long-standing personal/professional interest in things that happen in Vietnam. Second, this investment comes against the backdrop of reports earlier in the month that PE investors had turned off the spigot to new Vietnam country funds. To be honest, that's not altogether surprising. It's still a relatively small (85 million people!) place and investments there are hands-on projects that require more spade work than you can probably imagine. At the same time the past few years have seen an explosion in the growth of PE interest in the country resulting in much more money chasing deals. That said, the Masan Group is a real company that's enjoyed quite a bit of success with a strong management team.
Sunday, October 11, 2009
Friday, October 2, 2009
An article in The Economic Times of India raises that prospect. But, the takeover market in India is governed by the Securities and Exchange Board of India and is organized along the lines of the UK's Takeover Panel. So while there may be the prospect of unwelcome offers on the horizon, targets won't have the benefit of the defensive measures that have stymied the hostile acquisition in the US for years.
Wednesday, September 30, 2009
The FT is reporting today that two NASDAQ-listed Chinese companies, Sina Corp and Focus Media, are walking away from their proposed $1.7 billion sale of substantially all Focus Media's assets to Sina because the Chinese Ministry of Commerce refused to consider approving their application. In the Form 6-K filed by Sina and the Form 6-K filed by Focus Media yesterday, the respective chairman blame the termination of the agreement on the delay and uncertainty regarding closing.
While they were in the filing mood both companies also announced "private equity" transactions. Sina announced a $180 million sale of 5.6 millions shares of stock to a BVI entity controlled by Sina's CEO and other members of Sina's management chairman. The FT notes that the sale was at an 8.8% discount to lat close. For its part Focus Media announced a $142 million sale of 75 million shares to its executive chairman, an approximate 11% discount of its $10.78 closing price.
I wonder what that's about? I mean, if following a busted deal, one of the parties issues stock to an insider at a discount to the market price for some reason, then I guess that happens. Not often ... but hey ... why not? But, now both parties to a busted deal issue stock to insiders at a discount on the same day immediately following the termination of the deal. That's a bit much. So, I wonder what's up.
Tuesday, September 29, 2009
September has come and gone and I've decided that I'm tired of waiting for the Hummer "deal". For reasons I've already stated, I don't think it will ever get done - even if both sides still say they're close to signing. And if it ever does happen, I'm convinced it will be an awful deal for the buyer.
Anyway, now comes the final nail in the coffin as far as I'm concerned. A study in the Chicago journal of Consumer Research found that Hummer buyers make moral statements through their purchase of Hummer vehicles. Those statements are patriotic and defending America and its frontier lifestyle from anti-American critics and foreigners. Okay ... so what happens when you sell that brand to the Chinese? Gotta start looking for different customers.
1) The deal actually happens and then notwithstanding statements to the contrary about the deal saving US jobs Tengzhong Heavy relocates all the Hummer assembly operations to China; or2) The deal actually happens and Tengzhong Heavy places a large order with AM General for H1 and H2 vehicles on behalf of an important Chinese customer. Leave out the luxury package. We'll just take them all in green, thanks.