Tuesday, June 17, 2014
I am shocked! Shocked that there is insider trading in advance of merger announcements! OK, so I'm not. But, what is surprising is just how much of that insider trading happens via equity options. Seriously. I know you can make a lot of money in equity options, but you're also going to get caught. Anyway, there is a new study by Augustin, Brenner and Subramanian, Informed Options Trading Prior to M&A Announcements: Insider Trading? I think that's a rhetorical question. Here's the abstract:
Abstract: We investigate informed trading activity in equity options prior to the announcement of corporate mergers and acquisitions (M&A). For the target companies, we document pervasive directional options activity, consistent with strategies that would yield abnormal returns to investors with private information. This is demonstrated by positive abnormal trading volumes, excess implied volatility and higher bid-ask spreads, prior to M&A announcements. These effects are stronger for out-of-the-money (OTM) call options and subsamples of cash offers for large target firrms, which typically have higher abnormal announcement returns. The probability of option volume on a random day exceeding that of our strongly unusual trading (SUT) sample is trivial - about three in a trillion. We further document a decrease in the slope of the term structure of implied volatility and an average rise in percentage bid-ask spreads, prior to the announcements. For the acquirer, we provide evidence that there is also unusual activity in volatility strategies. A study of all Securities and Exchange Commission (SEC) litigations involving options trading ahead of M&A announcements shows that the characteristics of insider trading closely resemble the patterns of pervasive and unusual option trading volume. Historically, the SEC has been more likely to investigate cases where the acquirer is headquartered outside the US, the target is relatively large, and the target has experienced substantial positive abnormal returns after the announcement.
Three in a trillion? Those are pretty long odds. You'd be better off buying a lottery ticket than replicating the results they find here in the absence of material inside information ... a lottery ticket! It's odd, because it's so dumb of the traders, but the authors find that in the run-up to an announcement of a merger, there is increased abnormal trading volume in single equity options of the target. If it's not obvious, that means if you are in possession of material non-public information and you are trading in single equity options prior to a merger announcement, you might as call the SEC and tell them to arrest you.
Tuesday, June 10, 2014
Well, this is unusual. In reponse to ATP - the Delaware Supreme Court opinion that ruled that fee-shifting bylaws are facially valid in Delaware - there was a rare moment of unanimity when both the plaintiffs bar and the defense bar seemed to line up behind a quick fix to Section 102(b)(6) of the corporate law that would prohibit such bylaws. Now, according to the WSJ's Liz Hoffman, the US Chamber of Commerce is weighing in on the fix:
The Delaware legislature is set to vote as soon as this week on a bill to prevent companies from sticking stockholder plaintiffs with corporate legal bills in an effort to deter lawsuits, especially those that routinely follow merger deals.
But the U.S. Chamber Institute for Legal Reform, an arm of the U.S. Chamber of Commerce, is opposing the bill, which it says would deprive companies of a self-help tool that could reduce corporate litigation, which has risen sharply in recent years.
This fee shifting fix and the Chamber's response to it is highly usual. First, the proposed legislative fix it is being adopted very quickly on the heels of ATP. Usually, amendments to the DGCL take time and are worked out by committee over a good deal of time. Second, by the time such amendments get proposed, they have been so fully vetted that they are extremely non-controversial. Here, the Chamber is stepping in the lobby the legislature against adoption. I guess this week just got interesting.
Friday, June 6, 2014
Governor Markell nominated Karen Valihura, a corporate litigator in Skadden's Wilmington office to the Delaware Supreme Court to replace retiring Justice Jack Jacobs. Ms. Valihura will become the second woman after Justice Carolyn Berger to sit on the court.
Ms. Valihura was interviewed for LawDragon.com just a week or so ago. Among the questions, there's this one:
Lawdragon: Is there a case/deal/client in your career that stands out as a “favorite” or one that is particularly memorable?
Karen Valihura: My favorite deal litigation was Norfolk Southern's takeover fight with CSX over Conrail, resulting in Norfolk Southern's acquisition of a substantial portion of Conrail. It was a classic hostile fight among the Class I railroad titans: Norfolk Southern (represented by Skadden), Conrail and CSX. It involved a multitiered, front-end loaded transaction spanning three preliminary injunction hearings, as well as appeals to the Third Circuit over the Christmas and New Year's holidays. I greatly enjoyed working with and learning from Morris Kramer and Steve Rothschild, who were both legendary Skadden partners; and my fellow senior associate on the matter was Eric Friedman, who is now our firm's Executive Partner. It was Skadden at its finest.
Best of luck to the nominee.
Thursday, June 5, 2014
At a speech before the Delaware Bench and Bar Conference, Chief Justice Strine raised the possibility that Delaware would revisit its Chancery Arbitration Program:
"Regrettably, a federal court in Philadelphia issued a divided ruling striking down these statutes because they violated two judges’ reading of unsettled precedent, a reading that, if good law, would invalidate long-standing dispute resolution procedures used in their own federal court system,” said Strine.
“But, consistent with our history, Delaware is not wallowing in defeat,” Strine said, adding that the governor, the Corporate Law Council and members of the bar “are working on a different approach to be ready for the consideration by the General Assembly in January.”
I could quibble, but I won't. I suspect what they will do is create an arbitration procedure that will be effectively the same as the one they had previously implemented but with some public access. Supporters believe that it won't work without confidentiality, but I suspect public access won't be as terrible as some think.
Monday, June 2, 2014
The news over the weekend that Phil Mickelson is subject of an insider trading investigation is surprising and not surprising at the same time. Celebrities and high profile athletes will naturally attract a lot of investigator attention when their names show up on lists of suspect trades. Imagine you are a FINRA staffer and your job involves scanning lists of hundreds of names of people involved in suspect trades. Frankly, it can be a boring job. Not all that different from doc review or a never ending diligence exercise. Of course, if a name that looks familiar pops up on a list, you are definitely going to stop and take a look. Who wouldn't?
Add to that the pedagogic effect of possibly catching a high profile athelete/celebrity with their hand in the cookie jar. Prosecution of such cases doesn't only make a career, but it's also going to send a much bigger message to the trading public about insider trading than prosecuting an anonymous hedge fund trader. So, there are real incentives for prosecutors to run down every lead when the name of a high profile individual pops up on a suspect trade list.
Of course, having one's name on a suspect trade list is not the same as actually engaging in insider trading. Don't get me wrong. If you are a deal lawyer, you never want to see you father's name turn up on a suspect trade list of a deal that you've been working on. That will take you down a long, dark road to be sure.
No, what I mean is that since the news of the Phil Mickelson investigation has leaked, precious little evidence beyond the fact that Mickelson may have traded in Clorox stock options in the week before Carl Icahn announced his intent to acquire Clorox in 2011. Given how thin the market for single stock options are, it's not good - really not good - that Mickelson happened to buy call options just before announcement of a potential acquisition. That's going to mean a huge legal bill for Mickelson as he explains himself to the SEC, but that, in and of itself, is not going to be enough to tag Mickelson with any liability.
To get to liability - exam review for students who just took my exam - the SEC will first have to find someone with a fiduciary duty to the source of the information. Second, the SEC will have to prove that the person with the information about Icahn's bid actually tipped Mickelson (let's make this sumple and not daisy-chain the information, yet). Third, that the when tipping Mickelson the source of the information received a "personal benefit" and therefore breached his or her fiduciuary duty to the source. And then finally, that when Mickelson traded on the information, he knew or should have known that the information he received was tainted because it was inside information received via a breach. That's a lot of dots to connect. And so far, there's not a lot of ink to connect them.
Friday, May 30, 2014
MoFo has posted a brief overview of activist stategies in the context of the merger space. It comes down to three basic strategies:
1. Challenge an announced deal in an effort to force the board to regnegotiate for a marginally higher price (e.g. Dell/Icahn).
2. Chase an appraisal remedy in an announced target (e.g. Dole/Merion Investment Management).
3. Try to put a company in play through an unsolicited offer ... and pray someone else comes along to top you (e.g. Icahn/Clorox).
This is obviously not an exhaustive list. What were are witnessing in the Pershing Square/Valeant/Allergan bid is an interesting twist.
Thursday, May 29, 2014
According to the Delaware Law Weekly, there are seven candidates to replace retiring Justice Jack Jacobs:
The candidates are said to be Superior Court President Judge James T. Vaughn Jr.; Superior Court Judges Jan R. Jurden and Calvin L. Scott Jr.; Widener University School of Law professor Lawrence Hamermesh; Family Court Chief Judge Chandlee Johnson Kuhn; Skadden, Arps, Slate, Meagher & Flom attorney Karen L. Valihura; and Grant & Eisenhofer attorney Megan McIntyre.
Jurden and Vaughn were recently under consideration for the Chief Justice position, so I suppose no surprise there. Nice to see Larry Hamermesh on the list.
Wednesday, May 28, 2014
The ubiquity of transaction-related litigation is, I think, a real problem. By now, 94%+ of announced mergers end up with some litigation. I think that most reasonable people can agree that not all 94% of transactions where there are lawsuits do the facts suggest that something has gone wrong. Much of the litigation is really just flotsam intended to generate a settlement -- a settlment that directors are all too willing to grant in exchange for a global release.
In any event, there have been a series of efforts, including exclusive forum provisions, which have been deployed in a self-help manner to try manage this issue and its multi-jurisidictional cousin. In the 2013 Boilermakers opinion, Chief Justice Strine gave his blessing to board-adopted exclusive forum bylaw. Following Galaviz v Berg there was some question as to whether an exlcusive forum bylaw adopted by the board had sufficient inidicia of consent such that it would be enforceable against shareholders. In Boilermakers, Strine noted that forum selection bylaws were consistent with both Delaware and federal law, and also that the mere fact that such a bylaw was adopted by the board does not render such a bylaw invalid:
The certificates of incorporation of Chevron and FedEx authorize their boards to amend the bylaws. Thus, when investors bought stock in Chevron and FedEx, they knew (i) that consistent with 8 Del. C. § 109(a), the certificates of incorporation gave the boards the power to adopt and amend bylaws unilaterally; (ii) that 8 Del. C. § 109(b) allows bylaws to regulate the business of the corporation, the conduct of its affairs, and the rights or powers of its stockholders; and (iii) that board-adopted bylaws are binding on the stockholders. In other words, an essential part of the contract stockholders assent to when they buy stock in Chevron and FedEx is one that presupposes the board’s authority to adopt binding bylaws consistent with 8 Del. C. § 109. For that reason, our Supreme Court has long noted that bylaws, together with the certificate of incorporation and the broader DGCL, form part of a flexible contract between corporations and stockholders, in the sense that the certificate of incorporation may authorize the board to amend the bylaws' terms and that stockholders who invest in such corporations assent to be bound by board-adopted bylaws when they buy stock in those corporations.
Boilermakers set the stage for the Delaware Supreme Court very recent opinon in ATP Tour. ATP Tour, you know, the tennis guys. The issue in the ATP is related both to the question of transaction-related litigation and unilaterally adopted bylaws. In ATP, the tour adopted a fee shifting bylaw that would eschew the "American Rule" and require that in the event of unseuccessful shareholder litigation - or litigation that "does not obtain a judgment on the merits that substantially achieves, in substance and amount, the full remedy sought" then the shareholder will be responsible for paying the corporation's litigation fees. Here's the bylaw as adopted:
(a) In the event that (i) any [current or prior member or Owner or anyone on their behalf (“Claiming Party”)] initiates or asserts any [claim or counterclaim (“Claim”)] or joins, offers substantial assistance to or has a direct financial interest in any Claim against the League or any member or Owner (including any Claim purportedly filed on behalf of the League or any member), and (ii) the Claiming Party (or the third party that received substantial assistance from the Claiming Party or in whose Claim the Claiming Party had a direct financial interest) does not obtain a judgment on the merits that substantially achieves, in substance and amount, the full remedy sought, then each Claiming Party shall be obligated jointly and severally to reimburse the League and any such member or Owners for all fees, costs and expenses of every kind and description (including, but not limited to, all reasonable attorneys’ fees and other litigation expenses) (collectively, “Litigation Costs”) that the parties may incur in connection with such Claim.
Clearly, such a bylaw, if adopted and upheld, would bring the transaction-related litigation train to a screeching halt or at the very least dramatically alter the settlement dynamics.
This bylaw ended up in front of the Delaware Supreme Court as a certified question from the federal district court in Delaware. You'll remember that Delaware is one of the few state supreme courts that will accept certified questions of law. The question before the court was whether the unilaterally adopted fee-shifting bylaw above was valid under Delaware law.
That such a provision is legal under Delaware law isn't all that surprising, really. What is surprising is that court would agree to wander into this hornet's nest of an issue entirely of voluntarily. Whether or not to accept a certified question is entirely within the discretion of the court and the court could have avoided deciding the question altogether had it wanted to. But, apparently it wanted to decide the issue.
The reaction to the opinion has been pretty incredible. For example, Delaware litigator Stuart Grant remarked,"The Delaware Supreme Court seems to have caused Delaware to secede from the union." A little over the top, sure. But, the just because plaintiffs hate the result, don't think that the defense bar is jumping up and down claiming victory and recommending widespread adoption of these provisions. They're not. In fact, many worry that adopting such provisions might just put their clients in the cross hairs. No one wants a fight if they can avoid it. And anyway, the global releases their clients get from settling otherwise trivial transaction challenges are valuable security blankets for directors.
The reaction by both plaintiffs and defendants to the ATP ruling has been a unique constellation of interests. Ronald Baruch calls the reaction evidence of the "cozy" litigation community in Delaware. Plaintiffs want to get paid and defendants want their releases. In response the Corporation Law Section of the Delaware Bar has moved quickly to propose an amendment to elminate fee shifting under the DGCL. The proposed amendment (with underlined insertion) is below:
Amend § 102(b)(6), Title 8 of the Delaware Code by making insertions as shown by underlining as follows:
A provision imposing personal liability for the debts of the corporation on its stockholders based solely on their stock ownership, to a specified extent and upon specified conditions; otherwise, the stockholders of a corporation shall not be personally liable for the payment of the corporation's debts except as they may be liable by reason of their own conduct or acts.
The effect of the proposed amendment would make fee shifting impermissable under the DGCL and therefore rule it out as a bylaw. If approved by the legislature in Delaware, the amended 102(b)(6) would go into effect on August 1. Now that's swift justice.
The battle against transaction-related litigation will have to be fought on other ground.
Friday, May 16, 2014
Antoniades, et al have a paper, No Free Shop. There have always been two sides to the g0-shop issue. On the one side, if a company has the right to proactively shop itself post-signing, that should be good, right? In Topps, Chief Justice Strine called the go-shop "sucker's insurance". Generally, employing a go-shop provision is one of several ways that a board can, in good faith, reassure itself that it has received the highest price reasonably available in a sale of control.
On the other hand, when one looks at the way go-shops are actually deployed, one wonders what is going on. By now, they are regularly included in merger agreements with private equity buyers and rarely included in merger agreements with strategic buyers. If you believe that private equity buyers have characteristics of a common value buyers and strategic buyers are more like private value buyers, then the go-shop takes on a different, less appealing light.
The paper from Antoniades, et al backs up this view; go-shops are associated with lower initial prices and fewer competing offers. These results raise the question whether boards can reasonably rely on the go-shop to confirm valuations. Here's the abstract:
Abstract: We study the decisions by targets in private equity and MBO transactions whether to actively 'shop' executed merger agreements prior to shareholder approval. Specifically, targets can negotiate for a 'go-shop' clause, which permits the solicitation of offers from other would-be acquirors during the 'go-shop' window and, in certain circumstances, lowers the termination fee paid by the target in the event of a competing bid. We find that the decision to retain the option to shop is predicted by various firm attributes, including larger size, more fragmented ownership, and various characteristics of the firms’ legal advisory team and procedures. We find that go-shops are not a free option; they result in a lower initial acquisition premium and that reduction is not offset by gains associated with new competing offers. The over-use of go-shops reflects excessive concerns about litigation risks, possibly resulting from lawyers' conflicts of interest in advising targets.
Guhan Subramanian's 2007 Business Lawyer paper, Go-Shops v No-Shops, came to a different conclusion with respect to the utility of go-shops.
Thursday, May 15, 2014
Ron Gilson and Jeff Gordon weigh in on activist pills and Sotheby's at the Blue Sky Blog:
Delaware corporate governance rests on two conflicting premises: on the one hand, the board of directors and the management the board selects run the corporation’s business, but on the other the shareholders vote on who the directors are. The board needs discretion to run the business, but the shareholders decide when the board’s performance is so lacking that it (and management) should be replaced. All of the most interesting issues in corporate governance arise when these two premises collide – when the board’s assessment of how the company is doing is different than the shareholders’, and each claims that their assessment controls. These collisions work out within a predictable range when, unexpectedly, new governance initiatives shift the underlying plate tectonics and disequilibrate the settled patterns. Whether the particular earthquake is caused, as was the case in the 80s, by the emergence of a hostile tender offer or, as now, by activist investors seeking to change management, policy or both through a threatened proxy fight, the underlying question is the same: when does the board’s discretion end and the shareholders’ power begin? The boundary is the corporate governance ring of fire.
Gilson and Gordon suggest that the new distribution of share ownership, heavily weighted in favor of institutional ownership, may require a new approach to governance. This new approach would recognize that institutional shareholders may well need less protecting from threats than would individual shareholders with less information.
Students in my just completed M&A class will enjoy Rick Climan's latest installment of this series of mock negotiations with Keith Flaum. This one on a potentially controversial customary carveout to the MAE.
The lesson -- even though everyone is including it, doesn't mean you have to!
Wednesday, May 14, 2014
Over at Prawfslawblog yesterday - and hopefully bleeding into today - is the Bruner Book Club. They are discussing Chris' new book, Corporate Governance in a Common-Law World: The Political Foundations of Shareholder Power. Drop by a give it a read.
Tuesday, May 13, 2014
OK, I guess we are closing in on SkyNet territory. A VC firm in Hong Kong just named an algorithim to its board of directors:
How does the algorithm work?
VITAL makes its decisions by scanning prospective companies' financing, clinical trials, intellectual property and previous funding rounds.
Groome says it has already helped approved two investment decisions (though has not yet cast its first vote), both of which resemble its own function: In Silico Medicine, which develops computer-assisted methods for drug discovery in aging research; and In Silico's partner firm Pathway Pharmaceuticals, which employs a platform called OncoFinder to select and rate personalized cancer therapies.
On the plus side, VITAL won't demand a corporate jet or fancy meetings at the Four Seasons with golf. On the negative side, well ... billables for lawyers advising VITAL are going down ...
Monday, May 12, 2014
It was late on a Tuesday in September last year when one of his young client service team handed him the daily transaction report and said: ''Boss, you better take a look at this.''
Mr Kerr’s team had noticed one of their clients, National Australia Bank associate director Lukas Kamay, was making sizable bets on the Australian dollar, minutes and sometimes seconds before the announcement of significant economic news. Mr Kerr, the founder and owner of Pepperstone Financial, looked up Kamay’s profile via his gold LinkedIn account and found he was friends with an Australia Bureau of Statistics employee Christopher Hill through Monash University. “That was when it suddenly clicked that this guy was only trading ABS data and had a man on the inside,” Kerr told Fairfax Media from his Gippsland farm on Sunday.
Years ago, connecting the dots for investigators was hard. It required lots of guys sitting around with index cards, cross-referencing names and schools and places of birth. They were lucky to catch anyone. Now? They just look you up on LinkedIn.
OK, back to grading exams.
Friday, May 2, 2014
In Canada's Financial Post, Yvan Allaire makes the argument that Canada's approach to merger rules, which are close to exactly the US academic orthodoxy that board of directors should have only a very limited ability to stand in the way of shareholders accepting a tender offer, go too far and should be reconsidered:
Take the recent case of Inmet Mining Corp. and First Quantum Minerals. Inmet’s board was dead set against a takeover by First Quantum. The latter made a bid; no other bidder showed up. Despite the board’s opposition, Quantum simply put its offer to the shareholders. As enough of them handed in their shares the deal has been consummated. Under Canadian regulations, the board members of Inmet had no other recourse; they believed that it was not in the long-term interest of Inmet to be acquired by Quantum at the offered price but were powerless to act. That does not make any sense.
How can anyone defend this dysfunctional regime? How can one pretend that this system is best for stable, long-term shareholders?
In a world of financial derivatives, speed trading, arbitrageurs, momentum players and hedge funds of all sorts, as soon as a takeover offer is made public the shareholder base of the target company is swiftly and radically transformed. To consider these newcomers as the sole “deciders” of a company’s fate, needing the benevolent protection of securities commissions against malevolent, conflicted management, seems like an imaginative scenario of times past.
It's an advertisement to be careful what you wish for I suppose.
Thursday, May 1, 2014
Second Annual Workshop for Corporate & Securities Litigation: Call for Papers
The University of Richmond School of Law and the University of Illinois College of Law invite submissions for the Second Annual Workshop for Corporate & Securities Litigation. This workshop will be held on Friday, October 24 and Saturday, October 25, 2014, in Richmond, Virginia.
This annual workshop brings together scholars focused on corporate and securities litigation to present their works-in-progress. Papers addressing any aspect of corporate and securities litigation or enforcement are eligible. Appropriate topics include, but are not limited to, securities class actions, fiduciary duty litigation, or comparative approaches to business litigation. We welcome scholars working in a variety of methodologies, including empirical analysis, law and economics, law and sociology, and traditional doctrinal analysis. Participants will generally be expected to have drafts completed by the fall, although there will be one or more "incubator" sessions for ideas in a more formative stage.
Authors whose papers are selected will be invited to present their work at a workshop hosted by the University of Richmond School of Law in Richmond, Virginia, on Friday, October 24 and Saturday, October 25, 2014. Hotel costs will be covered. Participants will pay for their own travel and other expenses.
The workshop is designed to maximize discussion and feedback. The author will provide a brief introduction to the paper, but the majority of the individual sessions will be devoted to collective discussion of the paper involved.
If you are interested in participating, please send an abstract of the paper you would like to present to Verity Winship at email@example.com later than Friday, May 30, 2014. Please include your name, current position, and contact information in the e-mail accompanying the submission. Authors of accepted papers will be notified by Friday, June 27.
Wednesday, April 30, 2014
Justice Jacobs has moved up his announced retirement to accomodate the legislature's schedule. So, that pending vacancy looks to be filled well before we hit the dog days of summer. In the meantime, The Metropolitan Corporate Counsel has published a nice interview with Justice Jacobs. Among other things, he comments on the recent turnover in the courts:
Editor: There have been some recent departures from the Delaware courts, and perhaps that represents the highest turnover rate in the history of Delaware. Is there any real significance to that?
Jacobs: I don’t think so. Turnover is inevitable. We have 12-year terms, and some judges step down after one term, although their reappointment is guaranteed if they want to stay on. Bill Allen served for only one term, ending in 1997, and Steve Lamb did the same, stepping down in 2009. Bill Chandler stepped down three years ago after serving 24 years, when he was still a relatively young man. Norman Veasey also served only one term as Chief Justice.
He also shares some of his thoughts on MFW and forum non conveniens:
Editor: There are some recent Delaware cases that were very helpful in terms of providing a sense of how to construct a deal. I thought Kahn v. M&F Worldwide Corp. was very interesting in terms of articulating just exactly what had to be done to assure fairness in going private.
Jacobs: For the benefit of the corporate lawyers who structure these deals, there is now some definitive guidance. Will it solve all the problems? Will all the difficulties go away? Not really. Nevertheless, after many years of uncertainty, it is good to see some progress being made. Kahn is a good example of how Delaware courts can provide needed guidelines about ways that a particular form of transaction can be approved without excessive judicial intrusion.
Editor: Another case that also seems to have clarified the law was Martinez v. E.I. DuPont de Nemours & Co. Inc.
Jacobs: Yes. Forum non conveniens is a doctrine that has been around a long time. In the federal system, the courts have some control over where competing lawsuits can be administered, but in the state system, there is no central mechanism. The states don’t have the equivalent of a Federal Panel on Multidistrict Litigation. Forum non conveniens is one doctrinal tool that the state courts can use to try to solve the multiforum problem. Martinez was a particular application of that doctrinal tool. The case did give the Supreme Court an opportunity to try to clarify the law of forum non conveniens, as to which questions have been raised over the past several years.
Monday, April 28, 2014
Traditionally, the Delaware Supreme Court is known for its unanimity. Unlike the United States Supreme Court, where the norm now seems to be 5:4 decisions, the Delaware Supreme Court tends to err on the side of 5:0. Justice Holland remarked on this phenomenon when he introduced the now-Chief Justice Leo Strine, Jr. to the Supreme Court bench this year. Holland remarked that he expected the new chief justice will fit well with Delaware's "unanimity norm." Over the past 61 years 99% of the court's rulings have been unanimous. Some of the well known exceptions to that norm are also the cases that tend to be decried as the court's worst - Van Gorkom and Omnicare among them.
What's interesting about Delaware and the corporate law jurisprudence is that dissents don't appear necessarily appear at the supreme court level, but bubble up from below. The Chancery Court has always been a source of non-traditional dissent, pushing the court to evaluate and re-evaluate its previous rulings. Last year there was some commotion when then-Chief Justice Steele politely made it known that he thought chancellors should keep their opinions to themselves and stay in their lane. Nothing really new there, just the underlying tensions between the supreme court and the chief source of dissents from the supreme court's opinion. [By "tensions" I don't mean acrimony. I mean different points of view that lead to structural differences in world view.]
In re MFW and the controlling shareholder jurisprudence is a good example of Delaware's non-traditional dissents in action. The Supreme Court's opinion in Kahn v Lynch which established that squeezeout mergers would be subject to entire fairness review with the controller able to shift the burden within entire fairness was unanimous at the Supreme Court level. At the Chancery Court however, Kahn was subject of push-back almost from the very beginning. For example, in Cox Communications then-Vice Chancellor Strine set out his objections to the whole Kahn line of cases. When he had another opportunity to push the ball down the field a little more, he took it in In re MFW. Though not a complete victory for Chancery, when the supreme court was asked to weigh in on its own unanimously adopted Kahn line of cases, it moved towards the Chancery position.
Does the elevation of Strine to the Supreme Court mean that this long-standing tension between the Chancery and the Supreme Court will go away? That's hard to say. The tensions are long-standing and previous elevations of chancellors to the Supreme Court have not assuaged them (e.g. Jacobs and Berger). My guess is that going forward, the Supreme Court will continue to exhibit its unamity norm while relying on the Chancery Court for non-traditional dissents. And that's not necessarily a bad thing.
Friday, April 25, 2014
In January I noted that a federal district court in San Francisco ruled that Bazaarvoice had violated the Clayton Act when it acquired its chief competitor, PowerReviews. At the time, I misinterpreted the ruling and thought it meant that court had held that Bazaarvoice was ordered to divest itself of PowerReviews. I quickly received an email from a PR hack at Bazaarvoice asking me to correct the record, which I did. The January ruling simply found that Bazaarvoice had violated the antitrust laws but did not go so far as to resolve the question of remedy, which could eventually include divestiture of PowerReviews.
OK, so today Bazaarvoice has agreed to divest itself of PowerReviews and pay $222,000 to cover the US government's litigation costs - government lawyers are cheap. Bazaarvoice has to bear its own costs, which I suspect are higher. Here is the proposed stipulation and order and here is the proposed final judgment.
Remember that the PowerReviews acquisition did not trigger an automatic HSR filing, but the lack of a filing requirement does not mean one is exempt from antitrust enforcement. Just ask Bazaarvoice.