M & A Law Prof Blog

Editor: Brian JM Quinn
Boston College Law School

Wednesday, February 10, 2010

Tortious Interference and Pennzoil

This is a great video.  I post it because I recently had a conversation with a colleague about the Pennzoil v Texaco tortious interference with contract case.  If you're teaching this case in torts, this video is worth watching for Icahn's description (at a comedy club no less) of how the Pennzoil case got settled.   Oh, fair warning, his telling of this story is definitely rated PG-13.


February 10, 2010 in Cases | Permalink | Comments (0) | TrackBack (0)

Friday, January 22, 2010

Sunbelt Appraisal Lessons

Chancellor Chandler recently handed down an interesting appraisal case that's worth taking a quick look at - In re Sunbelt Shareholders Litigation.  The case is interesting for a variety of reasons.  In the first instance, the plaintiffs made two claims in the alternative:  1) the plaintiffs made a variety of fiduciary duty claims that the directors cashed them out at an unfair price and the plaintiffs sought partial rescission (in the form of a distribution of some of Sunbelt's assets);  2) if the fiduciary duty claim failed, they sought an appraisal for fair value.

On its face, it seems that the only real question at issue is the price.  If price is the only complaint, then appraisal is the appropriate remedy (Singer v Magnavox, etc.) and not rescission of the transaction.  As you'd expect, Chancellor Chandler appropriately dealt with the alternative claims by simply treating this as an appraisal action and not awarding rescissory damages.  

As an appraisal action there are a number of useful lessons from Sunbelt.  First, the court will give some evidentiary weight to previous appraisals of the same stock.  Chandler said: "the fact that major shareholders … who had the greatest insight into the value of the company, sold their stock … at the same price paid to the remaining shareholders … powerfully implies that the price received was fair.  Additionally, even when provided with the results of expert valuations, a court may find arm’s-length negotiations to be the most persuasive evidence of fair value." 

In the case of Sunbelt, however, the previous stock evaluation was not given weight because the terms of that stock valuation were were controlled by an agreement negotiated and signed
three years prior to the merger.  Only stock valuations that result from negotiations occurring immediately before (or contemporaneously with) the Merger are going to be persuasive evidence of fair value.

Second, when the court uses language like "Penny prepared th[e] [valuation] opinion in one week’s time while simultaneously working on and traveling for another project"  you have to know that the court isn't going to look with favor on the substance of the valuation opinion.  

Third, Delaware courts will accept the use of "comparable transactions analysis" by corporate appraisers to determine fair value.  However, mindful of the effect that careful selection of comparables can have on the outcomes of an analysis, Delaware courts will look closely at which comparables are being used and place the burden of proof on the question whether the comparables are truly comparable lies with the party making that assertion.  In Sunbelt, Chandler ultimately gave no weight to the comparable transactions analysis submitted by the company's expert as the company was unable to overcome the burden of proof that its purported comparables were, in fact, comparable.   Rather, the court relied on the discounted cash flow analysis proposed by the plaintiff.  (HT: AF)



January 22, 2010 in Cases | Permalink | Comments (0) | TrackBack (0)

Wednesday, January 13, 2010


The Deal Professor has some good commentary on the state of the SEC's case against BAC.  The case is a mess.  For some reason the SEC focused its initial efforts on the bonus issue when the real issue should have been the one relating to disclosure (or lack thereof) related to Merrill's mounting "extraordinary losses" between signing and the shareholder vote.  Judge Rakoff tossed out a plea agreement in the summer and called it puzzling.  Now, the SEC has gone back and tried unsuccessfully to amend its complaint to add the disclosure piece.  While it can still pursue the disclosure claims, the SEC must now file a separate action.  

I am starting to understand why Ken Lewis resigned.  In his mind, he stepped up to the plate in the midst of a financial crisis and "did the right thing" by taking Merrill.  Of course, it was good for BAC, but who can hold that against him?  What did he get for his troubles?  Lawsuits from the SEC, the NY AG, shareholders in DE and an open invitation to speak in front of Congressional committees.  

On the other hand, does a financial crisis mean that one's disclosure obligations end?  The same question is true for AIG.  We're going to find out.  


January 13, 2010 in Cases | Permalink | Comments (0) | TrackBack (0)

Tuesday, December 15, 2009

eBay-Craigslist: When good deals go bad

In 2004 eBay and Craigslist announced a friendly deal in which eBay would take a minority position in the online classifieds business.  It seemed like a nice fit at the time - complementary in a way that Skype wasn't.  At the same time eBay's investment kept Yahoo! and Google at bay.  By 2008 it was clear that the party was over and perhaps eBay would have been better off acquiring Craigslist rather than accept the minority stake.  Craigslist sued eBay (Craigslist CA complaint) and eBay sued Craigslist (eBay Del. complaint) in competing lawsuits.  You can imagine the allegations -- loyalty breaches left and right.  It's been playing out in Chancellor Chandler's Delaware courtroom for the past week.   You can view the proceedings care of Courtroom View.  If nothing else, when we get a ruling, we can expect a nice restatement of Weinberger and entire fairness that will no doubt be quickly adopted into casebooks. 

I'm not going to review the factual allegations - the claims of dilution, corporate opportunity, misuse of confidential information, etc.  There are plenty of articles out there.  Start here.  However, yesterday's testimony from Craigslist CEO Jim Buckmaster is worthwhile.  He recounted a discussion with an eBay exec following the transaction in which the terrible truth was revealed...

"He said he needed to tell me there were two Meg Whitmans. We had met and reached an agreement with Good Meg. There was another Meg, an Evil Meg. We would be best served to know that Meg could be a monster when she got angry and frustrated," Buckmaster told a court in Georgetown, Delaware. 

Among the many reasons why you rarely want your clients to end up in a courtroom is this -- goodness knows what might be said that could potentially sink your client's gubernatorial campaign.   The vision of an "evil Meg" can't be good.


December 15, 2009 in Cases | Permalink | Comments (1) | TrackBack (0)

Sunday, October 25, 2009

BAC-ML: More E-Mail

OK, so now that BAC has started turning over internal e-mails to the House Committee on Oversight, it's not looking so good ... especially for the lawyers.  Law.com/Corporate Counsel has had access to the e-mail and it's quite a tangled web. 

The e-mails show that early on the morning of Dec. 19 [Eric] Roth [, a litigation partner at Wachtell] advised the bank's chief executive, Ken Lewis, and its interim general counsel, Brian Moynihan, on how difficult and financially risky it would be to try to invoke a so-called MAC -- or material adverse change -- clause, which would allow the bank to get out of the merger with Merrill.

But another e-mail from associate general counsel Teresa Brenner to Moynihan, sent several hours later and on the same day as Roth's e-mail, says, "Eric made a very strong case as to why there was a MAC" during a conference call with some officials from the Federal Reserve.

Later, Roth writes another e-mail to the legal/business team:

The e-mail says any attempt to invoke the MAC would certainly cause Merrill to file suit. Roth then lists a half dozen reasons why Merrill's arguments could prevail in court. It lists no argument in Bank of America's favor. But perhaps the most compelling fact on the list was this one: The merger deal is governed by Delaware law and "no Delaware court has ever found that a MAC occurred permitting an acquiror to terminate a merger agreement."

Yeah, this isn't turning out well for the lawyers.  It's looking like on the one side you had Treasury and the Fed saying do this deal or the economy goes down the tube and then on the other side BAC trying to come up with arguments to get the Treasury/Fed to subsidize what at the time was looking like a bad deal.  All the time, the shareholders were told nothing.


October 25, 2009 in Cases, Material Adverse Change Clauses | Permalink | Comments (0) | TrackBack (0)

Wednesday, October 14, 2009

Triggering Revlon Duties

It's a recurring question.  We know that an all cash transaction will constitute a change of control and thus require directors attempt to get the highest price reasonably available for the benefit of target shareholders. A stock-for-stock deal where the shareholders of the target remain in the fluid aggregate doesn't constitute a change of control, so directors are free to take into considerations other issues when deciding whether to accept an offer.  But what if you are taking a combination of stock and cash - how much cash will result in Revlon duties being triggered?

Delaware courts have been helpfully ambiguous in answering this question.  On the one hand, In In re Santa Fe Pacific Corp Shareholder Litigation the Supreme Court held that Revlon duties are not triggered when the target accepts consideration of 33% cash and 67% stock.  On the other hand, accepting 60% cash and 40% stock will trigger Revlon duties (In re Lukens Inc. Shareholders Litigation).

In In re NYMEX Shareholder Litigation, the chancery court had chance to slap down another data-point to help narrow the band of when Revlon duties might be triggered.  In the NYMEX-CME transaction, at the time the board initially approved the transaction, NYMEX shareholders were to receive 36% cash and 64% CME stock.  Whether Revlon was triggered by this consideration mix was an issue of some debate between the parties when they were before the court.  

Vice Chancellor Noble declined to rule on the question.  He could have moved the needle just a little bit by finding that 36% cash was insufficient to trigger Revlon.  But, I suppose he felt that discretion was the better part of valor and decided the case on other grounds.

So to the question, how much cash will trigger Revlon duties, the answer remains: "It depends."


October 14, 2009 in Cases, Delaware | Permalink | Comments (0) | TrackBack (0)

Tuesday, October 13, 2009

“This is a stew of great complexity”

The BAC-ML legal stew continues to simmer.  In the SEC-BAC case, parties are gearing up for trial and BAC has signaled its intention to waive the attorney client privilege.  Remember, in the federal case, BAC is arguing, in effect, that it relied on advice from counsel regarding which disclosures were material.  Indeed, I think Lewis' defense is something like, "I don't do disclosures.  That's lawyer work."

Here's the statement from the SEC:

"We have reached agreement with the Bank of America on proposed terms of a court order governing disclosure of information previously withheld on the basis of legal privileges. The order is subject to the approval of Judge Jed Rakoff. If entered by the court, the order would result in a broad waiver of the attorney-client and other legal privileges on matters that are the subject of our pending action against the Bank as well as ongoing investigation.

"In particular, the order negotiated by the SEC would allow us to assess further details surrounding the Bank's failure to disclose to its shareholders critical information concerning the award of bonuses to Merrill employees, including any relevant information previously withheld based on attorney-client or other privileges. In addition, the order would allow for investigation of previously privileged details of Bank of America's consideration of whether to invoke the material adverse change clause in its agreement to merge with Merrill Lynch, its decisions about whether to disclose impairment of goodwill of Merrill Lynch and other financial results of Merrill Lynch during the fourth quarter of fiscal year 2008, and its communications with the Federal Reserve Board, the U.S. Department of the Treasury, and other federal officials regarding the provision of federal assistance in connection with its merger with Merrill Lynch.

In the BAC-ML shareholder suit in Delaware, Vice Chancellor Strine refused to dismiss the case.  The two sides' arguments can be summarized as follows (HT: Bloomberg): 

Lawyer Lawrence Portnoy, representing the bank’s directors, told Strine they didn’t act in bad faith toward shareholders, and that Merrill’s distress “was not a secret” and the losses weren’t unexpected.

Investors’ lawyer Robert J. Kriner Jr. told Strine bank directors showed a “lack of care,” and said in court papers that “directors faithlessly subverted the best interest of Bank of America and its stockholders.”

This case is interesting.  And if the plaintiff's duty of care argument is going to work, then the case may turn on whether in the face of a known duty to disclose (as told to them by their counsel) the directors chose not to.  Myself, I'm waiting for someone at BAC to try to raise a statutory defense (DGCL Sec. 122(12)), but that's just me.


October 13, 2009 in Cases | Permalink | Comments (0) | TrackBack (0)

Wednesday, October 7, 2009

DGCL 220 Books and Records Action

In City of Westmoreland Police & Fire Retirement System v. Axcelis, Inc. the plaintiffs attempted to use a section 220 books and records demand to get Axcelis' board to turn over board minutes and materials relating to the board's decision to turn down an unsolicited acquisition proposal (HT: Morris James, LLP). 

This case is interesting for a couple of reasons.  First, the Delaware Supreme Court is always encouraging plaintiffs to use the "tools at hand"  (i.e. Sec. 220 actions) in conducting pre-suit investigation of suspected mismanagement or corporate waste. So, it's worthwhile looking at a case where the plaintiffs try the avenue that the court recommended to see how successful they are.  

Second, this case is an attempt to use the "tools at hand" to  gain more information about director deliberations with respect to an unsolicited takeover proposal that the board ultimately decided not to pursue.  While that's neither obviously mismanagement nor waste at play here, theirs is a common enough complaint.  Following Lyondell though, there isn't much question left how a court will rule on this kind of claim, but the Sec. 220 action keeps the plaintiffs in the game for a little while longer. 

Sec. 220(b) defines "proper purpose" as "a purpose reasonably related to such person's interest as a stockholder."   In Westmoreland, the court lays out the procedural requirements for securing books and records via Sec. 220, including a discussion of "proper purpose" that adds more gloss to what kind of purpose is reasonably related to a stockholder's interest.

Our courts have recognized that investigation of suspected wrongdoing on the part of a corporation’s management or board is a proper purpose for inspection of the corporation’s books and records. Yet, a plaintiff must do more than simply state its suspicion of wrongdoing; a Section 220 demand made merely on the basis of suspicion or curiosity is insufficient. Rather, the plaintiff must present “some evidence to suggest a credible basis from which [this Court] can infer that mismanagement, waste, or wrongdoing may have occurred.” This “credible basis” standard has been described as “‘the lowest possible burden of proof’ in Delaware jurisprudence.” The plaintiff may make a credible showing that legitimate issues of wrongdoing might exist “through documents, logic, testimony or otherwise,” and is not required to prove any wrongdoing actually occurred.  

While the "credible basis" standard in a Sec. 220 demand is relatively low, it's not nothing.  In Westmoreland, even that low standard proves too high. The plaintiffs unsuccessfully try - through "logic" - to hang their hat on a Blasius-like claim that the board thwarted the will of a majority of the stockholders by following the board policy with respect to board members following their inability to secure more than 50% of the vote in a board election. The court wasn't having any of it.  

I think what this case says is that 220 "tools" aren't really available to all plaintiffs.  plaintiffs with Lyondell-like challenges are going to need more facts going in and can't rely on a 220 to help with discovery - notwithstanding exhortations from the Delaware Supreme Court otherwise.  Even the "tools at hand" aren't going to get plaintiffs very far with these kinds challenges.  


October 7, 2009 in Cases | Permalink | Comments (0) | TrackBack (0)

Thursday, October 1, 2009

Transfer of Intellectual Property in a Merger

Nixon Peabody has a summary of a decision just handed down by the Sixth Circuit in Cincom Sys, Inc. v. Novelis Corp.  The decision (below) is worth reading, especially if you are a young lawyer buried under a pile of assignment clauses deep in the back of the diligence room - though these days the diligence room is just as likely to be virtual.  In any event, the court in Cincom expands the rule in the Sixth Circuit against the assignability of patents to software copyright licenses.  So, where a software license is silent on the question of transfer to a third party, the presumption is that no assignment or transfer is permitted without the express permission of the licensor.  

The court also interpreted Ohio General Corporation Law Sec. 1701.81 (A)(3) to include a "transfer" for the purposes of determining whether or not a merger is considered a "transfer" under the Ohio code. Notwithstanding the fact that amended code drops the word "transfer" from this provision, the court held that a merger constitutes a transfer by operation of law or otherwise. Here's the amended language that the court looked at: 

(3) The surviving or new entity possesses all assets and property of every description, and every interest in the assets and property, wherever located, and the rights, privileges, immunities, powers, franchises, and authority, of a public as well as of a private nature, of each constituent entity, and, subject to the limitations specified in section 2307.97 of the Revised Code, all obligations belonging to or due to each constituent entity, all of which are vested in the surviving or new entity without further act or deed. Title to any real estate or any interest in the real estate vested in any constituent entity shall not revert or in any way be impaired by reason of such merger or consolidation.

If you're sitting in Ohio (or elsewhere in the Sixth Circuit) looking at assignment clauses, it's time to wake up. 


Cincom Sys. Inc v. Novelis Corp.

October 1, 2009 in Cases | Permalink | Comments (0) | TrackBack (0)

Monday, September 14, 2009

Rakoff Rethinks Corporate Liability

 "It is not fair, first and foremost, because it does not comport with the most elementary notions of justice and morality, in that it proposes that the shareholders who were the victims of the Bank's alleged misconduct now pay the penalty for that misconduct." So says Judge Rakoff.

All this rethinking of M&A and corporate liability is making my dizzy.  Judge Rakoff is apparently outraged that shareholders would be asked to pay for the misconduct of the corporation.  He rejected BAC's settlement with the SEC today.  In part because, in effect, innocent shareholders are being forced to pay the fine.  One wonders how many shareholder class action lawsuits end up in front of Judge Rakoff.  Presumably not many.  

The Dealbook has kindly posted the order below:

September 14, 2009 in Cases | Permalink | Comments (0) | TrackBack (0)

Tuesday, September 1, 2009

Marvel Lawsuit

According to Bloomberg, a suit has been filed ("POW") challenging Disney's acquisition of Marvel ("KABOOM").  The basic claim appears to be that Marvel's directors failed to meet their obligation under Revlon to cinduct a sales process that resulted in the highest price reasonably available to shareholders ("SLAM").  But, if Lyondell v Ryan teaches us anything, the directors of Marvel would have had to have a near collapse for this suit to succeed ("ZZZZ").  


September 1, 2009 in Cases | Permalink | Comments (1) | TrackBack (0)

Monday, July 27, 2009

Activision Litigation – Game Over

Last week Chancellor Chandler dismissed Wayne County Employees’ Retirement System v Corti (the Activision litigation).  The plaintiffs in the case made a number of claims – you can probably guess what they were.  What caught my eye in the opinion was how the court dealt with the Revlon claims against the board.  FYI: The business combination agreement in question is here.  The opinion can be found over at AmLawDaily.com along with commentary. 

 The court dismissed claims that the directors of Activision failed in the obligations under Revlon by not conducting an independent market check before agreeing to a sale of control.  By the way, the transaction is slightly out of the ordinary in that it’s a two step deal.  In the first step, Activision issued new shares to Vivendi giving them 52% control of the stock, then Vivendi engaged in a tender offer for the outstanding shares of Activision that it did not control.

 In dismissing the claims against Activision’s board, the court reiterates what is by now settled Delaware law – directors are not liable for failing to carry out a perfect process during in a sale of control.  There is “no blueprint” for meeting one’s duties under Revlon.  Indeed, citingthe Delaware Supreme Court's decision in Lyondell v. Ryan, the court noted that “the relevant question is whether the Director Defendants ‘utterly failed to attempt to obtain the best sale price’” and not whether the process was perfect. 

 “Utterly failed to attempt” now that’s not an active auction or even much of a market check.  In fact, that’s a pretty low bar when it comes to assessing whether directors have met their obligations under Revlon.  Whatever happened to the board as auctioneer.  If that’s not low enough, the court offers up Lyondell’s “knowingly and completely failed to undertake their responsibilities” language. 

 It’s hard to imagine what kind of inaction by directors can be the product of ‘utterly failing to attempt’ and ‘knowingly and completely failing’.  I mean, it's really got to be bad.  I imagine that if the facts of Revlon re-appeared in 2009 post-Lyondell that the case might even come out a different way given these standards.  In Revlon, court struck down a lock-up granted to a favored bidder.  That’s hardly an utter failure to attempt to obtain the best sale price.   


July 27, 2009 in Cases, Delaware | Permalink | Comments (1) | TrackBack (0)

Monday, June 29, 2009

Waxman on Lyondell

In their article The Delaware Supreme Court Puts to Rest the Conflation of Bad Faith and Due Care Arising Out of Ryan v. Lyondell Chemical Co., just published in Securities Litigation Report,  my good friend Eric Waxman and his co-author Virginia Milstead conclude that:

In unequivocally declaring that “there is a vast difference between an inadequate or flawed effort to carry out fiduciary duties and a conscious disregard for those duties,” the Delaware Supreme Court’s reversal of Lyondell should put the lid back on a Pandora’s Box of potential personal liability for directors and ensure that they retain the flexibility necessary to respond appropriately in considering change of control transactions. 

You can read the whole thing here.


June 29, 2009 in Cases | Permalink | Comments (0) | TrackBack (0)

Friday, May 29, 2009

“Vigorous Antitrust Enforcement” Begins

A couple of days ago, Michael posted about the renewed interest in “vigorous antitrust enforcement” by the Obama Administration.  Over the last couple of days there has been some movement on this front.  The WSJ reports today that the FTC just recently filed a complaint against CSL Ltd and Cerberus-Plasma Holdings to prevent CSL’s $3.1 billion acquisition of Talecris Biotherapeutics.   Why Cerberus?  Well, Cerberus has a 74% stake in Talecris. The redacted version of the FTC’s administrative law complaint is here.

The essence of the FTC’s complaint is that the acquisition of Talecris will leave the plasma therapies market too concentrated to ensure adequate levels of competition resulting in higher prices for consumers.  As evidence, the FTC notes that following the proposed acquisition, the combined entity will comprise over 80% of “alpha-1” market. In other plasma products, the post-merger entity would control between 40-80% of market in which it participates.

The deal documents are not easily available as Talecris is a private company and CSL is traded in Australia.  But the FTC”s complaint provides us some details about the merger, including that it has a $75 million break-up fee (2.4% of transaction value).  The deal's drop dead date is August 12, 2009 providing either party the right to walk if the regulatory hurdles prevent the deal from closing with the termination fee payable at that point.  The parties also entered into a separate agreement that commits CSL to supply plasma to Talecris for 5 years even if the transaction does not go forward.

CSL has indicated that they will fight this suit.  Here’s their statement, released to the Australian Stock Exchange.  CSL also had a conference call in which they provided their view of the FTC’s suit.

According to the complaint, the administrative hearing will be held in October.  Expect a motion for a preliminary injunction to prevent the deal from closing to be filed in a federal district court to be filed soon.

-   - bjmq

May 29, 2009 in Antitrust, Cases | Permalink | Comments (0) | TrackBack (0)

Tuesday, May 26, 2009

Delaware Weighs in on Poison Puts

The credit crisis has brought the issue of the poison put to fore.  A "poison put" is a change of control provision in an indenture that prevents a debtor from having its board replaced as a consequence of a hostile acquisition without triggering a default event.   NRG has been waving the potential of such a default as a reason for its shareholders not to tender into Exelon's hostile bid for control of NRG ("NRG: Exelon's board proposal would accelerate $8B in debt").  

In April, the WSJ ran an article on the role of poison puts in slowing down the market for corporate control during the credit crisis.  Whereas in better times, potential sellers with restrictive debt covenants. ("Poison puts undercut mergers").  Below is a discussion from the WSJ on the effect of "poison puts" on the M&A market.  


The Delaware courts recently had a chance to weigh in on the validity of poison puts in the Amylin case.  The opinion is here: Download Amylin-Poison Put. The core issue in the Amylin case was whether a board can, in effect, tie their own hands, as well as the hands of shareholders by leaving it to third party creditors to decide whether or not a hostile bidder is acceptable.  If you'r familiar with the deadhand/slowhand poison pill cases, then it's hard to imagine a Delaware court deciding that a board may, consistent with its fiduciary duties, agree to poison put that effectively neuters shareholders' voting rights.

In the Anylin case, creditors sued to enforce the covenant and prevent a new board that won a proxy contest from taking their seats on the board.  Shareholders and the board opposed.  The court ruled with the board. The effect of which is that poison puts must be read more generously and in a manner that does not have the effect of entrenching management and disenfranchising shareholders.   There is a nice post on this decision on the Harvard Corporate Governance Blog (here). 

- bjmq

May 26, 2009 in Cases, Takeover Defenses, Transaction Defenses | Permalink | Comments (0) | TrackBack (0)