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.
Thursday, April 24, 2014
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”
Wednesday, April 23, 2014
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!
Tuesday, April 22, 2014
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.
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.
Thursday, April 17, 2014
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.
Thursday, April 10, 2014
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.
Wednesday, April 9, 2014
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.
You've heard of the acqui-hire -- the acquisition where the real goal is not to buy the company or its products but to get access to its real value, its people. But, but...what if your company gets acqui-hired and everyone gets a job, except you?
That's the secret shame of the unaquired:
"Google was interested in buying my 5 person company for our team. They hired everyone but me." ...
Amy was heartbroken. Since joining the company, she had been paid a salary of $60,000, half what her male colleagues made. Under the terms of Google's offer, Amy's start-up received enough money to pay back its original investors, plus about $10,000 in cash for each employee. Amy's CEO was hired as a mid-level manager, and her engineering colleagues were given offers from Google that came with $250,000 salaries and significant signing bonuses. She was left jobless, with only $10,000 and a bunch of worthless stock.
Tuesday, April 1, 2014
Delaware Justice Jack Jacobs has today announced his retirement effective July. There are two obvious potential candidates, James Vaughn and Jan Jurden. Both had applied to replace Chief Justice Steele. The Judicial Nominating Committee sent their names along with Chief Justice Strine's name to the governor, who ultimately selected Strine. Jurden, however, has come under some scrutiny in the past few days for her sentencing of an heir to the duPont family fortune. It's the kind of thing that, while not disabling, will require a lot of explaining. If you're explaining, you're losing. My uninformed guess is that she gets passed over for now.
Monday, March 24, 2014
Today we will get a decision on Delaware's petition to the US Supreme Court that the court hear an appeal in the Delaware Chancery arbitration case. For those of you looking for a quick 'get up to speed' on what's going on, there's a nice interview with Brian Farkas in the NY Commercial Litigator Insider (reg. req'd, but it's worth it).
Thursday, March 20, 2014
Governor Markel has nominated Andre Bouchard (a Boston College alum, '83) to be the next Chancellor the Delaware Chancery Court. According the governor's statement:
In nearly 30 years practicing law in Delaware, Andy Bouchard has demonstrated a remarkable ability to dissect complex legal issues and vigorously represent his clients. He is well recognized for his professionalism and ability to think quickly on his feet in the courtroom,” said Markell. “His experience establishing and growing his own small business as founder of his law firm, as well as his long career before the Court of Chancery, will give him a special appreciation for the work of the court and the many and varied litigants who would appear before him in his new role.”
WDDE has all the details here.
Wednesday, March 19, 2014
So, if you find yourself standing in the middle of Grand Central Station eating Post-It notes in order to destroy evidence, I have a life tip for you. Something has gone terribly wrong and you should reconsider what you're doing.
That bit of million dollar advice alas comes a little too late for three characters involved in the latest insider trading shenanigans to be uncovered by the SEC. As alleged by the SEC:
The SEC alleges that Vladimir Eydelman and Steven Metro were linked through a mutual friend who acted as a middleman in the illegal trading scheme. Metro, who works at Simpson Thacher & Bartlett in New York, obtained material nonpublic information about corporate clients involved in pending deals by accessing confidential documents in the law firm’s computer system. Metro typically tipped the middleman during in-person meetings at a New York City coffee shop, and the middleman later met Eydelman, who was his stockbroker, near the clock and information booth in Grand Central Terminal. The middleman tipped Eydelman, who was a registered representative at Oppenheimer and is now at Morgan Stanley, by showing him a post-it note or napkin with the relevant ticker symbol. After the middleman chewed up and sometimes even ate the note or napkin, Eydelman went on to use the illicit tip to illegally trade on his own behalf as well as for family members, the middleman, and other customers. The middleman allocated a portion of his profits for eventual payment back to Metro in exchange for the inside information. Metro also personally traded in advance of at least two deals.
Tuesday, March 18, 2014
On Friday last week, the Delaware Supreme Court handed down an opinion affirming the Chancery Court's opinion in MFW. In the Chancery opinion, (then) Chancellor Strine was attempting to reconcile the frayed strands of jurisprudence around controlling shareholder transactions and - at the same time - trying to reduce incentives to pursue meritless claims in order to seek a settlement. In Cox Communications, a case where he took teh oopportunity to describe the problem with controlling shareholder cases, Strine described the present incentive structure created by the legal rules in the following manner:
Unlike any other transaction one can imagine — even a Revlon deal — it was impossible after Lynch to structure a merger with a controlling stockholder in a way that permitted the defendants to obtain a dismissal of the case on the pleadings. Imagine, for example, a controlled company on the board of which sat Bill Gates and Warren Buffett. Each owned 5% of the company and had no other business dealings with the controller. The controller announced that it was offering a 25% premium to market to buy the rest of the shares. The controlled company's board meets and appoints Gates and Buffett as a special committee. The board also resolves that it will not agree to a merger unless the special committee recommends it and unless the merger is conditioned on approval by two-thirds of the disinterested stockholders. The special committee hires a top five investment bank and top five law firm and negotiates the price up to a 38% premium. The special committee then votes to approve the deal and the full board accepts their recommendation. The disinterested stockholders vote to approve the deal by a huge margin that satisfies the two-thirds Minority Approval Condition.
After that occurs, a lawsuit is filed alleging that the price paid is unfair. The filing party can satisfy Rule 11 as to that allegation because financial fairness is a debatable issue and the plaintiff has at least a colorable position. The controller and the special committee go to their respective legal advisors and ask them to get this frivolous lawsuit dismissed. What they will be told is this, "We cannot get the case dismissed. We can attempt to show the plaintiffs that we are willing to beat them on this and persuade them to drop it voluntarily because they will, after great expense, lose. But if they want to fight a motion to dismiss, they will win, see Lynch. At the very least, therefore, if the plaintiffs are willing to fight, it would be rational for you to pay an amount to settle the case that reflects not only the actual out-of-pocket costs of defense to get the case to the summary judgment stage, but the (real but harder to quantify) costs of managerial and directorial time in responding to discovery over a past transaction."
Given the inability to settle on the pleadings - no matter how good the process - meant that any merger with a controlling shareholder became an immediate payday for attorneys. Of course, that's frustrating for everyone involved. It's especially frustrating for the judges who have to oversee the settlement processes.
No surprise, then, that when Strine was given an opportunity to address the issue in MFW that he took a swing. Strine held that in a merger with a controlling stockholder conditioned upfront on a promise that no transaction will proceed without (i) special committee approval, and (ii) the affirmative vote of a majority of the minority stockholders that business judgment and not entire fairness will be the standard of review. This structure is important because by empowering the minority, it attempts to replicate as much as possible an arm's length transaction.
On appeal, the Delaware Supremes upheld the Chancery opinion and gave us the following standard for dealing with controlling shareholder transactions (Kahn v. M F Worldwide Corp.):
[I]n controller buyouts, the business judgment standard of review will be applied if and only if: (i) the controller conditions the procession of the transaction on the approval of both a Special Committee and a majority of the minority stockholders; (ii) the Special Committee is independent; (iii) the Special Committee is empowered to freely select its own advisors and to say no definitively; (iv) the Special Committee meets its duty of care in negotiating a fair price; (v) the vote of the minority is informed; and (vi) there is no coercion of the minority.
Ok, so far so good.
But here's a wrinkle...footnote 14. In footnote 14, the Supreme Court notes that MFW could not have decided on the pleadings and would have survived a motion to dismiss even under the new standard. The pleadings, the court noted were sufficient to require discovery on all the new prerequisiting in the application of the standard...
Ultimately we'll see to what degree footnote 14 matters. But, it does seem a little disconcerting that Strine's project to provide a pathway to early dismissal of these kinds of cases might just move the locus of the argument to the functioning of the special committee.
Sure, that's obviously better, but it's not yet clear that MFW and footnote 14 will dramatically reduce incentives to bring these cases. Perhaps we will just be battling the same fight on new ground. Of course, the Chancery Court is likely to want to find ways to rule on the pleadings and my guess is that now that Chief Justice Strine is in a place to influence how the MFW standard is going to roll out that he won't be looking to increase incentives for plaintiffs to bring these cases.
Cornerstone offers up another report on multi-jurisdictional litigation. Okay, so things you probably already know -- 94% of all mergers overs $100 million are accompanied by litigation. On the brighter side, plaintiffs appear not to 'race to the courthouse' with the same degree of speed as in the past. In 2009, the first suit was filed an average 6.5 days after announcement of a transaction. By 2013, the average delay for the first suit increased to 11.7 days from announcement. Read the report here.
Monday, March 17, 2014
Eric Chiappinielli of Texas Tech is sponsoring a day long conference in Dallas on April 25 on the topic of multi-jurisdictional litigation. Kudos to Eric - he has put together a top-notch group for the day: Bernie Black, Randy Baron, Sean Griffith, Minor Myers, Randall Thomas, and Verity Winship as well as Chief Justice Strine and Reuters' Alison Frankel. Here's the conference summary:
M&A litigation is increasingly filed in both the target’s state of incorporation and its headquarters state. It is the most important current development in corporate litigation. The leading plaintiffs’ and defendants’ deal litigators from Delaware and from Texas will discuss every aspect of this issue at our day-long conference. Chief Justice Strine of the Delaware Supreme Court and Justice Brown of the Texas Supreme Court will be panelists.
This looks like an event well-worth attending. Sign up here.
Friday, March 14, 2014
Thursday, March 13, 2014
Lions Gate settled administrative charges brought against it by the SEC in connection with its late run-in with Carl Icahn:
According to the SEC’s order instituting settled administrative proceedings, Lions Gate’s management participated in a set of extraordinary corporate transactions in 2010 that put millions of newly issued company shares in the hands of a management-friendly director. A purpose of the maneuver was to defeat a hostile tender offer by a large shareholder who had been locked in a battle for control of the company for at least a year. However, Lions Gate failed to reveal that the move was part of a defensive strategy to solidify incumbent management’s control, instead stating in SEC filings that the transactions were part of a previously announced plan to reduce debt. In fact, the company had made no such prior announcement. Lions Gate also represented that the transactions were not “prearranged” with the management-friendly director, and failed to disclose the extent to which it planned and enabled the transactions with the expectation that the director would get the shares.
The settlement (available here) is noteworthy because in addition to paying a $7.5 million fine, Lions Gate admitted wrong-doing. The SEC has been under pressure for its practice of settling cases without demanding an admission of wrong-doing - the thought being that if firms were required to admit wrong doing as part of any settlement they would resist settlement opportunities. Well, in this particular case, the SEC was able to secure an admission. I wonder if this will be the new normal.