Wednesday, December 4, 2013
You probably missed the quiet retirement dinner for the Chief Justice at the Wilmington Club last week. Earlier this week, Delaware's Judicial Nominating Committee passed on all four names (Berger, Jurden, Strine, and Vaughn) to the governor for his consideration. For now, Justice Holland is the senior justice on the court and the rest of us await Governor Markell's decision. The Delaware Grapevine has all the inside info here.
OK, so here is the probably the first of what might ultimately be a handful of appraisal pettions filed with the Delaware Chancery Court. This one was was entered at the end of October. OK, so the thing that strikes me immediately is that the petitioner holds only 100 shares. Really?! 100 shares?! Definitely someone was drinking the Icahn appraisal kool-aid. The petitioner looks to get their attorney fees paid for by Dell. I should hope so. With 100 shares at stake, the fees just to file the peition have probably wiped out the economic value of the petitioner's position. The only way this petition makes a lick of sense is if there is a large class of petitioners that this one can join.
Turns out that the class of shareholders who are seeking appraisal is 47,529,513. Here's the list of petitioners (verified list of petitioners). Of those shareholders seeking appraisal, 14% failed to perfect their rights (either by not holding continuously, or by not signing their demand letter, or by submitting the demand letter too late). That leaves almost 41 million shares seeking appraisal. Sounds like a lot!
Actually, it turns out that the 41 million who have perfected their rights represent only 2% of the outstanding shares of Dell. In many states (but not Delaware), the appraisal statutes require that a minimum percentage (typically 5%) of shareholders seek appraisal before the court will entertain an appraisal petition.
Icahn himself held over 156 million shares of Dell. When he decided to take the merger consideration that really took the steam out of appraisal push.
Tuesday, November 19, 2013
WHYY reports that the Delaware Supreme Court has begun to post mp4/video recordings of all arguments. Right now, video recordings are available back to October 9. You can find them at the Delaware Supreme Court's website. Going forward the video recordings will be posted as a matter of course, although they will be one or two days delayed. Nevertheless, they will be a great resource for lawyers, students, and others interested in the corporate law.
Even though, one can now watch the arguments from afar, I'm still likely going to find myself going to Dover for the arugments in the pending MFW and Cooper appeals (December 18/19). Corporate geek.
Wednesday, November 13, 2013
According to the Delaware Law Weekly, it's down to two:
Tuesday, November 12, 2013
So, notwithstanding statements that Delaware was considering filing an appeal of the third circuit's opinion declaring the Chancery Court's arbitration procedure unconstitutional, it has allowed the first deadline to pass:
Attorneys for Delaware and the Chancery Court could have demanded that all the judges on the U.S. Third Circuit Court of Appeals review the case, a procedure called an “en banc” review, but the deadline to make that request expired Nov. 6, leaving only a possible appeal to the U.S. Supreme Court, which must be done by January 21.
We'll see. My personal opinion: Delaware should permit the arbitration procedure to go forward, but require the proceedings to remain open to the public.
Wednesday, October 23, 2013
So there you have it. Just hit PACER today (h/t KWC). Here's the opinion (DCOGvStrine). Lengthy exploration of civil trials and arbitrations in the opinion. I'm reading now...
From the opinion:
Finally, Appellants argue that opening the proceeding would effectively end Delaware’s arbitration program. This argument assumes that confidentiality is the sole advantage of Delaware’s proceeding over regular Chancery Court proceedings. But if that were true—if Delaware’s arbitration were just a secret civil trial—it would clearly contravene the First Amendment right of access. On the contrary: as the Appellants point out in the rest of their brief, there are other differences between Delaware’s government-sponsored arbitration and regular Chancery Court proceedings. Arbitrations are entered into with the parties’ consent, the parties have procedural flexibility, and the arbitrator’s award is subject to more limited review. Thus, disputants might still opt for arbitration if they would like access to Chancery Court judges in a proceeding that can be faster and more flexible than regular Chancery Court trials.
Funny, I think someone I know argued just that same argument not long ago.... More from the opinion:
Delaware’s proceedings are conducted by Chancery Court judges, in Chancery Court during ordinary court hours, and yield judgments that are enforceable in the same way as judgments resulting from ordinary Chancery Court proceedings. Delaware’s proceedings derive a great deal of legitimacy and authority from the state. They would be far less attractive without their association with the state. Therefore, the interests of the state and the public in openness must be given weight, not just the interests of rich businesspersons in confidentiality.
Like history, logic weighs in favor of granting access to Delaware’s government-sponsored arbitration proceedings. The benefits of access are significant. It would ensure accountability and allow the public to maintain faith in the Delaware judicial system. A possible decrease in the appeal of the proceeding and a reduction in its conciliatory potential are comparatively less weighty, and they fall far short of the “profound” security concerns we found compelling in North Jersey Media Group. See 308 F.3d at 220.
Because there has been a tradition of accessibility to proceedings like Delaware’s government-sponsored arbitration, and because access plays an important role in such proceedings, we find that there is a First Amendment right of access to Delaware’s government-sponsored arbitrations. We will therefore affirm the order of the District Court.
Boom. There you have it. A resounding victory for my profession...in that there will continue to be a corporate law for me to teach going forward...
Tuesday, October 22, 2013
Last month, I posted a little blurb on Vice Chancellor Laster's denial of a motion to consolidate based in part entirely on the fact that plaintiffs had captioned the consolidated case "shareholder litigation" and not "stockholder" litigation. The Vice Chancellor's comments were succinct, "Under whose law do you think you are litigating?"
Me? I find that kind of thing entertaining and on the whole not troublesome. Afterall, I remember my brief experience as an associate. In my first drafting project, I used shareholder and stockholder interchangeably. Using the same word all the time seemed so ... boring. Of course, there was a sea of red ink on the document when it came back. OK, lesson learned - consistency in drafting. The next version of the document went up and came back in another sea of red ink! Stockholder, not shareholder.... grumbles among the associate ranks, but okay. In a later assignment, I decided to show how much I learned, so I was consistent and only used 'stockholder'. The joke was on me, though. More red ink ... it's shareholder for California corporations!
What? You've never had an experience like this? I find that odd. Of course you have. Who instructs their associates to draft in any which way they please? No one, that's who.
In any event, the whole tomato/tomahto thing generated a little bit of a kerfluffle in ways that my regular posts of insider trading or LBOs just don't.
My take? This is an internal affair of the State of Delaware. If the courts of Delaware have decided that plaintiffs should caption their litigation "stockholder litigation" and not "shareholder litigation", so be it. Who am I to complain? No substantive rights are affected either way, so let Delaware have its way.
It's not like last month's denial was the first time Vice Chancellor Laster has been tilting at this particular windmill. Last year, he observed in a settlement hearing in Adams Shareholder Litigation:
"Today's hearing is so that I can consider the proposed class action settlement in In re Adams Golf Shareholder Litigation, C.A. No. 7354. I note, for the benefit of everyone who captions these cases, that with the 2010 amendments to the Delaware General Corporation Law, there are no longer any stray references in the DGCL that use the term 'shareholder.' The DGCL uniformly uses the term 'stockholder.' 'Shareholder' is a model act concept, although it did slip in in Section 203 for a few years. And certainly our decisions are not always scrupulous in observing the distinction. Nevertheless, I will humor myself, if no one else, by thinking of this privately as In re Adams Golf Stockholder Litigation."
A check of the Delaware code turns up only one reference to shareholder -- a stray parenthetical reference in the new Section 251(g) (hey, someone get on that!). Otherwise, the word shareholder is nowhere to be found.
What to make of all this? It's not as if stockholders of Delaware corporations lose or are otherwise denied substantive rights if they call themselves shareholders. The two words are, afterall, synonyms in normal parlance. However, if attention to detail is the stock and trade of a transactional lawyer's craft -- and it is, it is -- then it's surprising to me that there might be even the slightest pushback in a demand that we pay attention to detail.
So...tomato, tomahto I guess...but if you are in front of a Delaware court, you better make sure it's stockholder all the same.
Monday, October 14, 2013
The Delaware News Journal (via Delaware Online) handicaps the pick for Chief Justice of the Delaware Supreme Court. Although there are a number of possibles, the News Journal thinks it comes down to a choice between Chancellor Leo Strine and Justice Randy Holland. Of course, a selection of Randy Holland as Chief Justice doesn't preclude elevating Chancellor Strine to the Supreme Court. More and more signs seem to be pointing to Strine at least getting elevated to the Supreme Court. I wonder if he even wants that particular job. I suppose he might. If he does get a nod, then that leaves his seat as Chancellor open. Any takers there?
Friday, September 27, 2013
So...what? You think you know who is going to get nominated to fill Chief Justice Steele's soon to be empty seat? Ha. You know nothing. Want some informed speculation, beyond, "Well, it's Strine, right?" then go here to the Delaware Grapevine. You'll get tidbits like this:
For now, there is no telling who will be next to assume the Supreme Court's center seat.
Within the state's legal circles, it would not be seen as a surprise if all four justices apply. Other names being mentioned are: Leo Strine Jr., the chancellor from the Court of Chancery; Jim Vaughn Jr., the president judge of the Superior Court; and Jan Jurden, a Superior Court judge.
Or even better, insight like this that might really inform who gets the nod:
All eyes are primarily on Leo Strine Jr., the chancellor on Chancery, and Jan Jurden, a judge on the Superior Court, as the major contenders for chief justice, although the field easily could include any or all of the justices, the presiding judges of other courts and various senior partners, particularly the ones with corporate law practices.
Strine is as aggressively brilliant as Jurden is logistically grounded, his Slytherin to her Gryffindor.
Before they were judges, they did a turn in the political trenches, Strine as the counsel to Tom Carper, when the Democratic senator was the governor, and Jurden as an officer for the New Castle County Democratic Party.
They practiced at firms known as incubators for judges, Strine at Skadden, the out-of-state behemoth, and Jurden at Young Conaway Stargett & Taylor, the homegrown powerhouse.
Strine has been through a cutthroat confirmation war already. Carper wanted to make him a vice chancellor in 1998, but Strine as his counsel was not known for suffering fools, and this attitude was perhaps not the best approach for dealing with the legislature, kind of known as a ship of fools. There were hard feelings.
Strine did get confirmed, but not before Carper agreed to name one senator's son a judge and another senator's nephew a Family Court commissioner.
Jurden had no such trouble when Ruth Ann Minner, the Democratic governor, put her on the bench in 2001. All she had hanging out there were the editorial cartoons drawn by Jack Jurden, her father. Her confirmation went easily.
It's cheaper than getting on the Acela and probably much better informed than what you'll hear in the Club Car.
Monday, September 23, 2013
Kyle Wagner Compton's deep dive into the Delaware Chancery Court turns up another example of Vice Chancellor Laster trying to move mountains - in this case trying to get lawyers to refer to shareholder litigation as stockholder litigation. Vice Chancellor Laster denied a proposed order to consolidate a series of cases into a single case titled " In re Astex ShareholderLitigation" with the following:
"Shareholders litigation? Under what state's corporate law do you believe you are litigating?"
Laster has been trying to change conventions for while now. Students sometime ask what's the difference between shareholder and stockholder. The correct answer is, well, nothing, but...but...corporate law drafting isn't creative writing. To the extent one is looking at the statute, it's probably always better practice to rely on the language of the statute. Laster's effort is a small one to move away from the convention of calling representative litigation in Delaware shareholder litigation. Since the corporate code refers only to stockholders, proper usage should indicate captioning shareholder litigation, stockholder litigation.
Monday, September 9, 2013
Although the vote is not until September 12, Icahn threw in the towel today. From his letter to stockholders:
Well...okay then. What happened to the appraisal threat? I guess that's not going to happen, either?
Saturday, September 7, 2013
Statement from the Governor's office on Chief Justice Steele's retirement ann0uncement:
“A judiciary is only as good as the men and women who serve in it, and quite simply, Chief Justice Steele is as good as they get. In addition to serving as Chief Justice, he has been a Superior Court judge, a Vice Chancellor on our Court of Chancery, and a member of the Supreme Court,” said Gov. Jack Markell (D-Delaware). “He has been a tireless and forceful advocate for our state’s judiciary and indeed, for the entire State of Delaware. It is no secret that Delaware’s judiciary is the finest in the nation. I want to thank Chief Justice Steele for his tireless efforts in building and maintaining a court system that is truly a national model.”
Friday, September 6, 2013
Friday, August 9, 2013
The Deal Professor has a nice run down of the issues in Monday's motion to expedite hearing in Delaware. I just had some thoughts about three possible outcomes on Monday -- now I'm not necessarily predicting any of these outcomes, I am usually pretty bad at that, but because there are a range of possible outcomes and each of them tells us something about how the court is thinking about the substantive issues in the case. I think the range looks something like this:
Worst Case Scenario for Dell Board/Total Icahn Victory: The court hears the arguments and says,"Mr. Icahn, you are totally correct. It has been more than 13 months since the last annual shareholder meeting. Under Section 211(c) upon application by a shareholder - that's you, Mr. Icahn - I can and hereby do order a meeting. Oh, and let's have that meeting right now. Who's present? What business do you want the corporation to entertain?"
OK, so that's an extremely low likelihood outcome, the court saves the summary proceeding for the worst of the worst boards. It would be really bad for Dell, but I don't think this is going to happen. the Dell board just isn't bad enough to merit a summary proceeding. Best to ensure against this by making sure Michael Dell and the Silver Lake boys are hanging around the DuPont in Wilmington on Monday. And, better make sure some associate packs a pile of proxies, just in case.
More Pain for Dell/Almost Victory for Icahn: The court hears the arguments and says,"OK, so it's been 13 months since your last meeting, so I am going to order a meeting and that such meeting been held coincident with the special meeting of the shareholders. Yes, yes, counsel, I know I am not required to hold the meetings on the same day and that it might be inconvenient for you. But, I relied on the fact that you had built in procedural protections into the merger agreement the last time you were here. I know, counsel, I know, you weren't required under Delaware law to have majority of unaffiliated shareholders vote in favor, I know all of that. But, I am can order the meeting anytime I want, and I want to order it on the same day as the special meeting. If the shareholders with all their knowledge decide that Mr. Icahn is correct, well, they will vote for him. If not, then not. Good day counsel."
If this is outcome, well then it's pretty clear that the whole changing of the voting rules didn't go over well with Strine who might have felt had because he leaned on all the procedural protections the last time Icahn was in front of him looking for a motion to expedite.
Total Victory Dell/Icahn Loss: The court hears arguments and says,"Why, Mr. Icahn, in all my years of judging, I have never heard a more lucid and compelling argument. You are absolutely correct. I can't help but agree. I am hereby ordering that an annual meeting of the shareholders be held on a date not later than three days after the previously scheduled special shareholder meeting. Is that convenient for you, counsel for Dell?"
"Uh..yes your honor. Very convenient."
"Then, so ordered."
Scheduling the shareholder meeting after the special meeting would bascially be the end of the road for Icahn. Delaware does this kind of thing a lot - hand out Pyhrric victories. If it does so in this case, then it's pretty clear that Strine wasn't all that concerned with the voting changes and the adjournments. It was business judgment all the way, so absent compelling facts or a bona fide comepting bid, let's just get this thing going.
So...we'll see on Monday.
Tuesday, August 6, 2013
Just like that. It's gone. The top-up option has gone the way of the dodo bird. The handwriting has been on the wall for some time (since at least VC Laster's opinion in Olson v EV3), so it's not a surprise. Vice Chancellor Laster described the role of the top-up option in the following way:
The top-up option is a stock option designed to allow the holder to increase its stock ownership to at least 90 percent, the threshold needed to effect a short-form merger under Section 253 of the Delaware General Corporation Law (the “DGCL”), 8 Del. C. § 253. A top-up option typically is granted to the acquirer to facilitate a two-step acquisition in which the acquirer agrees first to commence a tender offer for at least a majority of the target corporation’s common stock, then to consummate a back-end merger at the tender offer price if the tender is successful…
The top-up option speeds deal closure if a majority of the target’s stockholders have endorsed the acquisition by tendering their shares. Once the acquirer closes the first-step tender offer, it owns sufficient shares to approve a long-form merger pursuant to Section 251 of the DGCL, 8 Del. C. § 251. Under the merger agreement governing the two-step acquisition, the parties contractually commit to complete the second-step merger. A long-form merger, however, requires a board resolution and recommendation and a subsequent stockholder vote, among other steps. See id. § 251(b) & (c). When the deal involves a public company, holding the stockholder vote requires preparing a proxy or information statement in compliance with the federal securities law and clearing the Securities and Exchange Commission.
The top-up option accelerates closing by facilitating a short-form merger. Pursuant to Section 253, a parent corporation owning at least 90% of the outstanding shares of each class of stock of the subsidiary entitled to vote may consummate a short form merger by a resolution of the parent board and subsequent filing of a certificate of ownership and merger with the Delaware Secretary of State. See 8 Del. C. § 253(a). This simplified process requires neither subsidiary board action nor a stockholder vote.
The Chancery Court has consistently ruled that top-up options as described above are permissible because at least in part once the acquirer has sufficient shares to approve a long-form back end merger it's not a question of if the merger will occur, but when. So long as the acquirer merger agreement does not permit the dilution of remaining shares for appraisal purposes, the top-up option is unremarkable. Of course, there was the slightly complicated top-up option math that made top-up options fun for exams and tripping up junior associates (hint - you have to add the newly issued shares into the numerator and the denominator...).
All that is gone now that DGCL Sec 251(h) has gone into effect. Sec. 251(h) eliminates the requirement for a shareholder vote in a back end merger following a tender offer if the acquirer is able to obtain control through the tender offer. Here's the new 251(h):
(h) Notwithstanding the requirements of subsection (c) of this section, unless expressly required by its certificate of incorporation, no vote of stockholders of a constituent corporation whose shares are listed on a national securities exchange or held of record by more than 2,000 holders immediately prior to the execution of the agreement of merger by such constituent corporation shall be necessary to authorize a merger if:
(1) The agreement of merger, which must be entered into on or after August 1, 2013, expressly provides that such merger shall be governed by this subsection and shall be effected as soon as practicable following the consummation of the offer referred to in paragraph (h)(2) of this section;
(2) A corporation consummates a tender or exchange offer for any and all of the outstanding stock of such constituent corporation on the terms provided in such agreement of merger that, absent this subsection, would be entitled to vote on the adoption or rejection of the agreement of merger;
(3) Following the consummation of such offer, the consummating corporation owns at least such percentage of the stock, and of each class or series thereof, of such constituent corporation that, absent this subsection, would be required to adopt the agreement of merger by this chapter and by the certificate of incorporation of such constituent corporation;
(4) At the time such constituent corporation's board of directors approves the agreement of merger, no other party to such agreement is an "interested stockholder" (as defined in § 203(c) of this title) of such constituent corporation;
(5) The corporation consummating the offer described in paragraph (h)(2) of this section merges with or into such constituent corporation pursuant to such agreement; and
(6) The outstanding shares of each class or series of stock of the constituent corporation not to be canceled in the merger are to be converted in such merger into, or into the right to receive, the same amount and kind of cash, property, rights or securities paid for shares of such class or series of stock of such constituent corporation upon consummation of the offer referred to in paragraph (h)(2) of this section.
If an agreement of merger is adopted without the vote of stockholders of a corporation pursuant to this subsection, the secretary or assistant secretary of the surviving corporation shall certify on the agreement that the agreement has been adopted pursuant to this subsection and that the conditions specified in this subsection (other than the condition listed in paragraph (h)(5) of this section) have been satisfied; provided that such certification on the agreement shall not be required if a certificate of merger is filed in lieu of filing the agreement. The agreement so adopted and certified shall then be filed and shall become effective, in accordance with § 103 of this title. Such filing shall constitute a representation by the person who executes the agreement that the facts stated in the certificate remain true immediately prior to such filing.
Oh, sure. It doesn't actually say the top-up option is no more. It doesn't have to. It just makes the top-up irrelevant. Like the dodo bird.
Tuesday, June 25, 2013
So, I'm already on record about what I think is next. So, forum selection bylaws that restrict litigation to the state of incorporation are helpful for managing the issue of multiforum litigation, which in recent years has become a real waste of resources. But, it's a very tricky - and perhaps impossible - balance.
The hard part of the balance involves arbitration. I'm already on record with respect to my opinions on the Delaware arbitration procedure (here and here), which I think goes too far. The forum selection bylaw, I think, may further open the door to widespread adoption of arbitration provisions in bylaws. If widespread adoption of arbitration includes confidential resolution of disputes and a restriction on the ability of shareholders to bring class actions, then that may be the beginning of the end of Delaware's position as corporate law leader - the end of Delaware's franchise. Seem extreme? Well certainly it won't happen overnight. It will be a long-term degradation of Delaware's competitive position and lowering barriers to entry for other states.
We'll see in 10 years. I've put down my marker.
Wednesday, June 12, 2013
The Corporate Counsel just published an interview with Chancellor Strine. Some of it is Delaware boosterism - no surprise. But, there are a number of useful tidbits. First, Strine gives examples of what he believes are the two most important issues before his court recently. These won't come as a big surprise to those of you paying attention: 1) don't ask-don't waive provisions; and 2) Caremark liability for directors of US incorporated, foreign headquartered firms. He remains shocked (as am I, frankly) that people would agree to be directors at a distance of business in a country where they don't speak the language.
Another interesting comment - and this is full of irony - turns out Chancellor Strine doesn't think very highly of arbitration -- it's expensive and slow!
...Arbitration is increasingly more expensive than litigation, with some arbitrators charging more than leading M&A lawyers. It’s also often as slow. Worst of all are disputes that bounce between the two, where parties can’t resolve underlying issues, such as whether the matter is arbitrable in the first place.
So the principal advantages of being a Delaware entity are access to efficient dispute resolution services and the ability to rely upon guidance from our corporate law and precedent. Both are important, but the first has become increasingly important in light of the priority placed on business relationships.
Yes. I agree. Just go to court...
Monday, June 3, 2013
[Updated] Here are a handful of law firm memos on the MFW Shareholders Litigation (in which the Delaware Court of Chancery held that the Business Judgment Rule applied to a freeze-out merger that was conditioned on the approval of both an independent Special Committee and a Majority-of-the-Minority stockholder Vote). Brian discussed the same case here.
Thursday, May 30, 2013
NetSpend: Interesting Insights on Revlon Process, “Don’t Ask, Don’t Waive” Standstills & Fairness Opinions
The Delaware Chancery court's recent decision in Koehler v. NetSpend Holdings Inc. is worth a read for deal planners. Vice Chancellor Glasscock criticized the board's Revlon process, stating:
The Plaintiff has demonstrated that a reasonable likelihood exists that the sales process undertaken by the NetSpend Board—which included lack of a pre-agreement market canvass, negotiation with a single potential purchaser, reliance on a weak fairness opinion, agreement to forgo a post-agreement market check, and agreement to deal protection devices including, most significantly, a don’t-ask-don’t-waive provision—was not designed to produce the best price for the stockholders.
Nevertheless, in line with other recent Delaware decisions where the courts have been reluctant to enjoin a deal when there are no other potential bidders, the court denied plaintiff's motion to enjoin the deal. Still, Vice Chancellor Glassock's criticism of the fairness opinion provided by the company's financial advisor and the board's use of a DADW provision should give sellers some guidance for future deals.
For more info, take a look at this memorandum by Sullivan & Cromwell.
Monday, May 20, 2013