May 02, 2012
Milken Institute Private Equity Panel
Another interesting panel from the Molken Institute conference:
Leon Black, Founding Partner, Apollo Management, LP
David Bonderman, Founding Partner, TPG Capital
Jonathan Nelson, CEO and Founder, Providence Equity Partners
Jonathan Sokoloff, Managing Partner, Leonard Green & Partners
Scott Sperling, Co-President, Thomas H. Lee Partners, L.P.
May 01, 2012
Outlook on M&A
The always interesting Annual Milken Institue Global Conference is happening now. Here is the panel on the outlook for M&A.
Anthony Armstrong, Co-head, Americas M&A, Credit Suisse
Maria Boyazny, Founder and CEO, MB Global Partners
James Casey, Co-Head of Global Debt Capital Markets, JP Morgan Securities LLC
Tilman Fertitta, Owner, Chairman and CEO, Landry's Inc.
Raymond McGuire, Global Head, Corporate & Investment Banking, Citi
Robert Harteveldt, Global Co-Head of Fixed Income and Global Head of Fixed Income Origination, Jefferies & Co. Inc.
January 26, 2012
Will M&A Heat Up in 2012?
Practical Law Company held a nicely done webinar today reviewing the major Public M&A trends in 2011. As most M&A experts know, deal activity was down the second half of 2011. Nevertheless, experts appear hopeful that there will be some deal growth in 2012. Cleary Gottlieb's recently released advisory for board members spends a lot of time focusing on M&A risks and opportunities. It predicts that "There is reason to expect growth in deal activity in 2012, despite current market and economic challenges. Prospective acquirers have substantial cash resources and reasonable or even strong stock prices, banks are willing to lend for at least some acquisitions, private equity firms have significant unused investor commitments, and hedge funds are actively seeking positive results." Cleary's memo is definitely worth a read and a useful overview of risks that board members may face in the M&A realm. Other sources have also predicted an uptick in deal activity in 2012, see here and here. We will wait and see...
November 21, 2011
NYT on Legal Education (yet again)
Yesterday’s New York Times carried another in a long line of articles (which go back at least to the 1980’s) complaining that law schools emphasize the theoretical over the useful and, as a result, don’t teach law students how to be lawyers. As is typical, the author concludes that law schools need to increase their emphasis on skills training.
The article starts off with (and seems to rest on) an example that is pretty lame. Apparently, three first year associates at Drinker Biddle didn’t know that you file a certificate of merger with the secretary of state to effectuate a merger.
Let’s assume for arguments sake that this lack of knowledge is representative of the typical law school graduate going into a transactional practice. So what?
As I have discussed before, law schools have a comparative advantage of teaching certain competencies; law firms have a comparative advantage of teaching others. Each should do what they do best.
Among other things, law schools have a comparative advantage over law firms in teaching deep substantive knowledge of complex subjects necessary to practice law. For example, law firms simply cannot teach securities law the way a law school can (if at all). A thorough understanding of complex material like this requires voluminous outside readings and in-class lectures for a concentrated period of time.
On the other hand, you know what law firms can teach pretty quickly? How to call an outside service to file a certificate of merger.
Of course law schools also may have a comparative advantage in teaching certain practical skills. I’m all for courses in contract drafting and negotiation, and I teach a transactional skills course myself. But the issue is a little more complex than the NYT article suggests.
For more of my thoughts on this perennial topic, see What Law Schools Should Teach Future Transactional Lawyers: Perspectives from Practice.
November 08, 2011
Olympus accounting fraud
This has been a weird story. It started rolling out about two weeks ago when the high flying CEO of Olympus, Michael Woodford was abruptly booted from the company after he questioned the $700 million in advisory fees to unknown parties in the Cayman Islands that appeared in conjunction with an aquisition. Woodford conducted an investigation and in the midst of it he was let go. Now, acquisition fees are normal, but relative size of the fees raised a red flag for Woodford - 35% of the acquisition price. If you're not generally paying attention to these things, 35% is huge. Anyway, Woodford got fired for calling BS and went public with what he knew about the odd payments.
Olympus Chairman Tsuyoshi Kikukawa then quit after defending the firing of Woodford. Last night though the dam broke. Olympus President Shuichi Takayama (President) admitted that Olympus has been using takeover advisory fees to cover losses for years. I guess they were a little surprised that Woodford created such a stink about it. I suppose they thought he would just go along. Here's a hint, if you are engaging in a huge accounting fraud, best not to bring in an outspoken outsider to run the show.
By the way, using a merger strategy to cover up for an accounting fraud isn't all that new or unique. Anyone remember Worldcom?
July 20, 2011
Is this unlawful?
According to this story from Bloomberg, the SEC
sued a Michigan man, claiming he traded on information he learned from a houseguest about the impending acquisition of Brink’s Home Security
investment banker for Tyco International Inc., the buyer, inadvertently left behind a draft presentation on the deal.
According to the SEC, months later, the homeowner discovered the draft. Another month or so after the discovery, the homeowner intuited from changes in the banker’s travel schedule that the transaction was imminent.
According to the SEC, the homeowner profited from trading in Brink’s stock after the public announcement of the deal caused its price to jump 30 percent.
The homeowner's lawyer said his client has settled the case and will turn over his profits and pay a fine.
Obviously the facts are incomplete, but I wonder if Professor Bainbridge would have advised the homeowner to fight the case.
April 08, 2011
Studying M&A in High School
I wish I had this class in high school. The NY Times dealbook has a rather heartwarming story about high school students figuring out the latest M&A deals in a business and entrepreneurship class at Martin Luther King Jr. High School of the Arts and Technology. The class splits its time between its retail business and its deal advisory projects, and even works on hypothetical deals like a purchase of the NY Times by Google. For those high school student readers of our blog (are there actually any??) or parents of high-schoolers (the more likely), you may also want to take a look at Whatrton's new Web-based project called Knowledge@Wharton High School which promotes financial literacy among students and teachers.
January 12, 2011
2011: An M&A Rebound?
I am teaching M&A again this semester. In my first class yesterday, I tried to give my students a sense of how M&A deal activity has been faring over the past several years and where things are expected to go. It appears that the mood about M&A in 2011 is more buoyant than it was in the lull of the summer of 2010. After reading reports like this one from E&Y, I am feeling cautiously optimistic. I am not sure if all of this optimism will last, but for now, the new year is starting off pretty well. This week’s merger Monday included a host of M&A deal activity, with $21 billion in announced deals.
So far, so good…but it’s only January.
January 06, 2011
Kraft closes Cadbury plant at center of controversy
Kraft had promised not to close the Bristol (UK) plant and save the plant's jobs as part of its acquisition of Cadbury. That turned out to be a false promise. The plant has just closed.
Cadbury has confirmed the last bar of chocolate has rolled off the production line at its Somerdale factory in Keynsham. The closure of the plant, which at one stage was one of the biggest employers in the area, marks the end of Bristol's 250-year long association with the chocolate industry...
At its height, the factory employed about 750 people and produced around 52,000 tonnes of chocolates each year, including Crunchie, Caramel, Double Decker, Picnic, Chomps, Mini Eggs and Turkish Delight...
Meanwhile Roger Carr, the businessman who oversaw the £11-billion sale to the US multinational Kraft in February, was knighted for services to industry in the New Year Honours List. Sir Roger was praised by the City for getting a good deal for shareholders when the Cadbury sale went through in February.
Of course, the workers get shown the door, while Carr gets a knighthood. I wouldn't expect anything less. You'll remember that Kraft's promise to save the jobs at the UK plant was an important part of Kraft's public relations campaign to get the deal done. The broken promise generated political pressure to force a reexamination of the Takeover Rules, now in progress.
September 22, 2010
Hostile Cross-Border Deals: BHP's Pursuit of PotashCorp
A heated cross-border hostile takeover saga (with big US connections) has been occurring over potash (a key input for fertilizer and other agricultural products), and the moves by the various players should remind our readers of classic plays in the hostile takeover game. In August of this year, British-Australian giant BHP Billiton (the jilted former suitor of Rio Tinto back in 2008) launched a $39 billion takeover bid for Canadian company Potash Corporation of Saskatchewan Inc. (“PotashCorp”). PotashCorp’s board has been actively resisting BHP’s bid, putting forth the usual argument that BHP’s offer is opportunistic, inadequate and coercive, that Potash is better off alone rather than selling to BHP (without of course ruling out a potential sale at some point), and that “superior offers are expected to emerge.” PotashCorp’s management has not relied only on the standard letters, press releases and regulatory filings to resist BHP, as Brian noted earlier, PotashCorp’s CEO has also posted videos to communicate with the company’s shareholders. Meanwhile BHP’s CEO is busy meeting with Canadian lawmakers and defending the Potash bid to his shareholders. Now, there is also news that China’s Sinochem Corp. has allegedly hired expensive bankers (are there any other kind…) to explore a rival offer for PotashCorp. In light of potential competition from Sinochem, BHP’s CEO stated yesterday that BHP would be willing to walk away if the offer didn’t make sense for his shareholders. Of course, this could also be because it is not clear that BHP’s shareholders buy the argument that the PotashCorp acquisition is the way to go (especially since there is a lot of evidence that big transactions like this rarely add value for the shareholders of the buyer). Moreover, unlike these kinds of big deal involving US companies where shareholders of the acquirer often do not get voting rights, BHP may need shareholder approval for its offer under the UK Listing Rules which require approval from shareholders of the acquirer of larger (Class 1 transactions), meaning a transaction that amounts to 25 percent (or more) of any of the company‘s gross assets, profits, or gross capital, or in which the consideration is 25 percent (or more) of the market capitalization of the company‘s common stock.
PotashCorp isn’t waiting around to see if Sinochem comes forward with an offer, it has also filed a suit in US federal court seeking to block the takeover and accusing “BHP of making false and misleading statements in regards to how it plans to run the combined company in the future.” PotashCorp has also raised the BHP shareholder vote issue, stating in its complaint that “BHP failed to disclose to PCS shareholders that on the day it launched its hostile bid, and thereafter in light of the market reaction to the offer price, it was reasonably likely that a vote of BHP shareholders – required under U.K. law for any acquisition where the consideration equals 25% or more of the acquirer’s market capitalization – would be required. Indeed, even BHP’s lowball bid was equal to approximately 23% of BHP’s market capitalization at the time the tender offer was commenced. BHP’s misleading omission deprived PCS shareholders of critical information in at least two respects: that approval of the transaction was uncertain, and that the need for shareholder approval could constrain BHP’s ability to increase its bid to a level closer to fair value.”
For M&A buffs, it is worth keeping an eye on this deal, there are a lot of moving targets and I wouldn’t be surprised if more legal, strategic and regulatory issues arise.
August 24, 2010
M&A Market Predictions
August is turning out to be a crazy month for M&A activity. This is somewhat surprising given that August is not usually known as a month with booming deal activity. So what is the currency of choice in this activity? Cash, cash and more cash. According to dealmakers “Cash on corporate balance sheets is at historically high levels and interest rates are expected to remain low.” Some are even predicting a revival of the M&A market. But, according to the NY Times Dealbook, the boom in M&A activity may not be sustainable: “it will take a broad pickup in the nation’s economic growth before merger mania can really take hold."
Overall, the busy August is likely a positive sign for law students eager to do deal work. Of course, this isn’t 2006 or early 2007, but I am optimistic!
July 25, 2010
BP Asset Sales
Seems like BP is aggressively seeking to shed assets in a bid to generate cash to fund the $20 billion compensation account for the damages associated with its ongoing mess in the Gulf of Mexico. BP started with series of sales of Alaskan, Canadian and Egyptian-based assets to Apache, raising $7 billion. Now comes word from the Vietnam News Agency that BP plans to sell its interests in Vietnam. These include the Lan Tay and Lan Do offshore gas fields which have been producing for more than a decade, the Nam Con Son gas field, as well as BP's 720MW Phu My gas-fired power plant The sale may generate an additional $1.3 billion for Gulf compensation fund.
July 22, 2010
Dodd-Frank and M&A
We at the M&A law prof blog haven’t spent much time addressing the new financial reform bill, but those who are interested should definitely read through the terrific masters forum on the Conglomerate addressing various aspects of the bill. There are also many other useful blogs addressing the bill, but it would take a whole page just to list all of them (although do keep up with the Harvard Corporate Governance Blog and the conglomerate for good links).
For day-to-day M&A deals, the most immediate relevant provision is “say on golden parachutes” which requires that in any proxy or consent solicitation for a meeting of shareholders occurring 6 months after the date of enactment of the Act (i.e. starting in January 2011) where shareholders are asked to approve an M&A transaction, companies must provide their shareholders with a non-binding shareholder vote on whether to approve payments to any named executive officer in connection with such M&A transaction. It’s worth taking a look at this Cleary Gottlieb client alert on what exactly this means for M&A deals and what isn’t clear (as you may guess, there is some lack of clarity!). For others who want more detail, Davis Polk (disclosure: my former employer) has a useful 130 page summary of the bill, plus a set of super nifty regulatory implementation slides which are pretty helpful in understanding what needs to be done next. Of course, you can also read all 2300 pages of the bill…
May 27, 2010
Continuing Problems with Prudential’s Plans to Purchase AIG’s Asian Assets
Back in March, Prudential announced a $35.5 billion purchase of American International Assurance, the Asian arm of A.I.G. (for more info see this prior post). The deal hit some snags early on because of regulator concern about Prudential's capital. Prudential is also encountering serious resistance from investors as it tries to complete a $21 billion rights offering in order to finance the deal. The offering requires a shareholder vote (a whopping 75% of the shares that are voted) and the Prudential shareholder meeting is scheduled for June 7th. The economist magazine has come out in favor of the deal, seeing it as more about "uniting competitors in Hong Kong and Singapore, which comprise about half of the activities in Asia of both AIA and Prudential" than about destiny and empire building. But now RiskMetrics has now entered the fray and recommended a vote against the deal. The concern is that Prudential may be overpaying for this deal, and that post-acquisition many of AIA’s people may leave to join the company’s rivals.
Prudential's management has not done an amazing job selling this rather expensive deal to their shareholders. Will this be another big deal that goes bust?
March 25, 2010
Looking for a White Knight
The once-venerated fashion label, Emanuel Ungaro, is looking for a white knight to buy the company. According to both the business press and the NY Post, Lindsay Lohan, Ungaro’s short-lived “artistic adviser” “may have been the straw that broke the fashion house's bank.” It appears that Ungaro, like many other companies, has took on an enormous amount of debt and now is courting suitors and cutting costs to pay back this debt. Ungaro’s business problems and its lack of fashion vision, may mean that no white knight will be willing to swoop in and rescue the company.
Ungaro's problems present just one example of the enormous role that existing debt plays in M&A deals. In another high profile debt-driven deal, the WSJ reported yesterdaythat the debtors of MGM, the iconic Hollywood studio, have thrown a wrench in the company’s plan to sell itself as part of efforts to pay off the billions of debt that it took on in connection with its 2004 leveraged buyout. Given the private equity LBO boom of the 2004-2007 period, we are definitely not going to see the last of companies suffering under a heavy debt load and the influence of existing debt holders in acquisition transactions. Companies may find a white knight, but that knight may need to court not just equity holders, but also existing debt holders.
February 17, 2010
K&E on "Just Say No"
According to this client memo from K&E, recent takeover battles are bringing into question the continued vitality of the “just say no” defense, which allows the board of a target company to refuse to negotiate (and waive structural defenses) to frustrate advances from unwanted suitors.
According to the authors, "just say no" is more properly viewed as a tactic rather than an end, and when viewed this way,
it is apparent that the vitality of the “just say no” defense is not and will not be the subject of a simple “yes or no” answer from the Delaware courts. Instead, the specific facts and circumstances of each case will likely determine the extent to which (and for how long) a court will countenance a target’s board continuing refusal to negotiate with, or waive structural defenses for the benefit of, a hostile suitor.
January 06, 2010
Ribstein on "The Cloudy Future of Big Law"
Yesterday, over at Ideoblog, Larry Ribstein had another in a series of thoughtful musings on the future of Big Law. His post, "The Cloudy Future of Big Law" responded to this post at Above the Law, which primarily focused on the unprecedented layoffs in 2009 and went on to suggest that "[t]here is reason to be hopeful that 2010 will be much better than 2009." Professor Ribstein is somewhat more pessimistic, pointing out that "there are also reasons not to be hopeful." Indeed, he believes that, although the economic "crisis may be over and there may be a lot of regulatory and other work for lawyers, . . . that doesn't necessarily translate into a rosy future for Big Law." This is territory Professor Ribstein has covered before—here he is in the abstract from his article on the subject, The Death of Big Law: Large law firms face unprecedented stress. Many have dissolved, gone bankrupt or significantly downsized in recent years. These events reflect more than just a shrinking economy: the basic business model of the large U.S. law firm is failing and needs fundamental restructuring. I’d like to focus on just one of the trends Professor Ribstein believes to be "very relevant to the future of Big Law." In his post he points to: The pressure on hourly billing, which has been a major profit generator for big firms. Although I keep hearing that reports of its demise are premature, don't bet on that. Professor Ribstein may be right. Perhaps the recent push to replace the billable hour reflects more than just a shrinking economy and will continue even after economic conditions improve. If so, it could certainly be a blow to the current Big Law business model. But I wonder if this is really a trend rather than a temporary response to current circumstances. Here are a few headlines—guess what they have in common: The Vanishing Hourly Fee, ABA Journal The New Value Billing, The American Lawyer The Rise and Fall of the Billable Hour, New York State Bar Journal Time to Question the Billable Hour, Connecticut Law Tribune Value Pricing: The Billable Hour Death Knell, Accounting Today Preparing a Requium for the Billable Hour, New York Law Journal
Yesterday, over at Ideoblog, Larry Ribstein had another in a series of thoughtful musings on the future of Big Law. His post, "The Cloudy Future of Big Law" responded to this post at Above the Law, which primarily focused on the unprecedented layoffs in 2009 and went on to suggest that "[t]here is reason to be hopeful that 2010 will be much better than 2009."
Professor Ribstein is somewhat more pessimistic, pointing out that "there are also reasons not to be hopeful." Indeed, he believes that, although the economic "crisis may be over and there may be a lot of regulatory and other work for lawyers, . . . that doesn't necessarily translate into a rosy future for Big Law."
This is territory Professor Ribstein has covered before—here he is in the abstract from his article on the subject, The Death of Big Law:
Large law firms face unprecedented stress. Many have dissolved, gone bankrupt or significantly downsized in recent years. These events reflect more than just a shrinking economy: the basic business model of the large U.S. law firm is failing and needs fundamental restructuring.
I’d like to focus on just one of the trends Professor Ribstein believes to be "very relevant to the future of Big Law." In his post he points to:
The pressure on hourly billing, which has been a major profit generator for big firms. Although I keep hearing that reports of its demise are premature, don't bet on that.
Professor Ribstein may be right. Perhaps the recent push to replace the billable hour reflects more than just a shrinking economy and will continue even after economic conditions improve. If so, it could certainly be a blow to the current Big Law business model.
But I wonder if this is really a trend rather than a temporary response to current circumstances. Here are a few headlines—guess what they have in common:
The Vanishing Hourly Fee, ABA Journal
The New Value Billing, The American Lawyer
The Rise and Fall of the Billable Hour, New York State Bar Journal
Time to Question the Billable Hour, Connecticut Law Tribune
Value Pricing: The Billable Hour Death Knell, Accounting Today
Preparing a Requium for the Billable Hour, New York Law Journal
The first 3 were written following the economic slowdown of 1991-1992 and the last 3 were written following the bursting of the tech bubble in 2000, in each case following the unprecedented stress faced by law firms at the time. In hindsight we now know that, in each instance, the death of the billable hour was greatly exaggerated. Once demand for lawyers recovered there was less pressure on fees and, consequently, less focus on how they were calculated.
I’m not saying this time will be the same. I just think it’s a little too early to tell.
August 07, 2009
Proskauer on Pay to Play
On August 3, 2009, the SEC proposed for comment a new rule under the Investment Advisers Act designed to address alleged “pay to play” practices by investment advisers when seeking to manage assets of government entities.
If adopted in its current form, the new Rule would prohibit investment advisers from
- providing advisory services to a government entity for compensation for two years after the adviser or certain of its associates make a contribution to a government official who can influence the entity’s selection of investment advisers.
- making any payment to a third party to solicit investment advisory business from a government entity.
The proposed Rule will affect virtually all private investment fund managers. It takes aim at alleged “pay to play” abuses in New York and New Mexico and is intended to address policy concerns that such payments (i) can harm government pension plan beneficiaries who may receive inferior services for higher fees and (ii) can create an uneven playing field for advisers that cannot or will not make the same payments.
July 06, 2009
GM 363 Sale Approved
The Federal bankruptcy court approved GM's petition to sell substantially all of its assets to New GM Co. in a 363 sale last night. The following documents were released by the court:
1. The Decision On Debtors Motion For Approval Of (1) Sale Of Assets To Vehicle Acquisition Holdings Llc; (2) Assumption And Assignment Of Related Executory Contracts; And (3) Entry Into UAW Retiree Settlement Agreement (95 pages);
2. Order Granting (I) Authorizing Sale Of Assets Pursuant To Amended And Restated Master Sale And Purchase Agreement With New GM Co, Inc., A U.S. Treasury-Sponsored Purchaser; (Ii) Authorizing Assumption And Assignment Of Certain Executory Contracts And Unexpired Leases In Connection With The Sale; And (Iii) Granting Related Relief (184 pages); and
3. Order Pursuant To Bankruptcy Code Sections 105(A), 361, 362, 363, 364 And 507 And Bankruptcy Rules 2002, 4001 And 6004 (A) Approving Amendment To DIP Credit Facility To Provide For Debtors Post-Petition Wind-Down Financing (84 pages).
June 27, 2009
I received a couple of questions offline about Lewis’ “MAC-attack” and whether a MAC claim would have plausible (who knew we had readers in Europe?!). The strength of a potential MAC claim by BAC was well covered by Steven a couple of weeks ago at the Deal Professor (Assessing a MAC Claim: The Lewis Ostrich Defense). I’d like to address Lewis’ concern. He apparently told Paulson/Bernanke that he feared shareholders would sue him for not claiming a MAC. It’s hard to imagine that this was anything other than a threat to get the Fed/Treasury to put up more cash. Why? Well, the lawsuit he suggests is one that wouldn’t go very far.
Alvarez’ assessment of a potential lawsuit was correct. Any suit for failure to claim a MAC would start with the BAC board enjoying the protection of the business judgment rule, which we all remember is a presumption that “the directors of [the] corporation acted on an informed basis, in good faith and in the honest belief that the action taken was in the best interests of the company. Thus, the party attacking a board decision as uninformed must rebut the presumption that its business judgment was an informed one.”
That means that any challenge to BAC decision not to invoke a MAC in the agreement would have had to fight a very steep uphill battle. To succeed, plaintiffs would have had to make the case the BAC board was uninformed/unreasonable. Since proving a MAC is extremely difficult to do in any event, it’s not clear at all that a board having discussed and considered the circumstances – which it appears clear from the abundance of the e-mails was happening -- would have made an unreasonable or uninformed decision by not attempting to claim a MAC. Basically, plaintiffs would have to make the case that finding a MAC would have been a “no-brainer” for a court looking at the facts and that the board was somehow absent when it neglected to reach the same conclusion in order to come close to winning on a claim against BAC’s board. I’m pretty confident that a court would pretty quickly dismiss such a suit.
So, what was Lewis afraid of beyond the
inconvenience/embarrassment of a lawsuit?
Who knows, but he’s got all the inconvenience you can imagine by having
to appear in front of Congress on a near regular basis these days. More likely, the threat of being forced into calling a MAC because of "shareholder pressure" and a potential lawsuit was just a negotiating tactic to get more support from the Fed.