M & A Law Prof Blog

Back to the Future

The N.Y. Times today has an article on SPACs -- the acronym stands for special purpose acquisition companies.  These are blank check companies making initial public offerings specifically for the purpose of a to-be-determined and unknown acquisition  There are all sorts of special SEC regulations which apply to them, mainly because the SEC has never favored the vehicle. 

With good reason.  The rise of SPACs has been a discussion point and concern among M&A practitioners for almost three years now and many white shoe firms still refuse to be involved with them, so it is surprising that the N.Y. Times is only now picking up on it.  SPACs were big in the 1970s but fell into disfavor due to a number of high-profile implosions and complaints over the quality of their acquisitions.  But like Frankenstein arisen from the dead, the Times reports that SPACs represented 26 percent of the 73 initial public offerings this year, and 15 percent of the money raised.

The rise of SPACs is a derivative effect of the private equity bubble.  The Investment Company Act of 1940 effectively makes impossible the public listing of a private equity fund.  And Investors shut off from private equity are turning to SPACs as a substitute.  Given the past troubles with SPACs this is a dubious effect at best.  There is also no real reason to permit SPACs yet shut-off private equity funds from the public markets.  It is yet another reason why the SEC should take steps to fully revise the Investment Company Act to bring it into the modern era.      

Barclays offers to acquire ABN AMRO/Bank of America agrees to acquire LaSalle

Dutch bank ABN Amro today announced its backing for the largest-ever banking takeover, an offer lodged by U.K.'s Barclays valuing the bank at $91.2 billion. In a related transaction, ABN Amro has agreed to sell LaSalle Bank Corporation to Bank of America for $21 billion in cash.  After a return of $5 billion in excess capital, Bank of America reports that its net cost will be $16 billion.  Bank of America will need the usual bank regulatory clearances for the transaction and so it will likely not close its purchase until late 2007 or 2008. 

The LaSalle transaction is likely an attempt to influence the course of bidding for ABN Amro.  Speaking at a press conference, ABN Amro's CEO Rijkman Groenink repeated an invitation to a rival group of bidders, which includes Royal Bank of Scotland, Banco Santander and Fortis, to meet later on Monday to explore a competing offer. He also stated that ABN Amro had negotiated an "out" for possible other bidders for LaSalle.  If successful, the consortium has announced it would break up ABN Amro, with Royal Bank of Scotland taking LaSalle. But the Bank of America agreement clearly places an obstacle in front of the consortium bid.  And this was likely ABN Amro's intentions despite its CEO's words this morning.  For the sale of LaSalle, ABN Amro does not need the permission of its shareholders under Netherlands law (where ABN Amro is organized) because LaSalle represents less than 30% of the bank's total assets. In addition, the Netherlands does not place restrictions on crown-jewel lock-ups.  The documents for the sale have not been made public yet, but one would guess that Wachtell, counsel for Bank of America on the deal, fought hard to make this "out" as narrow as possible, and likely received the cooperation of ABN Amro in the process.  I'll post more on this once the agreement is made public.