January 10, 2013
Autopsy of a Merger
From the "things I'm reading" file: Autopsy of a Merger by Willam Owen. Squeezed this in over the break after I finished grading. It's definitely worth reading if you find yourself standing in front of a classroom for a living.
Owen was an in-house counsel at Trans Union when the transaction with Pritzker went down. He provides a very detailed look at how the deal went down and the personalities involved. It goes without saying that his portrayal of Van Gorkom is much more sympathetic than the portrayal of Van Gorkom by the Delaware Supreme Court. It's also consistent with contemporaneous profiles of him. Two things of interest about Van Gorkom that come through clearly from the book. First, Van Gorkom was apparently an early advocate of shareholder value as a driving force for corporate decision-making. In fact, he scoffed at the idea that boards should make decisions that put other constituencies (managers, employers) over stockholders. Second, Van Gorkom took the question of conflicts of interest related to an MBO seriously and was of the mind that management should never engage in transactions that raised potential conflicts. That, perhaps, explains his resistance to the KKR/management offer that showed up after he inked the initial deal with Pritzker.
Of course, Smith v Van Gorkom is pre-Revlon, but if one were to apply modern Revlon jurisprudence to the rich set of facts one gets from Autopsy, the case would have/should have come out differently. Was the process perfect? Certainly not. But, Revlon transactions need not have a perfect process. Was a disinterested board motivated to get shareholders the best price reasonably available in the short-term? Yes.
September 20, 2010
Ten Books for Transactional Practioners
Over at Truth on The Market, J.W. Verret lists the Top Ten Books in Corporate Law that he believes a practitioner would find useful in day to day practice. This follows a prior post listing his top ten books in corporate governance, which reader comments led him to believe had (perhaps) too academic a focus. As he notes, most of the entries on the new list are treatises.
Acknowledging that corporate practices can vary widely, I have to say that, while I have consulted most of the books on his list, they are not the ones I turn to most often. As a transactional practitioner I’m generally looking for books that give more concise, practical advice on how to actually do things.
So, here’s my list of 10 texts for the transactional practitioner (in no particular order):
- Corporate Finance and the Securities Laws, by Charles J. Johnson, Jr., Esq., Joseph McLaughlin, Esq.
- Negotiated Acquisitions of Companies, Subsidiaries and Divisions, by Lou R. Kling & Eileen T. Nugent
- Start-Up & Emerging Companies: Planning, Financing & Operating the Successful Business, edited and co-authored by Gregory C. Smith with Contributing Experts
- Negotiating and Drafting Contract Boilerplate, edited & co-authored by Tina L. Stark
- Any one of: (a) The Section 16 Treatise and Reporting Guide, (b) The Section 16 Deskbook or (c) The Section 16 Forms and Filings Handbook, each of which is by Peter Romeo and Alan Dye
- Resales of Restricted Securities, by J. William Hicks
- The Williams Act—Tender Offers and Stock Accumulations, by Arnold S. Jacobs
- Legal Opinions: Drafting, Interpreting, and Supporting Closing Opinions in Business Transactions, by Donald W. Glazer, Scott T. FitzGibbon, Steven O. Weise
- Regulation of Securities: SEC Answer Book, by Steven Mark Levy
- Regulation of Corporate Disclosure, by J. Robert Brown
In the interest of full disclosure, several have been written or edited by partners or former partners of mine and I’ve contributed to a couple of them. I have excluded bar resources and pure form books, although often these are the things I use most frequently. I also excluded any text that is over two volumes long. And of course I've left off imternet resources, which I use quite frequently.
Thoughts welcome in the comments.
July 26, 2010
Scoundrels in Law
Another edition of things I'm reading cause it's summer: Scoundrels in Law: The Trials of Howe and Hummel, Lawyers to the Gansters, Cops, Starlets, and Rakes Who Made the Gilded Age by Cait Murphy. This is a great book about the practice of law in the 19th century. It will take you back to the days of "Tearful Tom" Shearman and his partner, John Sterling. You remember them, right? I think their firm is still around. Anyway, Tearful Tom was known not only for representing Jay Gould and Jim Fisk, but also for being able to turn on the tears in front of a jury at a moments notice. This type of over the top performance was typical of lawyers of the Gilded Age. Who does that now? When was the last time you saw someone drop to their knees during a negotiation to beg for a provision, or bawl at a deposition?!
Murphy reminds us that the Gilded Age was really the Wild West for the practice of law. Howe and his partner Hummel were ready and willing to bribe judges, hire witnesses, suborn perjury - whatever was required to get their clients off. These two even had a side role as lawyers in the trial of Diamond Jim Fisk's murderer. Scoundrels in Law takes the reader from Delmonico's to the Tombs in a tour of the 19th century legal profession in New York City. They weren't doing big deals, but I bet they were having fun. Every student of law should read this very entertaining and informative book in conjunction with their legal ethics class!
June 01, 2010
Rise and Fall of the Conglomerate Kings
I'm halfway through Robert Sobel's The Rise and Fall of the Conglomerate Kings, which is probably the definitive account of the conglomerate business structure as told through the lens of the characters who built them. If you're like me, or if you've take an M&A course from someone like me, discussion of the conglomerate period takes up about 15 minutes in the early stages of the class and sets up the narrative for the 1980s LBO boom and the development of the takeover law we all know. Sobel's book is a great introduction to the personalities - imperial CEOs before there was such a thing - who created the conglomerate structure from nothing. Really, you shouldn't consider yourself an M&A geek unless you know who Royal Little or Tex Thornton were.
May 17, 2010
For those of us on a university calendar, it's already summer. It's a great time of year to attack that pile of reading that's been accumulating on the corner of my desk. Funny, reprints no longer take up much space on my desk since I get most of that stuff online these days. I do have an increasingly large pile of books, however. At the top of that pile is Guhan Subramanian's Negotiauctions. Negotiauctions builds on an earlier work Prof. Subramanian did with Richard Zeckhauser on negotiations and the sale process. Subramanian defines a "negotiauction" as a process in which the seller is both a passive player (the auction component) as well as an active player (the negotiation component). During the auction component, Subramanian notes, the bidders do much of the work in terms of pushing up the price. During the negotiation component, which may be simultaneous with the auction component, boards of sellers take a much more active role in generating value. Although life would be easier if the merger process were simply a binary process, Prof. Subramanian is entirely correct in his set up. It's both. That's what can make it so complex. On the one hand deal protection measures can hinder an auction, on the other a well-motivated board can use the same measures to negotiate a higher value. It's a world of grey.
This book is steeped in the academic literature of auction theory and negotiations, but is written for a more general audience. It's well worth the read. The Kindle edition means that you can even read it on vacaction.
April 25, 2010
Summer Reading: Anglo-American Securities Regulation
Martin Wolf at the FT has started a series of columns in which he is thinking about the future of the financial markets. In his take on the goings-on at Goldman in the wake of the Financial Crisis he made the following observation:
Financial systems are important servants of the economy, but poor masters. A large part of the activity of the financial sector seems to be a machine to transfer income and wealth from outsiders to insiders, while increasing the fragility of the economy as a whole. Given the extent of the government-induced distortions in the system, even the fiercest free marketeer should accept this. It is hard to see any substantial benefit from the massive leveraging up of the economy and, above all, the real estate sector, that we saw recently. This just created illusory gains on the way up and real pain on the way down.
All true. But hasn't Wall Street been an insiders v. outsiders game for as long as it's been around? I'm sure Wolf would agree. Indeed, populist anger at the insiders for fleecing a naive public isn't a new phenomena at all. Take for example the South Seath Bubble of the 18th century. Jonathan Swift's poem, The South Sea Project, about sums it up.
But, I affirm, 'tis false in fact,
Directors better knew their tools;
We see the nation's credit crack'd,
Each knave has made a thousand fools.
fool may from another win,
And then get off with money stored;
But, if a sharper once comes in,
He throws it all, and sweeps the board.
fishes on each other prey,
The great ones swallowing up the small,
So fares it in the Southern Sea;
The whale directors eat up all. ...
some build castles in the air,
Directors build them in the seas;
Subscribers plainly see them there,
For fools will see as wise men please. ...
thrown into the sea,
Recover strength and vigour there;
But may be tamed another way,
Suspended for a while in air.
One of the books on my summer
reading list is Anglo-American
Securities Regulation: Cultural and Political Roots, 1690-1860 by Stuart
Banner. A colleague of mine noticing
that I had the book with me remarked that it’s funny how these books get
published, move on into obscurity and then following a series of fortuitous
events get pushed out in paperback.
Well, I’m glad the publishers decided to put it out in paper back. So far (I’m just a third in), Banner’s book
is a wonderful description of the tensions between insiders and outsiders in
early securities markets.
One of the books on my summer reading list is Anglo-American Securities Regulation: Cultural and Political Roots, 1690-1860 by Stuart Banner. A colleague of mine noticing that I had the book with me remarked that it’s funny how these books get published, move on into obscurity and then following a series of fortuitous events get pushed out in paperback. Well, I’m glad the publishers decided to put it out in paper back. So far (I’m just a third in), Banner’s book is a wonderful description of the tensions between insiders and outsiders in early securities markets.
It seems that “sharpers” have been taking advantage of gullible and optimistic “investors” for as long as people have been trading securities. Notwithstanding the shocking nature of recent revelations, there isn’t much new in what is now coming out in the papers. If you read the fine print on page 8 of the boilerplate section of Goldman’s ABACUS flip-book, it says quite clearly that Goldman is not in a fiduciary relationship with its “client”. Indeed, that same section says:
Goldman is currently and may be from time to time in the future active on both sides of the market and have long or short positions in [the securities that are subject of this offer]. Goldman Sachs may have conflicts of interest due to present or future relationships between Goldman Sachs and any Collateral, the Issuer thereof, any Reference Entity, or any obligation of any Reference Entity.
You’re on your own is the message. Same as it ever was, I suppose.
"Big Short": The Musical
October 13, 2009
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.
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.
September 17, 2009
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.
June 16, 2009
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.
June 03, 2009
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.