M & A Law Prof Blog

This Time is [Not] Different

Just finished reading Carmen Reinhart and Kenneth Rogoff's This Time is Different.  This book isn't intended to provide the details to answer the question what happened to us last year.  Rather, the book is intended to take three steps back and provide the reader with a broader view of crises and point out themes that tie together the the financial crisis of 2008 with previous crises.  Looking at the data from 1860 to 2006 they pull together it's pretty clear that that this time is, in fact, not different. 

Although we hadn't experience a panic like this in many, many years, it turns out that financial and banking crises are all too common.  It's a theme that Martin Wolf also argued in his Fixing Global Finance, though Reinhart and Rogoff are able to draw on much more data (global) and over a longer span of time to make their point.

I put the book down and came away with a couple of important lessons.  First, financial liberalization and financial crises seem to go hand in hand.  That's not to say that financial repression is a good thing, just that all those who argue this will be better if we "just let financial markets do their thing" are, well, dooming themselves to a never-ending cycle of booms and calamitous busts. 

Second, when market participants are able to leverage up to the hilt, they do. Moral hazard usually takes them and the rest of the economy over the cliff.  Third, stock market bubbles are better than real estate bubbles - mostly because the recovery periods from the collapse are much faster.  Fourth, following a real estate bubble, it's not the bailout costs that will get you, it's the long term collapse of tax revenue associated with lower growth over time.  Finally, surprise, surprise, (all) governments can and do default on their sovereign debt eventually.

There's a lot in this book to digest and it's well worth reading.

-bjmq

p.s. for the graduate students out there not interested in actually buying the book, a 124 page paper by the authors that covers the same material from April 2008 is online.  But, buy the book.    

 

Gods at War

Steven Davidoff's book, Gods at War, will be coming out soon and is available for pre-order.  The NY Times adapted a portion of it in today's paper here.  In that selection The Deal Professor asks a relevant question: what the future of the deal will look like after the current dust settles.  If you what to know more, you'll have to buy the book.   Oh, I know this is a shameless plug, but it's my blog so sue me. 

-bjmq

The Original Shareholder Activists

The proposed shareholder access rules and the debate surrounding the role of shareholder activists got me thinking.  Some opposed to increased shareholder power paint pictures of the end of capitalism that will come when shareholders force boards to adopt unwise business positions motivated by political and other interests.  Of course, this is not the first time we’ve had this debate.  Long before cheap credit fueled the private equity bubble of the past few years and before Mike Milken and the junk bonds made the buyout craze of the 1980’s possible, there were a set a characters who started the modern takeover movement and were the original shareholder activists.  

The first corporate raiders of the post-World War II era were Thomas Mellon Evans, Robert Young and Louis Wolfson among others.  They were called pirates and financial hooligans for their attacks on the comfortable life of corporate boards that typified the 1950s.   The takeover tactics that these raiders developed would later become commonplace.  They used cumulative voting to get minority board representation, they successfully challenged staggered boards, they used leverage to increase their influence, and they sought to make the market more efficient by buying up underperformers and turning them around.   

I just finished reading Diana Henriques’ White Sharks of Wall Street.  White Sharks is a portrait of these raiders and Thomas Evans in particular.  Evans, Wolfson, and Young all looked to acquire underperforming “businesses run by boards devoid of any meaningful ownership” and underperforming family-owned businesses where the genetic lottery resulted in an uninterested group of founders’ children trying to manage the business. They bought these businesses and shook them up – sometimes by turning them around and other times by breaking them up and selling them off.

Evans and the other “activists” of the 1950s were the face of the nascent takeover market.  They were also a threat to the social and political fabric of the day.  By forcing boards to face facts, they undid all the stability of the business in the 1950s.  Notwithstanding this threat from activist shareholders, boards and the system stood up reasonably well, adapted and thrived for many years.  One wonders what parallels we can learn from that experience that might inform how we think about shareholder access rules.

-bjmq

M&A Resource for Young Lawyers

So maybe you’re a newly minted JD studying for the bar.  Have you given any thought to what you might want to read on your now extended bar trip?  I mean, when you show up for your first day of work in … January, it would be nice if you had read something useful.  For generations past that might have meant James Freund’s Anatomy of a Merger, but that’s out of print and only available in pricey law-library editions.  So what to read?  Now there’s a nice modern take on the merger anatomy for young associates – William Carney’s Mergers & Acquisitions: The Essentials. 

OK, I’ll admit that it lacks some of the folksy stories that made Freund’s book a really enjoyable read.   But it makes up for that in being direct and covering a variety of useful topics including logistics of doing a deal, structuring transactions, due diligence and the important provisions in the merger document.  However, it’s just the essentials, so don’t think that reading this book will be a better idea than taking an M&A class.  But, if you are going to be a first year associate doing M&A and you have time on your hands after the bar (who doesn’t these days?), you should make sure you read this 336 page book before your first day.  As I tell my students, it’s always better to know something.           

-bjmq