M & A Law Prof Blog

GM: Saturn Sale Collapses

The proposed sale of GM's Saturn division to Penske has collapsed and it looks like the Saturn brand will head for the dust-bin.  That's too bad.  They had a great one price concept, but "corporate" never really set them free to follow through.  In the end it became just another wasted GM brand. 

If anyone might have had a chance to make it work it would have been someone like Roger Penske, who has a long history in the auto business but is still enough of an outsider.  The Detroit Free Press reports that the main reason for Penske walking was an inability to find anyone (Renault, in particular) to build the next generation Saturn once the transition services agreement with GM would expire.   

Penske said it had negotiated a deal to get products manufactured by another company but that agreement had fallen apart. 

“That agreement was rejected by that manufacturer's board of directors,” Penske said in a statement. “Without that agreement, the company has determined that the risks and uncertainties related to the availability of future products prohibit the company from moving forward with this transaction.”

I guess the manufacturer didn't see much of a future there.  So another GM brand will go away.  GM is still negotiating with a consortium of Swedish and Chinese investors over the future of the Saab brand.  The sale of Opel to Magna looks set to sign next week.  That leaves only the "brand that shall not be named" hanging on for the time being. 

-bjmq

 

No Big Deal: GM & Chrysler

Stephen Lubben at Seton Hall has a new paper, No Big Deal: The GM and Chrysler Cases in Context in which he takes on the critics of the government's intervention into GM and Chrysler.  It's well worth reading.

Abstract: Almost every leading corporate bankruptcy academic has spoken against the automotive bankruptcy cases. And the Chrysler and GM chapter 11 cases have been vilified in every major finance-focused media outlet - by everyone from Ralph Nader to Richard Epstein. In this short paper, originally written for the TARP Congressional Oversight Panel, I address the key academic arguments against the automotive chapter 11 cases and contextualize what happened in these two cases. Stripped of their speculation and 'what ifs,' I show that these arguments are no more persuasive than the loose, unsupported arguments thrown about in the popular press. But first, I show how these cases, and particularly their structure - a quick lender-controlled §363 sale - are entirely within the mainstream of chapter 11 practice for the last decade.

-bjmq

Post- Closing Purchase Price Adjustments

Agreements to purchase private companies often include a post-closing purchase price adjustment (generally based on closing working capital versus some agreed upon target). In an effort to ascertain current market practice, White & Case surveyed 87 private company purchase agreements that were publicly filed in 2008 and contained purchase price adjustments.  Full report here.

MAW

What must a Board do to satisfy its Revlon duties?

Milbank, Tweed reviews the decision of the Delaware Court of Chancery in Police & Fire Ret. Sys. of the City of Detroit v. Bernal, et al. and concludes

 [The Delaware Supreme Court’s recent decision in Lyondell Chemical Company v. Ryan] confirmed that directors may aggressively pursue a transaction that they determine in good faith to be beneficial to shareholders, despite the absence of an auction process, so long as their actions are reasonable and aimed at obtaining the best available price for shareholders. However, . . . the language used by the Court in Bernal certainly suggests that when a company has attracted more than one bidder, the best way for a board to satisfy its Revlon duties and maximize shareholder value is to follow a robust sale or auction process that avoids taking actions that could be perceived as favoring one bidder over another. As Court of Chancery decisions in recent years have demonstrated, when only one bidder exists, Delaware Courts are reluctant to upset the deal and risk losing an attractive opportunity for target company shareholders. In contrast, when more than one bidder is involved, Delaware Courts are more comfortable scrutinizing a deal and taking steps to permit an auction to continue.

Get the full story here.

 

MAW

For Sale – One Slightly Used Baseball Team

The New York Times announced in its earnings call yesterday that it expects to sell its 18% stake in New England Sports Ventures, which among things owns the Boston Red Sox by January 2009.  I’m starting a collection. 

-bjmq

GM 363 Sale Approved

The Federal bankruptcy court approved GM's petition to sell substantially all of its assets to New GM Co. in a 363 sale last night.  The following documents were released by the court:

 1. The Decision On Debtors Motion For Approval Of (1) Sale Of Assets To Vehicle Acquisition Holdings Llc; (2) Assumption And Assignment Of Related Executory Contracts; And (3) Entry Into UAW Retiree Settlement Agreement (95 pages);

 2. Order Granting (I) Authorizing Sale Of Assets Pursuant To Amended And Restated Master Sale And Purchase Agreement With New GM Co, Inc., A U.S. Treasury-Sponsored Purchaser; (Ii) Authorizing Assumption And Assignment Of Certain Executory Contracts And Unexpired Leases In Connection With The Sale; And (Iii) Granting Related Relief (184 pages); and

 3. Order Pursuant To Bankruptcy Code Sections 105(A), 361, 362, 363, 364 And 507 And Bankruptcy Rules 2002, 4001 And 6004 (A) Approving Amendment To DIP Credit Facility To Provide For Debtors Post-Petition Wind-Down Financing (84 pages).

-bjmq

Can Secured Creditor Foreclose on Substantially All the Assets of a Debtor without Stockholder Approval?

An interesting question appeared in my in-box a few days ago from the ABA’s Private Equity/Venture Capital Listserve.  Here is a somewhat edited version (thanks to Peter Sugar for helping me refine the question):

 

Creditor makes a loan to Debtor.  The loan is secured by the stock of a wholly owned subsidiary of Debtor.  The stock constitutes substantially all of the assets of Debtor.   So, under the terms of the loan, upon a default, Creditor can take 100% of the shares in the subsidiary.

 

The loan is in default and Creditor plans to exercise its rights to acquire 100% of the shares in the subsidiary.  Under the relevant statute, the sale, lease, or exchange of all or substantially all of a company’s assets must be authorized by the affirmative vote of its stockholders.

 

Here's the question: Should any of this be put to a shareholders' vote?

 

I asked my partner Steven Weise what he thought (something I do quite often) and he pointed to Sections of the California and Delaware Corp. Codes:

 

California Corp Code § 1000:

 

"Any . . . pledge or other hypothecation of all or any part of the corporation's property, real or personal, for the purpose of securing the payment or performance of any contract or obligation may be approved by the board.  Unless the articles otherwise provide, no approval of shareholders . . . shall be necessary for such action."

 

Delaware GCL § 272:

 

“The authorization or consent of stockholders to the mortgage or pledge of a corporation's property and assets shall not be necessary, except to the extent that the certificate of incorporation otherwise provides."

 

So if Debtor is a California or Delaware corporation, no stockholder vote is necessary to enter into the loan agreement or pledge the stock of the subsidiary.

 

He went on to say he thought that the foreclosure by the secured party should not require shareholder consent because such a requirement (i) would make these statutory provisions useless and (ii) a foreclosure is not a sale "by" the corporation.

 

But what if, instead of foreclosing, the Creditor works out a negotiated settlement with the Debtor pursuant to which the loan is satisfied by the stock of the subsidiary?  Could you argue that (i) the right to enforce is inherent in the creation of the security interest and (ii) the reasonable anticipation of the parties when a security interest is created is that the secured loan will be paid and the security interest won't be enforced, so (iii) if there is a default, even in a settlement, it's still "involuntary" because of the threat of foreclosure?

 

Thoughts in the comments are welcome.

 

MAW

Hummer: Mark your calendars

Recent reports suggest that Tengzhong Heavy Industrial Machinery is in discussions with the Chinese government over its proposed acquisition of the Hummer brand, dealership contracts and AM General production contract (for the H1/H2 model).  Since GM recently announced it will be closing the Shreveport plant that produces the H3 model, I'm assuming those facilities aren't going to be part of the package.

In any event, Chinese news reports now say that Tengzhong and GM will sign a definitive agreement on July 10.  Mark your calendars!

-bjmq

DGCL 303 and Sales of Substantially-All-the-Assets in Bankruptcy

Almost lost in the big news of the day that GM has filed for bankruptcy (bankruptcy petition here) was the announcement that over the weekend Judge Gonzalez approved the sale of substantially all the assets of Chrysler in bankruptcy to Fiat for approximately $2 billion.  The judge’s ruling is here.  The sale will close quickly and New Chrysler will emerge to try to rebuild the American auto industry.  But wait a minute.  A sale of substantially all the assets of Chrysler?  Isn’t there supposed to be a shareholder vote?  Well, yes, but no.  (For purposes of this example, I’m assuming Chrysler is a corporation, which it’s not.  It’s an LLC.)

First, there is the issue of Federal preemption by the bankruptcy code.  Second, the Delaware corporate code Section 303 recognizes that in bankruptcy a judge may order a sale of assets or a merger and that such a sale/merger occur without further action by directors or stockholders.   Any sale or merger ordered in bankruptcy also eliminates appraisal rights to the extent there might have been any.  Although a sale of substantially all the assets of Chrysler to Fiat in January (so, pre-bankruptcy) would have required a vote of the Chrysler stockholders.  The same transaction in bankruptcy, if approved by the bankruptcy judge go through without a vote, however.

In Chrysler’s case, the issue of a shareholder approval would not likely have been a problem given that it is (was) controlled by Cerberus.  However, in a corporate setting where share ownership is more widely distributed the decision whether to do a transaction in or out of bankruptcy may at times turn on questions of shareholder approval.

- bjmq