Wednesday, February 10, 2010
Friday, January 22, 2010
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.
Tuesday, December 15, 2009
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...
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.
Sunday, October 25, 2009
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:
Wednesday, October 14, 2009
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?
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.
Tuesday, October 13, 2009
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 theon 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 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.
Wednesday, October 7, 2009
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.
Thursday, October 1, 2009
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.
Monday, September 14, 2009
"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.
Tuesday, September 1, 2009
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").
Monday, July 27, 2009
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.
Monday, June 29, 2009
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. MAW
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.
Friday, May 29, 2009
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
Tuesday, May 26, 2009
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").