August 18, 2012
Shnader on Squeeze-out Mergers in Pennsylvania
Standard learning has long held that a minority shareholder of a Pennsylvania corporation who was deprived of his stock by a "cash-out" or "squeeze-out" merger had no remedy after the merger was completed other than to take what the merger gave or demand statutory appraisal and be paid the "fair value" for his shares. No other post-merger remedy, whether based in statute or common law, was thought to be available to a minority shareholder to address the actions of the majority in a "squeeze-out." Now, after the Pennsylvania Supreme Court’s holding in Mitchell Partners, L.P. v. Irex Corporation, minority shareholders may pursue common law claims on the basis of fraud or fundamental unfairness against the majority shareholders that squeezed them out.
The full client alert can be found here.
December 07, 2011
Massey gets its due
Back in the summer, there was a 'to-do' about the Massey shareholder litigation. You'll remember that shareholders brought a derivative suit against the directors for violations of their fiduciary duties in the running of the company that ended with a disaster at the Upper Big Branch mine in West Virginia. Twenty-nine miners lost their lives. Chancellor Strine dismissed the case after Massey was acquired by Alpha, refusing to allow the shareholders who had lost standing to maintain the case. Although the shareholders' attorney were volubly upset at the decision, Strine made it clear first, that there were still other avenues to find justice for the victims, and second, the shareholders weren't the victims. They had benefited from the directors' bad acts.
Now, we get word that the Federal Mine Safety and Health Administration and the US attorney have reached settlements with Alpha, Massey's successor. Alpha will pay $209 million in civil and criminal penalities to resolve its liability with respect to the UBB disaster. This settlement includes $46.5 million in payments to the families of the victims of the UBB disaster. While this settlement resolved any corporate criminal liability, it left open the possibility of personal criminal liability for executives of Massey.
This seems like a start.
September 22, 2011
Was the H-P Board paying attention?
Really? Really?! This was the headline from James Stewart's Business Day article today: Voting to Hire a Chief Without Meeting Him. The article highlights the almost complete lack of attention the full board of H-P gave to the job of hiring a new CEO after firing Mark Hurd.
Among their revelations: when the search committee of four directors narrowed the candidates to three finalists, no one else on the board was willing to interview them. And when the committee finally chose Mr. Apotheker and again suggested that other directors meet him, no one did. Remarkably, when the 12-member board voted to name Mr. Apotheker as the successor to the recently ousted chief executive, Mark Hurd, most board members had never met Mr. Apotheker. ...
Before a final vote on Mr. Apotheker, H.P. search committee members again urged other directors to meet him. No one took them up. At least one director, Ms. Salhany, tried to slow the process, worrying aloud that “no one has ever met him. Are we sure?” But her concerns were brushed aside. “Among the finalists, he was the best of a very unattractive group,” one director said.
Really, I find that revelation - if true - to be an absolutely incredible abdication of responsibility by a board. Short of a merger, hiring a CEO is one of the most important things a board can do. And they can't even bring themselves to have coffee with the guy they are going to hire. How is that possible? Who advised them?
The members of the board should be thankful that Delaware has Sec. 102(b)(7) in the code, otherwise they might be looking at major liability - that's not to say they won't get sued, they just might anyway.
I wonder now how involved the board was with Apotheker's recent shift in corporate strategy away from the PC and tablet business and its generous acquisition of Autonomy (for 10x earnings revenues). The shift took the investment community by surprise. I wonder if the H-P board was surprised, too.
Update: A nice piece by Reuters reminds us just how dysfunctional the H-P board has been over the years. Of course, one can start with the rancor over the Compaq acquisition that got H-P into the PC business in the first place. There were accusations that then CEO Fiorina bought DB's votes to get that deal through. And then there was the whole Patricia Dunn/boardroom leaks investigation that led to Tom Perkins' resignation in 2005/2006? And now they're talking about hiring Meg Whitman to take over. Goodness.
July 21, 2011
Over at the Conglomerate they recently hosted one of their virtual roundtables - this one on teaching corporations/business associations. It's worth reading the back-and-forth, especially since our own Afra Afsharipour and my colleague Kent Greenfield were in the mix.
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.
September 13, 2010
Corporate Law Update - 2010
Prickett Jones' annual review of 2010 developments in the Delaware corporate law can be found here. It's definitely worth downloading and reading.
May 18, 2010
Chancellor Strine on Board Effectiveness
Last night I attended a fascinating lecture at Stanford’s Rock Center for Corporate Governance by Delaware Vice Chancellor Strine about the lack of alignment in the corporate governance system. Speaking to a packed crowd, Chancellor Strine made a compelling case for a deeper understanding of what we are asking of boards through our various corporate governance reforms. Among his many interesting points, he made two important insights about the role of directors on boards. First, he asked academics to work on “a more or less study” that looks at (i) what more have we given managers to do? and (ii) what less have we required of them? His point was essentially that we have imposed stringent independent director requirements and then heaped more and more responsibility on these independent directors. One worry is of course that humans are bound to make mistakes especially when they have too much on their plates. The other worry is whether these independent directors have the time, skills and company-specific knowledge to effectively manage and monitor risks.
Chancellor Strine’s second point about independent directors was that the increasing push for independent directors has resulted in independent director politicians that serve on many boards and may be beholden to other interests outside of the interests of the particular company that they are serving. These latter comments made me think about a recent paper entitled, The Dark Side of Outside Directors: Do They Quit When They are Most Needed? by Rüdiger Fahlenbrach, Angie Low and Rene M. Stulz. It’s worth a read:
Abstract: Outside directors have incentives to resign to protect their reputation or to avoid an increase in their workload when they anticipate that the firm on whose board they sit will perform poorly or disclose adverse news. We call these incentives the dark side of outside directors. We find strong support for the existence of this dark side. Following surprise director departures, affected firms have worse stock and operating performance, are more likely to suffer from an extreme negative return event, are more likely to restate earnings, and have a higher likelihood of being named in a federal class action securities fraud lawsuit.
Tomorrow, I’ll post about how Chancellor Strine’s comments relate to some important issues in corporate governance reforms outside of the United States.
January 14, 2010
More on NACCO Industries from Davis Polk
Brian recently posted about the NACCO Industries case (here), As he reminds us:
NACCO reminds us that if you are going to terminate a merger agreement, you better comply with all its provisions. If you don't, if you perhaps willfully delay your notice to the buyer about a competing proposal, you might not be able to terminate without breaching. And, if you breach, your damages will be contract damages and not limited by the termination fee provision. Remember, you only get the benefit of the termination fee if you terminate in accordance with the terms of the agreement. Willfully breaching by not providing "prompt notice" potentially leaves a seller exposed for expectancy damages.
Davis Polk has just issued this client alert, drawing a few more lessons from the case. Here's a sample:
A recent Delaware Chancery Court decision raises the stakes for faulty compliance with Section 13(d) filings, holding that a jilted merger partner in a deal-jump situation may proceed with a common law fraud claim for damages against the topping bidder based on its misleading Schedule 13D disclosures. NACCO Industries, Inc. v. Applica Inc., No. 2541-VCL (Del. Ch. Dec 22, 2009). The decision, which holds that NACCO Industries may proceed with numerous claims arising out of its failed 2006 merger with Applica Incorporated, also serves as a cautionary reminder to both buyers and sellers that failure to comply with a "no-shop" provision in a merger agreement not only exposes the target to damages for breach of contract, but in certain circumstances can also open the topping bidder to claims of tortious interference.
January 14, 2010 in Break Fees, Contracts, Corporate, Deals, Federal Securities Laws, Leveraged Buy-Outs, Merger Agreements, Mergers, Private Equity, Transactions | Permalink | Comments (1) | TrackBack
July 14, 2009
Rehoboth Beach Reading
Wondering what to read during your next weekend at the beach? The latest Nora Roberts or Catherine Colter novels not attracting your attention? Or maybe like me, your local bookstore for some reason doesn't carry the latest Glenn Beck tome? OK, that's probably a sign that your weekend might be better spent catching up on recent developments in the Delaware corporate law. So how about the 2009 Developments in Delaware Corporation Law (James Holzman at Prickett, Jones, & Elliott)? It's a nice 60 page overview of everything you missed over the past year while you were struggling just to keep up with the day's headlines. Print it out and bring it to the beach.
May 27, 2009
Interview with Justice Jacobs
J.W. Verret's interview with Delaware Supreme Court Justice Jacobs is here. It's worth your time. Below is a link to the recent Brennan Lecture on the State Courts at NYU Law School given by Justice Jacobs in February 2009. His talk is a reflection on the role of federalism in corporate law and is well worth listening to. Among other topics, he provides a nice historical overview of the development of Delaware corporate law. He also discusses CA 2115 (Vantage Point v Examen, etc) and the internal affairs doctrine starting at around 44 minutes in.