M & A Law Prof Blog

Editor: Brian JM Quinn
Boston College Law School

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Wednesday, May 28, 2014

2013 HSR Report

Here it is ... right on time ... the FY 2013 HSR Report.  Over 1,300 reportable transactions and just 3.7% of them subject to a second request.

-bjmq

 

May 28, 2014 in Antitrust | Permalink | Comments (0) | TrackBack (0)

ATP, fee shifting, and transactional litigation

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.

-bjmq

May 28, 2014 in Delaware, Litigation | Permalink | Comments (0) | TrackBack (0)

Friday, May 16, 2014

Go-Shops and the pricing of going private transactions

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.

-bjmq

May 16, 2014 in Leveraged Buy-Outs, Management Buy-Outs, Merger Agreements, Private Equity | Permalink | Comments (0) | TrackBack (0)

Thursday, May 15, 2014

Corporate governance's ring of fire

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.

-bjmq

May 15, 2014 in Takeover Defenses | Permalink | Comments (0) | TrackBack (0)

A controversial customary MAE Carveout

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!

-bjmq

May 15, 2014 in Material Adverse Change Clauses, Merger Agreements | Permalink | Comments (0) | TrackBack (0)

Wednesday, May 14, 2014

Corporate Governance in a Common-Law World

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.

-bjmq

May 14, 2014 in Books | Permalink | Comments (0) | TrackBack (0)

Tuesday, May 13, 2014

The age of machines in the boardroom

 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. 

Via BetaBeat and BusinessInsider.

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 ...

-bjmq

 

May 13, 2014 in Asia | Permalink | Comments (0) | TrackBack (0)

Monday, May 12, 2014

This time ... LinkedIn

This time it's LinkedIn!

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.

-bjmq

May 12, 2014 in Insider Trading | Permalink | Comments (0) | TrackBack (0)

Friday, May 2, 2014

Canadians reconsidering?

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.

-bjmq

May 2, 2014 | Permalink | Comments (0) | TrackBack (0)

Thursday, May 1, 2014

Call for papers

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.

Overview

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.

 

Submission Procedure

If you are interested in participating, please send an abstract of the paper you would like to present to Verity Winship at vwinship@illinois.edunot 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.

 

Questions

Any questions concerning the workshop should be directed to the organizers: Professor Jessica Erickson (jerickso@richmond.edu) and Professor Verity Winship (vwinship@illinois.edu).

May 1, 2014 | Permalink | Comments (0) | TrackBack (0)

Wednesday, April 30, 2014

Jacobs on turnover, MFW and forum non conveniens

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.

-bjmq

April 30, 2014 | Permalink | Comments (0) | TrackBack (0)

Monday, April 28, 2014

Non-traditional dissents

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.

-bjmq

April 28, 2014 | Permalink | Comments (0) | TrackBack (0)

Friday, April 25, 2014

Unscrambling PowerReviews

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.

-bjmq

 

April 25, 2014 in Antitrust | Permalink | Comments (0) | TrackBack (0)

Thursday, April 24, 2014

Ackman on insider trading

Just in time for final exams, Bill Ackman schools CNBC on insider trading rules and the misappropriation theory while discussing his combined bid with Valeant for Allergan. For those of you who can't do video, here's a write up care of the Times:

“The way the rules work is, you’re actually permitted to trade on inside information as long as you didn’t receive the information from someone who breached a fiduciary duty or a duty of confidentiality, et cetera”

-bjmq

April 24, 2014 in Insider Trading | Permalink | Comments (0) | TrackBack (0)

Wednesday, April 23, 2014

Can we do better?

Chief Justice Strine's recent article in the Columbia Law Review, Can We Do Better By Ordinary Investors? has gotten a lot of ink recently.  For those of you who don't have access to the CLR, you can download a copy of the article on SSRN now.  Here's the abstract:

In his essay, The Myth That Insulating Boards Serves Long-Term Value, Professor Lucian Bebchuk draws a stark dichotomy between so-called “insulation advocates” and proponents of shareholder-driven direct democracy. This Essay begins by rejecting this crude divide between “good” and “evil,” and focuses instead on the practical realities surrounding increases in stockholder power in an era where there is a “separation of ownership from ownership.” That separation arises because the direct stockholders of private companies are typically not end-user investors, but instead money managers, such as mutual funds or hedge funds, whose interests as agents are not necessarily aligned with the interests of long-term investors. These practical realities suggest that Bebchuk’s crusade for ever more stockholder power may not actually be beneficial to ordinary investors, and that his contention — that further empowering stockholders with short-term investment horizons will not compromise long-term corporate value — is far from proven. This Essay concludes with some thoughts on improvements that could be made in the system that we have. These suggestions are not radical in either direction and they do not involve rolling back the rights of stockholders. Rather, these suggestions recognize that the fiduciaries who wield direct voting power over corporations should do so in a manner faithful to the best interests of those whose money they control, include proposals to require activist investors to bear some of the costs they impose and to disclose more information about their own incentives so that the electorate can evaluate their motives, and provide incentives that better align the interests of money managers and ordinary investors toward sustainable, sound long-term corporate growth. Taken as a whole, these suggestions would create a more rational accountability system by making all of the fiduciaries for ordinary investors focus more on what really matters for investors, citizens, and our society as a whole — the creation of durable wealth through fundamentally sound economic activity.

Add it to your list!

-bjmq

April 23, 2014 | Permalink | Comments (0) | TrackBack (0)

Tuesday, April 22, 2014

Globalized deals, globalized lawyers

If it wasn't already obvious to you we live in a global economy in which almost all deals of any significant size will have global regulatory implications.  Take for example, Microsoft's pending acquisition of the Nokia handset business announced last fall.  It's expected to close this week after facing significant and real opposition from both the Korea Fair Trade Commission and China's MOFCOM:

Aware of a possible backlash from local companies, the Chinese Ministry of Commerce approved Microsoft’s purchase of Nokia on April 8, with certain conditions, saying, “Microsoft and Nokia’s patents could limit competition in the local smartphone market.” In light of the Chinese government’s decision, the Korean regulatory body is more likely to follow suit. In fact, the body is said to be considering granting conditional approval to the business consolidation, and finalizing its standards for approval.   

Think about that - an American company buys a division of a Finnish company and the Korean as well as Chinese regulators (among many others) weigh in.  Again, for those who are paying attention - sure that's the world we live in.  But, it's another reminder about how any real M&A lawyer has to be about much more than just the document.  You have to be aware of how the deal will play out at 35,000 feet, not just in the home market but in other markets as well.  

-bjmq

April 22, 2014 in Antitrust, Asia | Permalink | Comments (0) | TrackBack (0)

Friday, April 18, 2014

Bust-up candidates not just an 80s thing

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. 

-bjmq

April 18, 2014 in Hostiles | Permalink | Comments (0) | TrackBack (0)

Thursday, April 17, 2014

China's odd approach to merger regulation

You may have already seen this story involving the Glencore/Xstrata merger

The merger of Glencore and Xstrata created the world’s fourth-largest mining company and largest commodities trader when it was finalized last year. But as a condition of the deal, the firms had to secure the blessing of regulators in the major markets in which they operate, including China.

So far, so good.  A large merger like this is likely to have antitrust implications in China, so no surprise that the 20-odd people in MOFCOM assigned to pre-merger review and approval would give this transaction a look before it closes.  The odd part?  What happened next.  According to multiple sources, the transaction was approved conditioned on the divesture of the Las Bambas copper mine in Peru.  The purchaser was China Minmetals:

Sunday's acquisition is the largest Chinese purchase of an overseas mining asset since state-owned Aluminum Corp. of China, or Chinalco, took a 12% stake in Anglo-Australian mining company Rio Tinto PLC for $14 billion in 2008, according to Dealogic.

Like that purchase, this latest deal gives China greater control of the raw materials its industries crave. The country Like that purchase, this latest deal gives greater control of the raw materials its industries crave. The country accounts for roughly 40% of global copper demand. Las Bambas is expected to produce 460,000 metric tons of copper concentrate annually over the next 10 years, according to projections by Glencore.

Sure, the price for the asset was high. So, shareholders of Glencore/Xstrata don't really have much to complain about, but what is disconcerting is that China's pre-merger approval process would be used not just to address antitrust problems brought on by the deal, but to also advance other national priorities - like securing access to raw materials.  To the extent China finds antitrust review to be a convenient tool for this kind of thing, it reduces confidence in the regulatory process -- hey, stop laughing in the back row, I'm trying to make a point -- and without that confidence, it's hard to imagine developing a robust regulatory structure when it is serving multiple masters.

-bjmq

April 17, 2014 in Antitrust | Permalink | Comments (0) | TrackBack (0)

Thursday, April 10, 2014

Bouchard confirmed

Yesterday, the Delaware Senate confirmed Andre Bouchard as the next Chancellor to replace Leo Strine who is now Chief Justice of the Delaware Supreme Court.  Next up on the Delaware judicial merry go round, nominating a replacement for Justice Jacobs who will retire in July.

-bjmq

April 10, 2014 in Delaware | Permalink | Comments (0) | TrackBack (0)

Wednesday, April 9, 2014

"Everything is awesome!"

Comcast-TWC filed their application and public interest statement for review by the FCC yesterday.    Let me summarize for you - "Everything is awesome!"

Comcast assures us that competition has increased in recent years. That's funny, because I am pretty sure that in recent years my cable bill hasn't ever decreased!  Oh well. Color me skeptical that this is really good for consumers.  

-bjmq

 

 

April 9, 2014 | Permalink | Comments (0) | TrackBack (0)