Tuesday, July 1, 2014
Late last week Pershing Square settled is suit with Allergan over Alergan's poison pill. The settlement permits Pershing Square to put together a group of shareholders sufficient to call a special meeting without triggering the pill. Pershing Square, with 9;7% of Allergan, was worried that if it got the support of the required 25% of shareholders sufficient to call a meeting that it would trigger Allergan's poison pill with its 10% trigger. The settlement will allow Pershing Square to get the support to call the meeting with triggering the pill.
Friday, April 18, 2014
Many of the cases we study in my M&A course and in Corporations stem from the mid-1980s when the "bust-up deal" was the order of the day. It's often surprising to law students that a corporation might be "worth more dead than alive" (gratuitous reference to Other People's Money). The bust-up might well be a thing of the 1980s and not really on too many agendas these days, but that doesn't mean there aren't real candidates.
Take for example Yahoo! It's core business is pretty much worthless:
Yahoo! Inc.’s market value has doubled since Marissa Mayer took over as chief executive officer, which you might think would be cause for celebration. But more than all of those gains can be attributed to the gangbuster growth of Alibaba Group Holding Ltd. and Yahoo Japan Corp., two thriving companies that are part-owned by Yahoo. In other words, the implied market value of the rest of Yahoo has collapsed during Mayer’s tenure, and might even be negative.
Alibaba is valued at about $153 billion, according to analysts surveyed by Bloomberg News. Yahoo itself is worth about $39 billion as of this writing and this includes its ownership of about 24 percent of Alibaba. If you subtract that out you are left with a company that’s worth just a little more than $2 billion -- less than AOL Inc., Groupon Inc., or Zynga Inc.
Yahoo also has a 35 percent stake in Yahoo Japan, a publicly traded company now valued at about $32.3 billion. Subtract out Yahoo’s stake and this means that investors seem to value Yahoo’s own business at less than nothing -- not what you would expect from a profitable enterprise.
All those people, doing all that purple work...for nothing. That can't be true. There must be some value left if one were to liquidate Yahoo's positions in both Alibaba and Yahoo Japan. Of course, all that value will remain trapped. If the hostile bid were really still a viable option, one would think that Yahoo would be an obvious choice. In any event, for young lawyers and law students looking for an example of what potential bust-up targets look like, there's one.
Tuesday, February 11, 2014
So, rumors are flying that Charter will nominate its own slate for the Time Warner Cable board today. This is all part of the ongoing effort by Charter to get the board of Time Warner Cable to the table to negotiate a sale of the corporation. So far, TWC has said no and sat on its hands, as it's permitted to do. There is no legal requirement that a fully informed board must depart from its corporate strategy to accept an unsolicited offer, especially if the board believes it to be unwise.
TWC hasn't followed the Airgas 'just say no' route - adopt a poison pill and rely on its staggered board to hold off an unwanted suitor. It hasn't done this so far because frankly it can't. TWC doesn't have a staggered board. Its board is up for election every year. Because TWC can't rely on a staggered board to give it the time to defeat a proposal by Charter, it's vulnerable to a proxy fight. And without a staggered board, the poison pill isn't much of a defense.
And so no surprise that Charter's next move is the proxy contest. Charter is seeking to replace TWC's entire board through a proxy contest. If Charter were to win the contest, that would be a signal from TWC shareholders that they are in favor of a deal with Charter at $132.50. The new board would face no obstacle to quickly getting a friendly deal done. Of course, it's a long road between here and there. Lots of things can happen.
Some have said, well it's possible that shareholders vote out the incumbent board and the new board comes in and does an "Airgas" - that is, the new board decides not to pursue a deal with Charter. I find that scenario highly unlikely. Why? Well, when the short slate of three Air Products nominated directors entered the Airgas board room, the remaining board members were there and able to frame the questions and make all sorts of arguments why the Air Products offer was a bad idea for Airgas. Those arguments ultimately won the day when the Air Products nominated directors sided with incumbent board members.
If Charter were to succeed in its proxy contest, the board room atmosphere post-contest would be wholly different. First, the entire board would be brand new. There will be no one around the frame questions or argue against a Charter bid. If Charter learned anything from Airgas, it's probably that they have thoroughly quizzed their nominees and they are convinced that all of them think the acquisition of TWC by Charter is a good idea already. That's not to say as directors they won't seek to informed themselves before doing a deal, but where you starts affects where you end.
All this being said, I'm confident that Charter would be happier if the effect of the proxy contest were to force the incumbent board to the table to negotiate a friendly deal.
Thursday, June 13, 2013
OK, Rick and Keith again - this time negotiating use restrictions in confidentiality agreements. In this video, they take up the question that tripped up the parties in Martin Marietta v Vulcan - the limits on the use of confidential information as a backdoor standstill. Is it just me, or does Keith look a little like Ben Franklin?
Tuesday, November 27, 2012
Marketplace has a story on the transformation of the "corporate raider" from bad guy to good guy "shareholder activist." More than anything, this is probably a sign of how much the market has changed since the 1980s and the rise of effective defenses against hostile bids.
Friday, June 1, 2012
Plaintiffs in the Maryland suit against the HGS board yesterday failed in their bid to get a order to force the board of HGS to pull the pill they put in place last month:
A Montgomery County Circuit Court judge shot down an HGS shareholder’s request for a temporary restraining order to invalidate the “poison pill” the Rockville biotech enacted last month to make it a less attractive acquisition target.
The biotech was sued by shareholder Duane Howell of Baltimore, who claims its management is cheating him, other stockholders and the company itself by rejecting GlaxoSmithKline’s $2.6 billion offer in April, and then instituting the shareholder rights plan, or poison pill. ...
Judge Michael D. Mason said Thursday that HGS had properly accounted for its actions with its shareholders when it issued the poison pill May 16.
No surprise here, I suppose. The bigger surprise would have been if the Maryland judge had ignored both Delaware and Maryland law and order the pill pulled. Odd though, Bloomberg reports that the judge in this case qas concerned that only one shareholder, the litigant, was complaining:
After a hearing on Thursday, Montgomery County Circuit Court Judge Michael Mason denied Howell's request, saying only one shareholder had sued the company, according to a report by Bloomberg News.
"This is not a case where a number of disgruntled shareholders have come to court up in arms," the judge said in court, according to the report.
Even under Maryland law, the number of plaintiffs shouldn't matter to the result. Hmm.
Thursday, May 31, 2012
So, GSK let the HGS annual shareholder meeting slip and didn't seek to replace the board when it had its tender offer open and a meeting before them. Rather, it now appears that GSK will seek to replace the board of Human Genome by written consent. Section 2.12 of the bylaws permit acts by written consent of the shareholders. It will require the HGS board to set a record date before GSK can begin to collect consents. GSK will then have 60 days to collect and deliver consents sufficient to turn out the board. How ahard will that be? Don't know. But, it looks like 45% or so of the shares are held by just five investors: FMR LLC, T Rowe Price, TCW Group, Capital Research Global Investors, and Taube Hodson Stonex Partners.
Saturday, May 5, 2012
Here's the 139 page (?!) opinion. I know, if you're like most people you have better things to do on a Spring weekend than read it, but the first few pages gives away the ending. Strine enjoined Martin Marietta from proceeding with its hostile tender offer for Vulcan after finding that when one reads the NDA together with the JDA, the two documents limit use of confidential information only to a negotiated transaction between MM and Vulcan. Strine found that MM had indeed relied on confidential evaulation material when it put together its hostile bid. Therefore, the hostile tender would be enjoined for four months.
That's a tough pill for MM, but there's a lesson here. The lesson has to do with the procedures for using and maintaining confidential evauluation materials. As we see from MM, it's hard, maybe impossible, to unring bells once they have been rung with respect to confidential information. Strine took from MM's own actions that at the time, MM believed that it could not use confidential evaluation material in putting together its hostile bid, but it did anyway. For example, there was evidence in the record that MM knew it was using confidential information (emails: "I don't think we should use this information...", board presentations, etc), but MM used it anyway.
One thing I think it suggests, if you move from a negotiated to a hostile deal, it may require an entirely clean team, including outside counsel and i-bankers for the hostile, rather than the friendly, deal. Keeping the board and c-level types from the acquirer untainted by confidential information is harder though. Board members who see a presentation with confidential evaluation material may not be able to expunge all they have seen from their minds when considering a subsequent hostile transaction.
Monday, March 5, 2012
K&L Gates has posted a nice overview of the general issues one needs to consider when negotiating non-disclosure agreements and standstills (here), inclduing the limits on their enforceability. The authors of the memo also point out the hole in the indirect protection argument that Vulcan is attempting to make in front of the Chancery Court when they advise targets not to fall for the indirect protection argument when negotiating standstills:
When negotiating a standstill, the acquiror may argue that the target company does not need a lengthy standstill because it is already indirectly protected by the confidentiality agreement providing that the proprietary information to be provided to the acquiror may only be used in connection with the currently negotiated transaction and not for any other purpose. Targets should resist such argument—the target’s board wants certainty that the acquiror cannot launch a hostile bid and does not want to get into an argument about whether the acquirer is misusing the proprietary information.
If you want a standstill, ask for a standstill.
Wednesday, February 29, 2012
Steven Davidoff previously did a very good overview of the issues facing Martin Marietta. I just want to add something to the discussion of the current legal battle in Delaware. Wait a minute ... what's a Maryland company seeking to take over a New Jersey company doing in a Delaware court? Martin Marietta and Vulcan are now before Chancellor Strine in Delaware arguing interpretation of a nondisclosure agreement. Martin Marietta is seeking a declaratory judgment from the Chancery Court that the NDA does not preclude them from undertaking a hostile tender offer for Vulcan. Here are the complaint, the answer, as well as the NDA in question.
Central to the Martin Marietta's argument is that the NDA does not include a standstill agreement. Had the parties, Martin Marietta argues, wanted to ensure that Martin Marietta be precluded from undertaking such a transaction in the event friendly talks fell through, they could have included the provision in the NDA, but they didn't. Martin Marietta is asking the court to give it a declaratory judgment that the NDA does not preclude them from pursing a hostile offer.
On the other hand, Vulcan claims that the confidential information handed over as part of the NDA can only be used in furtherance of the friendly transaction that the parties were contemplating when they signed the agreement. By going hostile, and presumably relying on some of the confidential information and disclosing the earlier talks, Vulcan argues that Martin Marietta is in violation of the NDA. Vulcan is looking for an injunction from the Chancellor to prevent the tender offer from going forward.
Here's the critical paragraph from the NDA:
First, Mets and Yankees? And no one thinks this deal could possibly ever go hostile? Why not call it Yankees and Red Sox? C'mon! Ok, there is no question that this NDA does not include a standstill provision of any sort. It just doesn't. Now the lawyers who negotiated the NDA know how to write standstill provisions. I'd dare say that standstill provisions are probably in their NDA form contracts. For whatever reason, they decided not to include a standstill in this agreement. Why? Who knows. It really doesn't matter, does it?
Now, look at the definition of "Transaction". Vulcan is arguing that they were negotiating a friendly deal and that any use of Vulcan's confidential information for any purpose other than the friendly deal is in violation of the NDA. The NDA defines "Transaction" as "a possible business combination transaction" between Martin Marietta and Vulcan. It doesn't read a friendly merger, a negotiated transction, or the like...just a business combination. I suppose a business combination transaction can be hostile as a well as friendly. The definition of the Transaction in the NDA certainly doesn't make it obvious that the NDA was meant to only cover a friendly, negotiated transaction and no other.
Anyway, Vulcan is asking for Chancellor Strine to read the minds of the parties rather than enforce what the parties have written on paper. It seems like hard argument for Vulcan to win.
Update: Yes, I am aware that I passed on an opportunity to offer up the "Strine engaging in a Vulcan mind meld to figure out the intent of the parties" pun. I'll let him do that in his opinion...
Monday, February 6, 2012
David Marcus at The Deal had an interesting piece over the weekend on the role of confidentiality agreements in the context of hostile acquisitions. He focuses on confidentiality agreements in the Vulcan/Martin Marietta transaction and the Westlake/Georgia Gulf transaction. It's a good read. Marcus also offers up the following chart from Dealogic:
I'm curious as to how Dealogic defines "successful" - I suppose that a deal that starts hostile and then ends up with a negotiated transaction is considered successful. That's one way to think about it. But that does an injustice to the power of the poison pill. I doubt there are any deals on this list of US targets where a hostile bidder has been successful over the continued protests of the target board with a pill in place.
Thursday, January 12, 2012
Steven Davidoff has just posted a nice case study of the Airgas decision forthcoming in the Columbia Business Law Review. Steven had a front-row view of the Airgas hostile offer and subsequent litigation. (Google Deal Prof and Airgas if you don't believe me.) In this paper, Steven revisits the class through the prism of Delaware's judges as strategic actors. The role of Delaware's judiciary is fascinating and this paper - and the Airgas episode - is an important contribution to understanding how and why Delaware's courts decide as they do. It's well worth a read.
Abstract: When is it appropriate for Delaware judges to act strategically? This case study documents and analyzes Air Products’ $5.8 billion unsuccessful, hostile offer for Airgas, reviewing the decisions made by the Delaware courts in adjudicating the most prominent takeover bid of 2010. The three court opinions in Air Products v. Airgas show how Delaware courts strategically decide cases and the effect of this decision-making on the course of Delaware corporate law and Delaware’s constituencies. The Airgas case ultimately provides a useful lesson for when, if ever, strategic considerations should influence the outcome of individual Delaware corporate law disputes.
Tuesday, January 10, 2012
Monday, November 21, 2011
Validus' efforts to acquire Transatlantic Holdings have taken another turn. When we last checked in on this hostile acquisition attempt, we found out that Chancellor Strine is a fan of Hillbilly Handfishin'. Oh, and the Chancellor also ruled on the appropriateness of standstill provisions in confidentiality provisions, deal protections and fiduciary outs (In re Transatlantic Holdings). It's worth reading.
Now, we have a new turn. Validus has put forward its own directors in a proxy contest. In addition to asking shareholder to vote for its three nominees adn to oust the current directors, Validus is asking for shareholders to vote on an amendment to Transatlantic's bylaws. The bylaw change would permit the shareholders to set the number of directors on the board. By doing so, it would prohibit the incumbent board from increasing the size of the board and thereby maintain control. OK, all well and good.
But, Transatlantic has filed a suit against Validus seeking a declatory ruling from the court that Validus' proposed bylaw amendment is illegal. Specifically, Transatlantic's certificate of incorporation reads:
Article Fifth, para 1: The number of directors of the Corporation shall be such as from time to time shall be fixed solely by the Board of Directors.
The Transatlantic board is arguing that only the board has the right to set the size of the board, and that an effort by shareholders to set the number of directors is contrary to the articles and thus not permisssible. In that regard, the directors have the better argument. Of course, if the incumbent board were simply to increase its size for the sole purpose of thwarting outsiders from obtaining control via a proxy contest, that would raise all sorts of Blasius-related issues. For that reason, this case is an interesting one to start to follow. Here's the complaint in the bylaw litigation.
Wednesday, October 5, 2011
Armour and Cheffins have a new paper, The Past, Present and Future of Shareholder Activism by Hedge Funds. Given the recent seeming uptick in activity of shareholder activists, this paper is well-timed.
Abstract: The forthright brand of shareholder activism hedge funds deploy emerged by the mid-2000s as a major corporate governance phenomenon. This paper explains the rise of hedge fund activism and offers predictions about future developments. The paper begins by distinguishing the “offensive” form of activism hedge funds engage in from “defensive” interventions “mainstream” institutional investors (e.g. pension funds or mutual funds) undertake. Variables influencing the prevalence of offensive shareholder activism are then identified using a heuristic device, “the market for corporate influence”. The rise of hedge funds as practitioners of offensive shareholder activism is traced by reference to the “supply” and “demand” sides of this market, with the basic chronology being that, while there were direct antecedents of hedge fund activists as far back as the 1980s, hedge funds did not move to the activism forefront until the 2000s. The paper brings matters up-to-date by discussing the impact of the recent financial crisis on hedge fund activism and draws upon the market for corporate influence heuristic to predict that activism by hedge funds is likely to remain an important element of corporate governance going forward.
Wednesday, March 9, 2011
John Armour, Justice Jack Jacobs and Curtis Milphaupt have recently published a comparative article on hostile takeover regimes in developing economies. The piece, The Evolution of Hostile Takeover Regimes in Developed and Emerging Markets: An Analytical Framework, is now appearing in the Harvard Journal of International Law.
Abstract: In each of the three largest economies with dispersed ownership of public companies—the United States, the United Kingdom, and Japan—hostile takeovers emerged under a common set of circumstances. Yet the national regulatory responses to these new market developments diverged substantially. In the United States, the Delaware judiciary became the principal source and enforcer of rules on hostile takeovers. These rules give substantial discretion to target company boards in responding to unsolicited bids. In the United Kingdom, by contrast, a private body consisting of market professionals was formed to adopt and enforce the rules on hostile bids and defenses. In contrast to those of the United States, the U.K. rules give the shareholders primary decisionmaking authority in responding to hostile takeover attempts. The hostile takeover regime in Japan, which developed recently and is still evolving, combines substantive rules with elements drawn from both the United States (Delaware) and the United Kingdom, while adding distinctive elements, including an independent enforcement role for Japan’s stock exchange.
This Article provides an analytical framework for business law development to explain the diversity in hostile takeover regimes in these three countries. The framework identifies a range of supply and demand dynamics that drives the evolution of business law in response to new market developments. It emphasizes the common role of subordinate lawmakers in filling the vacuum left by legislative inaction, and it highlights the prevalence of “preemptive lawmaking” to avoid legislation that may be contrary to the interests of important corporate governance players.
Extrapolating from the analysis of developed economies, the framework also illuminates the current stateand plausible future trajectory of hostile takeover regulation in the important emerging markets of China, India, and Brazil. A noteworthy pattern that the analysis reveals is the ostensible adoption—and adaptation—of “best practices” for hostile takeover regulation derived from Delaware and the United Kingdom in ways that protect important interests within each emerging market’s national corporate governance system.
Monday, January 24, 2011
So, tomorrow Chancellor Chandler will take up the question of whether to order the Airgas board to pull its pill. Air Products, you'll remember, has been pursuing Airgas for many months now. Airgas has steadfastly said "No." In the fall Air Products elected three members to the board and got shareholders to vote to approve a new bylaw that would have moved up the next annual meeting to January - thereby cutting short the defense that time provides in the classified board. The Chancery Court upheld the bylaw change. But then, in a little bit of a stunner, the Delaware Supreme Court overruled the Chancery Court's opinion. The Chancellor, I assuming confident that his opinion wouldn't be overruled, had put off the question of whether to order the rights plan pulled to a date just past the accelerated shareholder meeting date. That was a nice way to avoid the question of the pulling the pill -- had the Chancery Court's opinion not been overruled, the shareholders would have met by now, and presumably, voted in a new majority for the board, thus making the question of the pill moot. The Delaware Supreme Court decision ensured that this was not to be.
So, Chancellor Chandler is put in the uncomfortable position of having to consider whether to order a board that has lost the first round in a proxy contest whether it must pull its rights plan. Of course, Chancellor Chandler is not opposed to issuing such an order in the right circumstances. In the Craigslist case he order the board to pull its pill. Craigslist was a bit of a unique case. How many closely-held firms have shareholder rights plans anyway? Probably just Craigslist. The Airgas case is more difficult. Why? Well because it's precisely the kind of case that the Chancery Court has studiously avoided hearing for year. In his 2002 paper, which is a response to a paper from Profs. Bebchuk, Coates, and Subramanian, Vice Chancellor Strine described just this scenario as the "professorial bear hug" intended to forces judges to deal directly with the fiduciary duty issues related to the pill.
The question the authors ask us to decide affirmatively is fundamental: Can control of the corporation be sold over the objections of a disinterested board that believes in good faith that the sale is inadvisable? That is, at bottom, the authors want to force the hand of the Delaware courts to decide, once and for all, that impartial and well-intentioned directors do not have the fiduciary authority to "just say no" for an indefinite--even perpetual--period to a noncoercive tender offer made to their company's shareholders. ...
... When the stockholders of a corporation with an ESB have expressed their desire to receive a fully funded, all-shares tender offer in a fair, noncoercive board election that was preceded by an adequate opportunity for the incumbent board to develop a better strategy and make their case to the target stockholders, does a well-motivated and well- informed majority of independent, incumbent directors who believe that the offer is inadequate have the power to block that tender offer by continuing to deploy a poison pill?
And that, in essence, is what is at stake tomorrow in Chancellor Chandler's courtroom. A couple of months ago, I predicted that we'd never get to see this day. I also predicted that the Del. Supreme Court wouldn't overturn Chancellor Chandler's bylaw decision and that the Pats would beat the Jets (not cover the spread, just beat them). Clearly, I'd be a mess if I had to make my living in Vegas, so I'm making no predictions. Chancellor Chandler has shown himself to be sufficiently peeved at being overruled in his earlier decision that I think most bets are off. I continue to be amazed that the Delaware Supreme Court wasn't able to look ahead to tomorrow and realize that by knocking down the bylaw they set up this Just-Say-No case to come before Chandler, and inevitably them. Why is that a better outcome than letting the bylaw survive? I don't know. Anyway, tune in tomorrow for all the fun.
Tuesday, November 23, 2010
See that there? That's egg on my face (ARG-DelSupCtOpinion). It's a total victory for Ted Mirvis and Wachtell. The Supreme Court even cited approvingly to the ABA's form book.
The Supreme Court overturned the Chancery Court, basically holding that since everyone has always assumed the language "in the third year following the year of their election" means a "three year term" for directors, then four months between annual meetings is too truncated to count as an annual meeting. So a bylaw that moves the annual meeting to a date that isn't near the "traditional" date, but still "in the third year following the year of their election" is invalid. That seems like a victory for poor (or sloppy) drafting: "in the third year following the year of their election" or "three year term" ... whatev's.
Of course, the court leaves unanswered the next question - okay, so what's the minimum amount of time between annual meetings? Five months? Six months? More?
So the good news? By ruling against the bylaw, the Supreme Court has given new life to Air Products challenge to Airgas' "just-say-no" defense. Could it be that we might finally get "just-say-no" litigated? We'll see. Air Products' challenge to Airgas' poison pill is next up in the docket.
Sunday, November 14, 2010
Not entirely surprising given the decision by the Canadian government not to approve the potential sale of Potash to BHP. BHP could have come back within 30 days with an improved offer and tried to convince the government of its ability to generate a "net benefit" for Canada with its ownership of Potash. But in the end BHP decided against taking that route - arguing that it had already gone a long way. It issued the following statement:
The company had offered to commit to legally-binding undertakings that would have, among other things, increased employment, guaranteed investment and established the company’s global potash headquarters in Saskatoon, Saskatchewan.
The investment commitment included US$450 million on exploration and development over the next five years over and above commitments to spending on the Jansen project. An additional US$370 million would have been spent on infrastructure funds in Saskatchewan and New Brunswick. BHP Billiton would also have applied for a listing on the Toronto Stock Exchange.
In addition, BHP Billiton was prepared to make a unique commitment to forego tax benefits to which it was legally entitled and, as a condition of the Minister’s approval, BHP Billiton was prepared to remain a member of Canpotex for five years. Both of these undertakings were intended to allay any concerns the Province of Saskatchewan may have had regarding potential losses in revenues.
Further, to give the company an even stronger Canadian presence, BHP Billiton undertook to relocate to Saskatchewan and Vancouver over 200 additional jobs from outside Canada. BHP Billiton would have maintained operating employment at PotashCorp’s Canadian mines at current levels for five years and would have increased overall employment at the combined Canadian potash businesses by 15% over the same period.
In the end that wasn't enough. The Investment Canada Act turns out to be a pretty potent takeover defense.
Friday, November 12, 2010
The Deal Prof does a great job of plowing through Genzyme's old proxy statements to give us a deeper look at why Sanofi will be unlikely to do much to stop Genzyme from re-staggering its board should it want to. The reason revolves around Massachusetts' staggered board statute (156D, Sec. 8.06). Unlike Delaware staggered boards are the default for Massachusetts public companies. Steven walks through the proxies and points out that back in 2006 the board, and not the shareholders, de-staggered the board. Because the board took the initial action, the statute permits the board to stagger it at any point in the future without going to the shareholders.
That's a good trick. And one more reason why if Sanofi wants this deal to happen, it's going to have play nice.