M & A Law Prof Blog

Editor: Brian JM Quinn
Boston College Law School

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Monday, November 8, 2010

Canada: not the Boys Scouts of international finance

The Star up in Canada defends the country's right to say no to foreign investment, but still worries that the fix might be in:

Yes, the Canadian government's actions last week sent a message to the rest of the world: that we are no longer willing to be the Boy Scouts of international finance.

If the Potash Corp. episode has taught us anything, it is that the Investment Canada process is far too opaque. When Industry Minister Tony Clement said the takeover of Potash Corp. did not meet the “net benefit” test under the Investment Canada Act, he was prevented by law from saying why. If Clement turns around after the 30-day appeal period and says BHP has improved its offer and now meets the test, how would we know?

Some looking at the situation with Potash seem to think that the Investment Canada Act and the current climate could prove the ultimate takeover defense for Research in Motion (Blackberry).  Given the extremely competitive market for smart phones, that's some comfort for RIM's board, I suppose. 

-bjmq

 

November 8, 2010 in Cross-Border, Hostiles, Miscellaneous Regulatory Clearances | Permalink | Comments (0) | TrackBack (0)

Thursday, November 4, 2010

Canada to BHP: "Thanks, but no thanks for now."

Last week the Premier of Saskatchewan gave the thumbs down to the BHP bid for Potash.  Yesterday afternoon, Canada's Industry Minister Tony Clement released a statement expressing a similar sentiment:

"I can confirm that I have sent a notice to BHP Billiton indicating that, at this time, I am not satisfied that the proposed transaction is likely to be of net benefit to Canada.

"I came to this decision after a careful and rigorous review of the proposed transaction. BHP Billiton has 30 days to make any additional representations and submit any undertakings.

"At the end of that period, I will make a final decision.

"The confidentiality provisions of the Investment Canada Act prohibit me from discussing specifics of an ongoing case.

"I can assure Canadians, however, that I will provide an explanation of the reasons behind my final decision at the time that decision is made, in accordance with the provisions of the Act.

"Canada has a long-standing reputation for welcoming foreign investment. The Government of Canada remains committed to maintaining an open climate for investment."

So the ball is now back in BHP's court.  It looks like it's up to them to woo the government of Canada if they want this deal to happen.

-bjmq

 

November 4, 2010 in Cross-Border, Hostiles, Miscellaneous Regulatory Clearances | Permalink | Comments (0) | TrackBack (0)

Friday, October 22, 2010

Sask Premier on BHP Bid

"In the interests of Saskatchewan ... we must say no to this hostile takeover."

More cargo, please.

-bjmq

 

October 22, 2010 in Cross-Border, Hostiles, Miscellaneous Regulatory Clearances | Permalink | Comments (0) | TrackBack (0)

Thursday, March 11, 2010

More Comcast/NBC Hearings Today

The Senate Commerce Committee is having more hearings on the Comcast/NBC deal today at 10:00am.  Chirstine Varney (head of the DOJ's anti-trust division), Brian Roberts (CEO of Comcast), Prof. Christopher Yoo (UPenn Law) are among those on the witness list.  The webcast will be available here.


-bjmq

March 11, 2010 in Antitrust, Miscellaneous Regulatory Clearances | Permalink | Comments (0) | TrackBack (0)

Thursday, February 25, 2010

Hummer Deal Finally Dies

So it's hardly a surprise to anyone paying attention that GM's deal to seller its Hummer unit to an unknown privately owned company from the interior of China died yesterday.  (GM announcement here)  GM announced that it would begin to immediately shut down Hummer and its operations.   

Though the terms of the proposed deal haven't been made public, I'm assuming the sale agreement included a customary regulatory condition to closing.  Such a condition would permit either party to refuse to close and then terminate the transaction in the event the required regulatory approvals were not obtained by the deal's drop dead date.  The way these conditions are often written, the parties can then walk away without either party paying a fee.  

However, given the importance of Chinese regulatory approval to making this deal happen and the high degree of risk that was so evident early on, the parties (or GM) would have been smarter to include a reverse termination fee tied to the Chinese buyer's failure to secure approval for the deal.  Or, at the very least, they should have considered including a "ticking fee" after the deal's first deadline passed without an approval.  Hummer was always a money losing transaction venture for GM.  The longer it kept it going in hopes of this deal closing, the more money GM lost.  We'd have all been better off if the buyer had to pay for the delay.  Of the two, the buyer was in the better position to bear the risk of China not approving the proposed deal.  Were there a fee in place, the buyer would have been forced to make a decision sooner about the likelihood of this deal going forward rather than simply let it float along and cause further damage to GM.  

In any event, this is an example of a transaction that may be sensitive from a regulatory perspective.  In such transactions, reverse termination fees or ticking fees might play a useful role in efficiently shifting onto buyers the risks of the deal collapsing.

-bjmq

February 25, 2010 in Asia, Miscellaneous Regulatory Clearances | Permalink | Comments (0) | TrackBack (0)

Tuesday, February 16, 2010

Russian Pre-Clearance Procedures

You might remember that the Oracle-Sun deal filed and then pulled its pre-clearance notification in Russia when it ran into difficulties with EU anti-trust authorities.  At the time, I was a little mystified.   Now, Clifford Chance is setting us all straight.  Here's their memo on the Russian merger pre-clearance process and part of their assessment of notification requirements for transactions involving a foreign buyer and seller: 

Russian competition law follows the "effects doctrine" and the notification requirements may also apply in case of foreign-to-foreign mergers.

Until August 2009, merger clearance in Russia was required if a foreign-to-foreign transaction met both of the following criteria: (1) it resulted in the acquisition of shares or assets of Russian companies, or direct or indirect control over Russian companies; and (2) it results or may result in the restriction of competition in Russia.

This structure was, however, reformed as a part of the Second Antimonopoly Package, which turned these two formerly cumulative criteria into alternative requirements. In addition, the second criterion was modified, which is expected to result in broader application of the Russian merger control rules by FAS. It is now sufficient that a transaction "affects" competition in Russia, while, previously, it was required that the transaction "restricts or may restrict" competition.

To date FAS has not issued any official clarification as to how it interprets the revised requirement. Based on its current practice, one may, however, surmise that a foreign-to-foreign transaction falls within the Russian merger control regime where the target entity directly or indirectly controls any Russian entities, owns assets located in Russia or has substantial turnover from operations in Russia
-bjmq

February 16, 2010 in Antitrust, Miscellaneous Regulatory Clearances | Permalink | Comments (0) | TrackBack (0)

Thursday, February 4, 2010

NBC Senate Hearings

It's probably just going to be a re-run of the morning show, but for what it's worth the Comcast-NBC Senate hearings are now underway.  Webcast here.


-bjmq

February 4, 2010 in Miscellaneous Regulatory Clearances | Permalink | Comments (0) | TrackBack (0)

NBC House Hearings

Comcast-NBC hearings are underway in the House.  Webcast here.


-bjmq

February 4, 2010 in Miscellaneous Regulatory Clearances | Permalink | Comments (0) | TrackBack (0)

Wednesday, February 3, 2010

Comcast-NBC FCC Filings

The Comcast-NBC transaction proceeds apace.  Like all transactions of any size, this transaction will be subject to regulatory approval.  This entails, of course, HSR pre-clearance.  But given the high profile nature of any acquisition involving a cable company, there will be hearings on Capitol Hill.  Rep. Boucher and Sen. Kohl have scheduled the first public hearings on Thursday, February 4 (9:30a in the House and 2:30p in the Senate).  The morning hearings will be held in front of the House's Subcommittee on Communications, Technology, and the Internet and in front of the Senate's Subcommittee on Antitrust, Competition Policy, and Consumer Rights.  Info and web-cast for the Senate hearings here.   Info and web-cast for the House hearings here.  These are not statutory hearings, but necessary political events.  

The other clearance required is that of the FCC.  Because this transactions involve media entities, the FCC does its own review.  This review also requires a series of extensive filings.  You can find all the filings here. The FCC approval process gives us a chance to look at the transaction documents.  The Comcast-NBC transaction agreement has already been filed.  It's rather lengthy (150+ pages).  In general, GE will contribute NBC/Universal to a JV with Comcast.  Comcast will contribute a series of programming properties.  The resulting NBC JV will then borrow $9.1 billion and distribute that to GE in the form of a special dividend.  Following the transaction, Comcast will control the new NBC JV with 51% equity.  GE will continue with 49%, but subject to certain redemption provisions that make it possible for Comcast to ulti mately control 100% of NBC over time.   

Apparently a major motivation for doing this deal is the transaction costs associated with making content deals.  From the declaration of Robert Pick, SVP for Corporate Development at Comcast:

A natural question is why these issues cannot be fully addressed through contracts between Comcast and unaffiliated content owners. The simple answer is that we have tried and not always succeeded, certainly not as quickly or robustly as we would have liked. One reason is that it is very difficult to determine how to structure the financial terms of contracts for new and untested distribution technologies. Both sides in the negotiations want certainty and predictability with respect to the revenue-generating capabilities of the assets they are contributing. But given the rapid developments in content and technology in this extremely dynamic environment, it is difficult for either party to develop business models that allow them to achieve the certainty and predictability they need. In addition, it is difficult to write contracts flexible enough to permit the experimentation and learning that both parties need as they develop new technologies and business models.

Comcast contends that it's simply cheaper to vertically integrate than it might be to contract.  This is consistent with Oliver Williamson's view on the topic.  He argued that where transaction costs are high, parties might try to contract around information problems, but that a firm can economize - an not subject itself to threats of opportunism - by vertically integrating.  The Fisher Body case is an example of this principle in action (See Ben Klein's Economic Lessons of Fisher Body).  Here, Comcast is making a similar efficiency argument. 

-bjmq


February 3, 2010 in Miscellaneous Regulatory Clearances | Permalink | Comments (0) | TrackBack (0)

Thursday, December 10, 2009

Non-Profit Mergers

If you've got students in a transactional clinic, most likely they are working with non-profit organizations.  They may sign up for the clinic hoping to work for big corporate clients, but that's just the way it is.  In any event, non-profits do transactions, too.  In particular, they have been known to merge.  When non-profits merge, the process looks familiar, but it's different in a couple of important respects.  First, no pesky shareholder votes.  You might be required to get the pre-approval of the Attorney General of the state in which the non-profit is incorporated, but not always.  For example, here's California's Not For Profit Public Benefit Corporation act's merger provision.  You'll note that basically it just requires the approval of the respective boards of the constituent non-profits.  

Well, I wish it were that easy.  Non-profits, because of their tax exempt status, must make additional filings with the IRS and there are specific accounting issues.  Bryan and Cave has a summary of some recent changes in this area.  

-bjmq

Update:  A little bit of "local" news related to this subject - this morning by a vote of 14-4 the Board of Trustees of UMass just approved its acquisition of the Southern New England School of Law.  Although the transaction documents are not yet available widely, this transaction is being described as a donation of assets from SNESL to UMass.  So, it's not a non-profit merger.  Call it the equivalent of a non-profit dissolution with the proceeds of the dissolution being handed over to UMass instead of the "stockholders."  Presumably, the Attorney General might also have a role in approving this transaction

December 10, 2009 in Miscellaneous Regulatory Clearances | Permalink | Comments (1) | TrackBack (0)

Friday, December 4, 2009

Comcast-NBC and the Various Premerger Approvals

Comcast’s deal to acquire NBC from GE announced yesterday doesn’t break a whole lot of new ground from a deal structuring point of view.  In general, GE contributes its NBC/Universal assets to the joint venture.  For its parts, Comcast pitches in cash plus cable assts like the E! Network and the Golf Channel (which suddenly have many more synergies than they used to).  Where this deal is likely to get interesting, though, is on the regulatory approval front. 

Of course, it will need antitrust clearance through the HSR premerger approval process.  Although this is a pretty well-trod path, the present Administration has already signaled on a number of occasions that the era of somnolent antitrust enforcement is over.  This is a big transaction, vertically integrating a large segment of the media industry (content generation to distribution).  Comcast already making its pitch that this deal will be good for consumers – “Universal movies could reach cable [subscribers] more quickly after showing in theaters.”  Somehow, the thought of Land of the Lost and Drag Me to Hell showing up my TV faster than they otherwise would does not make me feel better.

As I noted in a post a couple of months ago, in media deals, the FCC also has an independent premerger approval process of its own.  Although the FCC rarely stops deals from proceeding, it has a much broader charge than the FTC.  The HSR process is focused on assessing the potential anti-competitive effects of a proposed merger.  The FCC’s charge is to assess the proposed transaction on the basis of a “public interest” analysis. In assessing whether the Comcast/NBC deal is in the public interest, the FCC will determine whether the transaction will media diversity (“the widest possible dissemination of information from diverse and antagonistic sources is essential to the welfare of the public.”  Turner Broadcasting System, Inc. v. FCC), the quality of local services and the provision of new services, promote competition, and localism among others.  That’s a lot of ground to cover. I’m sure Comcast’s legal counsel have been studying the FCC’s 2003 order in the GM/Hughes and News Corp merger for hints how this review is going to go.  The structure of the transaction there was similar to this one.  Although the vertical integration in the NewsCorp/Hughes transaction was up the chain and not down, the arguments and the public interest analysis done there should look familiar to people.  This process, because it’s done on a case-by-case basis and because it’s not nearly has common as the HSR process, could take some time to accomplish.

Third, there’s Congress.  Although Congress doesn’t have a premerger approval process, every cable TV subscriber has a Congressman and they must be heard.  That fact no doubt generates what the Supreme Court has called “an independent interest in preserving a multiplicity of broadcasters.” Henry Waxman, Chairman of the House Committee on Energy and Commerce, released the following statement:

The proposed Comcast-NBC Universal joint venture agreement has the potential to reshape the media marketplace.  This proposal raises questions regarding diversity, competition, and the future of the production and distribution of video content across broadcasting, cable, online, and mobile platforms.  It is imperative that the FCC, the Justice Department, and the FTC rigorously assess whether this transaction is in the public interest.

I will work with Rep. Rick Boucher, Chairman of the Subcommittee on Communications, Technology, and the Internet, to schedule hearings on this matter at the earliest practicable date.

So, there will hearings in which assorted Congressmen ask questions and give their point of view on the usefulness of a Comcast/NBC link-up.  That ought to be fun.

-bjmq


Update:  Not to be outdone - Sen. Herb Kohl, Chairman of the Senate Subcommittee on Antitrust, Competition, and Consumer Rights has also released a statement of the proposed deal.  Surprise, surprise, he'll be holding hearings, too!

This acquisition will create waves throughout the media and entertainment marketplace and we don't know where the ripples will end.  Antitrust regulators must ensure that all content providers are treated fairly on the Comcast platform, and that Comcast does not get undue advantages in gaining access to programming.   We plan a public hearing so that consumers can get a better sense of how this deal could affect their access to diverse programming and information, especially as they more often look to the internet for such services.  It's critical that we preserve robust competition and promote innovative and emerging program delivery in this rapidly changing market.

December 4, 2009 in Antitrust, Miscellaneous Regulatory Clearances | Permalink | Comments (0) | TrackBack (0)

Tuesday, May 26, 2009

OTS Approves Bank Purchase by a Consortium of Private Equity Firms in Switch of Policy

The Office of Thrift Supervision recently approved the purchase of a thrift (BankUnited FSB) under its supervision by a consortium of private equity firms. This decision makes the OTS the first bank regulatory authority to approve the acquisition of a controlling interest in a U.S. bank by private equity firms.  My firm's memo on the approval is here.

May 26, 2009 in Miscellaneous Regulatory Clearances | Permalink | Comments (0) | TrackBack (0)