M & A Law Prof Blog

Editor: Brian JM Quinn
Boston College Law School

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Friday, January 24, 2014

Dwindling Revlon

Lyman Johnson and his co-authors have a paper, The Dwindling of Revlon, appear in the W&L Law Review.  Here's the abstract:

This article traces the dramatic dwindling of the iconic Revlon doctrine. Over the past several years, we observe a paradox in M&A litigation. The number of challenges to “done deal” transactions has skyrocketed, but the number of successful Revlon claims - those procuring a remedy - has plummeted. Having set out to suggest, as a theory and policy matter, that Revlon might be extended into the attempted but failed “no deal” context, we conclude, ironically, that today there is little remedial clout to the Revlon doctrine in any setting.

The overly exalted place of Revlon in the law thought to govern M&A deals endures because it is regarded in narrow, silo-like doctrinal isolation even though it can only be understood as one part of a legal landscape that has dramatically changed since 1986. Revlon, for example, no longer sets the standard in damages cases. Thus, oft-cited statements from the QVC case regarding enhanced substantive scrutiny by courts, and the planning of an initial burden of proof on directors, are outmoded doctrinal vestiges in the personal liability context. As to injunctive relief, only one injunction - out of numerous claims - was granted on a Revlon theory in the six year period from 2008-2013.

By adopting a remedies perspective on Revlon, we thus see that the ongoing debate over what “triggers” Revlon in mixed consideration deals is a debate with small stakes: only pre-closing relief is up for grabs anyway, and that is rarely granted. We should stop regarding Revlon as a robust standalone doctrine. Delaware courts should go further, however. They should renounce Revlon’s faulty focus on short-term value maximization. Then, the corporate objective in the sale setting - of whatever kind - would be the same as it is (and should be) outside the sale setting: to pursue the best option for achieving long-term value.

-bjmq

January 24, 2014 | Permalink | Comments (0) | TrackBack (0)

Thursday, January 23, 2014

Counting noses on SCOTUS

OK, so I don't think the odds of SCOTUS taking the Delaware arbitration appeal are high -- there isn't an obvious circuit split of the type that generally attracts the court's attention.  That said, it's possible that the court might take the case because they want to make more statements about the value of arbitration.  

With that in mind, this little colloquy from EBIA v Arkison which was before the court earlier this month is interesting - if for no other reason that it allows us to do the most ridiculously vain thing ever: count potential votes on the court.  

The issue for the court in EBIA was whether - with the consent of the parties - a Federal bankruptcy judge could enter a final judgment on a fraudulent conveyance claim rather than hear the claim and then make a recommendation for review by a Federal district court.

So, not directly on point, but close enough for this to play out (via Oyez):

Justice Elena Kagan: --Mr. Gannon, could you say a word about the relevance of arbitration here?

Because I've been trying to figure out, if there's an Article 3 problem irrespective of consent when Congress adopts some kind of scheme for alternative adjudication, why schemes of mediation and arbitration wouldn't similarly be constitutionally problematic.

Curtis E Gannon: I -- obviously, we don't think that -- that these schemes here in the bankruptcy judge context and the magistrate judge context, which are -- which are hedged around with lots of procedural protections and statutory protections, rise to that level.

But I do think that a principal difference, if the Court were looking to distinguish arbitration from these types of concerns, is that the arbitration is more purely private.

Although there's statutory authorization, the arbitrators are generally not Federal employees.

Bankruptcy judges, by contrast, are actually units of the district courts.

They are within Article 3.

They are--

Justice Elena Kagan: Yes, but that would suggest that arbitration is more constitutionally problematic because it -- it extends -- you know, it goes -- it's further away from the supervisory authority of the district court.

Curtis E Gannon: --I'm -- I'm loathe to say that it's further away because I think that there may be a separation of powers distinction between--

Chief Justice John G. Roberts: Arbitration is a matter of contract between two parties.

Nothing happens in an arbitration until you get a district court to enter a judgment enforcing the contract.

It seems to me totally different from the situation we're talking about here.

Curtis E Gannon: --Well, I do--

Justice Elena Kagan: A matter of contract versus a matter of consent?

Like I said, you understand the difference.

Chief Justice John G. Roberts: But you -- I'm posing a question to you, I guess.

[Laughter]

Courts enforce contracts all the time.

They don't enter judgments beyond their Article 3 authority simply because the two parties before them agree that they should.

Curtis E Gannon: --That's true, Mr. Chief Justice.

OK, so one for.  And maybe one against?

-bjmq

January 23, 2014 in Delaware | Permalink | Comments (0) | TrackBack (0)

CFIUS and China

An announcement today that Lenovo has agreed to acquire the low-power server business of IBM reminds me that CFIUS just relased its Annual Report for 2012.  OK, it's 2014!  But remember, CFIUS is an ad-hoc committee without even a building in DC.  We can give them a break for being a little slow on the reporting side.

The big news from this most recent report is that China is moving on up to the big time.  Previously, the countries with the largest number of CFIUS filings were France and the UK.  Now, they have been replaced by Chinese filings.  Of course, the total number of transactions covered under the CFIUS regime remains small, but as the Lenovo/IBM deal suggests, these deals are in potentially critical technology areas.

CFISU-Country

-bjmq

January 23, 2014 in Asia, Cross-Border, Miscellaneous Regulatory Clearances | Permalink | Comments (0) | TrackBack (0)

Wednesday, January 22, 2014

DE arbitration seeks SCOTUS review

So, last night Delaware filed a cert petition with the US Supreme Court asking the court to overturn the Third Circuit's ruling with respect to Delaware Chancery arbitration program.  I've written about this before (here and even a law review article here).  In any event, I'm on record that I believe Chancery arbitration is a bad idea that over the long-term will undermine Delaware's corporate law franchise. In any event, when challenged at the District Court, that court found that confidential Chancery arbitration violated the First Amendment's qualified right of access (District Court Opinion).  In a 2-1 opinion on appeal, a panel of the Third Circuit agreed with the District Court (Third Circuit Opinion).  In that opinion, the majority appears to have read my law review piece - no need to cite me, I'm not proud.  In any event, the majority mimics many of the same arguments that I previously argued about the relative merits of the Chancery arbitration program.  

Now, Delaware would like the Supreme Court to weigh in. Here's the petition for certiorari (h/t KWC and The Chancery Daily).

Petitioners make a couple of policy arguments for why it's important why the Chancery arbitration procedure must survive.  It's a matter of national competitiveness, otherwise parties will incorporate overseas and take their disputes overseas, too.  That's a pretty dubious argument.  There is no evidence that any Delaware firm.  I looked at a pile of merger agreements to check to see if there was anything to this argument.  Prior to adoption of the Chancery arbitration procedure, only a handful of mergers relied on anything other than the public courts to resolve disputes between the parties.  There is no evidence that anyone contracted to resolve merger related disputes through international arbitration.  It's just not an issue.  There is no real competitive challenge to the position of the courts with respect to merger litigation at this point.  In rushing to adopt the Chancery arbitration procedure, Delaware is fighting with ghosts.

The second argument for why preservation of the Chancery arbitration procedure is so important is a familiar argument about how the US courts are so inefficient that delayed justice will push parties to seek international arbitration rather than dispute resolution in the US.  Gee, I guess, maybe, but are the Delaware courts arguing that the Delaware courts are so inefficient that the inefficiency of the Delaware courts is pushing Delaware corporations overseas?  Really. Please.  No.  

A third argument -- and this one is tied to the question of confidentiality of arbitration procedure - is that if the court were to uphold the qualified First Amendment right of access the procedure would fall into disuse and that confidentiality is central to the success of the procedure.  Confidentiality is the only real benefit to arbitration?  

Well, honestly, I don't understand how that ties into the argument that the reason why parties are supposedly leaving Delaware is because of the inefficiency of the public courts.  Frankly, it doesn't.  It shifts the goal posts and makes confidentiality the central contribution of the arbitration procedure.  To that I say hogwash. 

OK, if the public courts had proven themselves incapable of protecting trade secrets and other commercially sensitive information, I might listen.  But, under the Chancery Court' s rule 5.1, parties can seek confidential treatment for sensitive materials.   Does Delaware think that its own rules for confidential treatment are inadequate?  I don't think so.   Anyway, to the extent arbitral confidentiality extend beyond areas that 5.1 typically will protect, then why does anyone in a policy position believe that keeping those kinds of facts (possibly management breeches of fiduciary duties or other bad acts by managers) from the public?  I strain to see a policy rationale.

In any event, Delaware might get a day in court on this.  I'd be surprised if they do - though as someone recently reminded me if the court wants to make a statement about arbitration (again), this might be a case they will take.

I'll rehash the actual legal arguments in another post later if the case gets picked  up.

-bjmq

January 22, 2014 in Delaware | Permalink | Comments (0) | TrackBack (0)

Friday, January 17, 2014

Bankers' hours

Emma Jacobs at FT has a take on why the recent fashion of limiting junior bankers hours is doomed to fail.  In short it boils down to things:  the nature of the clients and the nature of the people who work for banks.  [By the way, everything I am about to write is equally true for lawyers.]  

First, clients pay big money.  They want service.  And that typically means they will dump an assignment on you in the afternoon/evening and expect to hear from you the next day.  That means you work all night.  Or, they hand it to you on Friday and expect to see it on Monday.  There goes your weekend.  You don't want to do that?  Fine, they'll find someone else.  

That brings me to Jacobs' second point, the people in these kinds of banker and lawyer jobs are all alpha types.  If you tell them not to work too hard, they will work hard just to show you they can.  In these places there is a culture of hard work.  If you take time off, you're a slacker and not up to par.  For example, this is probably true in many, many places.  You greet a co-worker in the morning and you say,"Hey Jim, how are you?"  What does Jim respond? "Fine"? More likely, he says,"Busy!"  Being busy is a sign of value and worth.  You may feel terrible because you have worked two all nighters in the past week, but you are valuable because you are busy.

Anyway, limits on bankers' [lawyers'] hours are doomed to fail.  They all have smartphones and laptops anyway.  They may not be in the office, but they will be busy!

-bjmq

January 17, 2014 in Friday Culture | Permalink | Comments (0) | TrackBack (0)

Wednesday, January 15, 2014

Next up ... filling the Chancery vacancy

The Delaware Law Weekly has surveyed the field of potential replacements for Chancellor Strine once he moves up to the Supreme Court and comes up with four names:

Andre G. Bouchard, a partner with Bouchard Margules & Friedlander and current chairman of the Judicial Nominating Commission, is viewed as a front-runner to replace Strine. Others who have been mentioned as possible candidates include Superior Court Judge Jan R. Jurden, Chancery Court Vice Chancellor J. Travis Laster and Joseph R. Slights III, a former Superior Court judge and current Morris James partner.

Two things worth noting: First, Andre Bouchard is an Eagle (BC, '83) - so, that's good.  Second, if Vice Chancellor Laster were to slide over to the Chancellor's seat, his position of Vice Chancellor would also have to be filled by someone so the nomination merry-go-round would continue for a few more months.  The same rules with respect to non-partisan appointment of judges applies to the Chancery Court as applies to the Supreme Court.

-bjmq

 

January 15, 2014 in Delaware | Permalink | Comments (0) | TrackBack (0)

Monday, January 13, 2014

Delaware columnist weighs in on Strine

A columnist at the News Journal/DelawareOnline weighs in on the Strine nomination:

Gov. Markell has certainly chosen someone whose national reputation gives new cachet to the court. Leo Strine, at age 49, should be able to tackle any challenge his Supreme Court is bound to face.

-bjmq

January 13, 2014 in Delaware | Permalink | Comments (0) | TrackBack (0)

Courts finds BazaarVoice violated Clayton Act

See update below.

Following BazaarVoice's acquisition of PowerReview in June 2012, the DOJ started an antitrust investigation.  The BazaarVoice's acquisiton fell below the HSR size of person/size of transaction test so it wasn't subject to HSR premerger filing requirements.  

Not being required to make HSR filings, of course, is not the same as being exempt from the antitrust laws. Turns out, no one (other than perhaps Major League Baseball) is exempt from the antitrust laws. The BazaarVoice litigation that was decided by a district court judge in San Francisco last week is another example of the Feds looking back at completed transactions for the anticompetitive effects.  Last week in BazaarVoice, the DOJ  was able to secure an order from the court to undo the transaction (BazaarVoice Opinion).  

Though the remedy is extreme, it shouldn't really be a surprise.  Why?  Here's how the folks at BazaarVoice internally described the benefits of the acquisition of PowerReview:

"Eliminate [Bazaarvoice's] primary competitor and provide relief from ... price erosion."

Hmm. Eliminating your primary competitor and stopping price erosion.  Sounds good to the business types, but to deal lawyers that should sound like fingernails on a chalkboard.    But it gets worse...

Collins, then BazaarVoice's CFO suggested that ... BazaarVoice could either compete against PowerReviews and "crush" them, or dammit lets just buy them now"

Buying your primary competior to eliminate competition?  Bad. Turns out when you buy your primary competitor, reduce competition and generate larger margins for yourself as a result, the DOJ takes notice, even if you weren't required to make an HSR filing.  

Following the transaction, the anticompetitive effects of the deal were obvious to the court, and the DOJ got its order to unscramble the eggs.  You can download the District Court's BazaarVoice Opinion here.

-bjmq

 

Update:  OK, so apologies to those involved, the Court has not yet ordered the taking apart of the deal. What it has done is found that BazaarVoice violated Section 7 of the Clayton Act and has ordered the parties back on January 22, 2014 to discuss what remedy is appropriate.  Clearly, unscrambling the eggs is one possible remedy, but there may be others acceptable to the government and BazaarVoice.  Here's BazaarVoice's Press Release related to the court's decision.

 

 

 

January 13, 2014 in Antitrust | Permalink | Comments (0) | TrackBack (0)

Friday, January 10, 2014

More reactions to Strine nomination

The Delaware Grapevine pumps the brakes a bit:

As conventional a choice as Strine seems, his elevation would still be something of an act of faith, because he does not come with the standard judicious temperament. Instead, he is a grandiose and contradictory figure, as brilliant and comic as he can be defensive and browbeating.

When Strine went on the bench as a vice chancellor in 1998, he described himself as a "mad wizard," and it is never certain which Strine will show up, either the judicial wizard or the madman.

-bjmq

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

Wednesday, January 8, 2014

Strine "interview" with Reuters

Chancellor Strine gave an "interview" (sort of) to Reuters after the announcement of his nomination to the Delaware Supreme Court.  It's full of true Strine classics, some of the highlights:

Reuters: Do you think that once you join the Supreme Court you’ll change the views you held on the Court of Chancery?

Strine: An absurd scenario, at best fit for a discussion by a Red Bull-fueled group of nerdy second-year law school corporate law junkies, who find themselves dateless (big surprise) on yet another Saturday night.

My guess is that we will have less of this on the Supreme Court than we had at the Chancery Court - the opportunities for judges to riff from the bench are more limited -  so enjoy it while you can.

-bjmq

January 8, 2014 in Delaware | Permalink | Comments (0) | TrackBack (0)

WSJ says it's Strine

WSJ is reporting right now that Strine will get the nod to replace Steele as Delaware's next Chief Justice.  The report is here.

-bjmq

Update:  And here is the official announcement from the Governor's Office.

January 8, 2014 in Delaware | Permalink | Comments (0) | TrackBack (0)

Tuesday, January 7, 2014

World Turned Upside Down

OK, all sorts of weird stiff going on.  The Polar Vortex (didn't I see that in a movie about the end of the world?), Commutapocalypse (apparently the T in Boston doesn't work when it's cold), and then this:

"I am sure that I along with other shareholders in Sirius XM will be interested in a legal challenge to John Malone's company for lowballing Sirius XM's shareholder value," Nader said in a statement.

"Carl Icahn - take notice and interest."

Who said that? Ralph Nader.  WTF?!  This guy?? The guy who once said,"The liberal intelligentsia has allowed its party to become a captive of corporate interests."  I don't know.  Maybe he realized that he doesn't have a pension and that his retirement is funded from a 401(k) and he put it all into Sirius stock?  I don't know.  But, to see Ralph Nader using the language of shareholder value and calling upon Carl Icahn to save him is ... well ... it's ... I don't know what to say. Speechless.

-bjmq

January 7, 2014 | Permalink | Comments (0) | TrackBack (0)

Tipping Cows

OK, so I have emerged from my grading cave.  I recently finished reading A Giant Cow-Tipping by Savages, a book by John Weir Close (founder of the M&A Journal).  Now, it's a book with some faults.  Most of all it could have used a strong hand as editor (plenty of typos and things that a good editor would otherwise catch), but that said, it's the kind of book that anyone who teachese corporate law or mergers should read.  Why? Does it add much to my understanding of the doctrine?  Not really, it's not a law book. But what it does do is point out all the personalities and characters since the 1980's who are the people behind the development of the law of mergers.  And that's valuable.  Why?  Well, because the poison pill didn't just appear out of a word processor fully formed!  No, it was the result of people/lawyers trying to figure out how to solve a client's problem.  Close provides an account of Marty Lipton and how he came up with the first pill.  The book is full of these kinds of stories.  The title itself - A Giant Cow Tipping by Savages - is often ascribed to Ted Turner to describe the disastrous AOL/Time Warner deal.   Close also introduces the reader to a host of real M&A characters and runs through the - mostly nonlegal - stories of the biggest deals: Unocal, Revlon (Perelman putting his cigar out on Bergerac's zebra skin rug), QVC, MacMillan, and a pile of others.  This is a fun read for law teachers and probably for young associates who might find it useful to know who all the clients are!

-bjmq

January 7, 2014 in Books | Permalink | Comments (0) | TrackBack (0)

Tuesday, December 31, 2013

Happy New Year, and a question!

What better way to ring out the old year than with some M&A news... According to Reuters

An eccentric Chinese recycling magnate said on Tuesday he was preparing to open negotiations to buy the New York Times Co..

Chen Guangbiao, a well-known philanthropist, is something of a celebrity in China. During a particularly murky bout of pollution in January, the ebullient and tireless self-promoter handed out free cans of "fresh air".

But Chen says he is perfectly serious in his bid to buy the Times, which he said he had been contemplating for more than two years. He said he expected to discuss the matter on January 5, when he is due to meet a "leading shareholder" in New York.

"There's nothing that can't be bought for the right price," Chen told Reuters.

That's true.  Everything has its price, I suppose.  But, for all my recent M&A students who are still recovering from their exam - believe me, I'm still recovering from grading it - does the Times have to sell itself?  It's not a trick question.

Happy New Year!

-bjmq

December 31, 2013 | Permalink | Comments (0) | TrackBack (0)

Friday, December 20, 2013

Staggered Boards and Firm Value, Revisited

In Staggered Boards and Firm Value, Revisited, Cremers et al consider the effect of staggered boards 0n firm value.  The question of the staggered board has been central to many recent debates about the proper role of shareholders in corporate governance and takeovers.  The conventional academic wisdom has been that staggered boards lower firm value because the increase the likelihood of entrenchment of directors.  Now, Cremers and his co-authors are mixing it up a bit.  They look at the data and reach a different conclusion -- staggered boards are associated with an increase in firm value.  Here's the abstract:

This paper revisits the association between firm value (as proxied by Tobin’s Q) and whether the firm has a staggered board. As is well known, in the cross-section firms with a staggered board tend to have a lower value. Using a comprehensive sample for 1978-2011, we show an opposite result in the time series: firms that adopt a staggered board increase in firm value, while de-staggering is associated with a decrease in firm value. We further show that the decision to adopt a staggered board seems endogenous, and related to an ex ante lower firm value, which helps reconciling the existing cross-sectional results to our novel time series results. To explain our new results, we explore potential incentive problems in the shareholder-manager relationship. Short-term oriented shareholders may generate myopic incentives for the firm to underinvest in risky long-term projects. In this case, a staggered board may helpfully insulate the board from opportunistic shareholder pressure. Consistent with this, we find that the adoption of a staggered board has a stronger positive association with firm value for firms where such incentive problems are likely more severe: firms with more R&D, more intangible assets, more innovative and larger and thus likely more complex firms.

-bjmq

December 20, 2013 in Takeover Defenses | Permalink | Comments (0) | TrackBack (0)

Thursday, December 19, 2013

MFW Appeal Heard in Delaware

I took advantage of the brief time between exams and the holidays to hop down to Delaware to sit in on the appellate arguments in MFW Shareholder Litigation.  You'll remember that in MFW Chancellor Strine was presented with a question - in a controlling shareholder transaction which is conditioned on both negotiation and approval by an independent, special committee and a fully-informed, uncoerced vote of the majority of the minority what is the proper standard of review.  Chancellor Strine held that the proper strandard of review for a transaction in which the controller essentially disables itself is business judgment.  

[If you don't need any of this background and just want a quick summary of the argument, feel free to skip down.]

Since Weinberger, entire fairness has been the standard for transactions involving controlling shareholders.  In Kahn v Lynch, the Supreme Court provided a gloss on Weinberger's entire fairness standard for controlling shareholder transaction.  Where the controller does the transaction in reliance  on either a special committee or a vote of the majority of the minority, the burden shifts from the controller to plaintiff to prove that the transaction was not entirely fair.   But, as Chancellor Strine noted in Cox Communications, the decision by the Supreme Court to keep the entire fairness standard in play made it impossible to get even weak complaints dismissed at an early stage.   In no small part, Kahn v Lynch was a contributor to the 'litigation industrial complex' - generating almost guaranteed valuable settlement opportunities at the mere announcement of a controlling shareholder transaction no matter how valuable the underlying transaction for minority shareholders.

In MFW, Chancellor Strine had an opportunity to directly address the question of the proper standard of review in a controlling shareholder transaction where the controller conditioned the deal on robust procedural protections that essentially disabled the controller.  The question for the corut was whether additional protections should give the board any credit - perhaps even sufficient credit to get weak claims dismissed early.  Chancellor Strine put the 'credit' problem this way: 

Uncertainty about the answer to a question that had not been put to our Supreme Court thus left controllers with an incentive system all of us who were adolescents (or are now parents or grandparents of adolescents) can understand. Assume you have a teenager with math and English assignments due Monday morning. If you tell the teenager that she can go to the movies Saturday night if she completes her math or English homework Saturday morning, she is unlikely to do both assignments Saturday morning. She is likely to do only that which is necessary to get to go to the movies—i.e., complete one of the assignments—leaving her parents and siblings to endure her stressful last-minute scramble to finish the other Sunday night.

Plaintiffs in MFW improvidently decided not to settle, rather seeking the option of going for post-closing damages.  Their mistake.  That gave Chancellor Strine the opportunity to address the question that eluded him in Cox.  In MFW, Chancellor Strine announced that where a transaction with a controller is conditioned on both negotiation and approval by an independent, special committee and a fully-informed, uncoerced vote of the majority of the minority that business judgment is the proper standard of review.  

[Appeal before Delaware Supreme Court]

OK.  So that brings us to today in Dover where the Supreme Court met en banc to hear the plaintiff's appeal.   I went down to watch the arguments and seem the wheels of corporate justice turn.  Justice Holland sat as acting chief.  Judge Jan Jurden sat by designation (Someone trying her out? Just sayin'...).

Justice Holland noted for the plaintiffs benefit that the court decided to hear the case en banc because, well, maybe the court wanted to write a new rule... Was that big enough of a hint that the court is looking to make some new law here?  Justice Jacobs made the issue more explicit for the plaintiffs - forget about the particular facts of this case, what is the policy reason why the Supreme Court should accept or reject the Chancellor's reasoning.

Unfortunately, the plaintiffs weren't really up to the task of articulating a good reason why the procedural protections in MFW aren't robust enough to generate the business judgment presumption for a special committee.  Plaintiffs asserted that special committees are structurally biased in favor of controllers in almost all circumstances.  OK, so I am generally pretty cynical, but I still believe in the court's presumptions.  Near as I can tell, special committees still get the presumption of independence until plaintiffs present facts that they aren't. Plaintiffs, it seemed, wanted the court to toss the presumption of independence of special committees altoghether in controlling shareholder transactions.  Why? Not sure exactly why.   But, if you are proposing to the court that directors shouldn't have the presumption of independence, then one really should have a strong articulated reason why.  In any event, it didn't seem like the court was entertaining that notion.  

Rather, the court quickly turned to the power of the fully-informed, uncoerced vote of a majority of the minority.  Why isn't that powerful enough - together with the special committee - to get the business judgment presumption Justice Jacobs wondered?  Well, well, because arbs! Oh, wait.  Aren't arbs stockholders?  Yes, but they just want to make money.  So, shareholder votes shouldn't get credit?   Again...the plaintiffs failed to clearly articulate a policy reason why a fully-informed, uncoerced vote of the majority of the minority isn't going to work.     In general the plaintiffs struggled to provide the court with any reasons to overturn Chancellor Strine's reasoning.

When counsel for the special committee got their chance, they did a much better job of articulating reasons to uphold Chancellor Strine ruling.  Justice Berger asked whether with the procedural safeguards the result  of the special committee/majority of minority process was equivalent to an arm's length deal?  No, was the response, but for the purposes of judicial review the precedural protections that disable the controller put the special committee in the same place as an independent board that would otherwise get the protection of business judgment.  There was some push-back from Justice Berger on that point - particularly that even though the controller disabled itself, it's the controller who is the impetus for the transaction, not the special committee.  

If the plaintiffs manage to get the Supreme Court to overturn the Chancery Court's opinion in MFW Justice Berger's point will likely be the reason.  While, the special committee and the unaffiliated shareholders can still say no, it's the controller (and only the controller) who always gets the ball rolling.  Because only the controller is permitted to 'set the scene' for the sale, the special committee process and the following shareholder votes are irretrievably infected by a structural bias that requires entire fairness to be the standard rather than business judgment.  There, I made the plaintiff's argument for them.

As in previous cases, I won't hazard a guess on the actual outcome of this argument.  However, I will note the old saying that 'you can't win an appeal at oral argument, but you can lose one.' 

-bjmq

 

December 19, 2013 in Delaware, Going-Privates | Permalink | Comments (0) | TrackBack (0)

Friday, December 13, 2013

Director Gender and M&A

This is interesting.  This paper by Levi, et al, Director Gender and Mergers and Acquisitions is now appearing in the Journal of Corporate Finance:

Does director gender influence CEO empire building? Does it affect the bid premium paid for target firms? Less overconfident female directors [are] less [likely to] overestimate merger gains. As a result, firms with female directors are less likely to make acquisitions and if they do, pay lower bid premia. Using acquisition bids by S&P 1500 companies during 1997-2009 we find that each additional female director is associated with 7.6 percent fewer bids, and each additional female director on a bidder board reduces the bid premium paid by 15.4 percent. Our findings support the notion that female directors help create shareholder value through their influence on acquisition decisions. We also discuss other possible interpretations of our findings.

-bjmq

December 13, 2013 | Permalink | Comments (0) | TrackBack (0)

Cheap Trick sent back to Illinois

Following along the same theme as yesterday - multi-forum litigation, we have a ruling from Chancellor Strine in the Cheap Trick litigation.  

In short, Chancellor Strine dismissed the case without prejudice in favor of the parties resolving their issues in front of a Federal judge in Illinois.   This litigation is really a pretty garden variety issue at heart -- board members of a corporation with a voting rule that requires unanimous consent of all the members of the board fight with each other about the removal of one member of the board.  Deadlocked, they turn to the courts to help them resolve their mess.  Or, in other words, "What do mean I'm not in the band anymore?"

From the Delawareonline piece:

In August 2013, band members Richard Nielsen, Thomas Peterson and Robin Zander sued drummer Brad Carlson in Delaware Chancery Court seeking to remove him as a member of the group’s board of directors, claiming he left the band in 2010 by no longer performing with them on tour.

A month earlier Carlson had sued Nielsen, Peterson and Zander in U.S. District Court in Illinois over his removal...

In a bench ruling, Strine dismissed the Delaware action in favor of the earlier filed Illinois action.  

Strine said Illinois, where the band formed in the 1970s and where two members still live, was a logical jurisdiction for resolving "garden-variety" questions of contract interpretation, including whether Carlson is still a member of the band.

So, while Delaware may have an institutional interest to keep as much corporate litigation at home as possible, this interest does not prevent Delaware courts from letting go of high-profile litigation when it was clearly filed earlier in another jurisdiction and it doesn't implicate novel issues of Delaware law.

-bjmq

December 13, 2013 in Delaware | Permalink | Comments (0) | TrackBack (0)

Thursday, December 12, 2013

Chiappinelli on Delaware's Success

I have just about fallen down the rabbit hole that is the end of the law school semester and will soon be up to my ears in law school exams.   But, before I disappear, here's a new paper from Eric Chiappinelli, The Underappreciated Importance of Personal Jurisdiction in Delaware's Success:

The judges of the Delaware Court of Chancery are aggressively trying to stop stockholder/plaintiffs from filing corporate law cases outside of Delaware. Delaware believes that its position as the center of corporate litigation is in danger because cases are no longer filed exclusively there. If litigation continues to flow away from Delaware, it would jeopardize Delaware’s prominence in corporate law and the large revenues Delaware receives from out of state businesses that are incorporated there. 

I argue that scholars and the Delaware judges underappreciate the vital importance of personal jurisdiction over corporate directors in Delaware’s quest to become and remain the center of corporate litigation. I show that Delaware’s dominance in litigation in large part stemmed from, and is now dependent upon, its unique system of personal jurisdiction. 

None of Delaware’s attempts to stop cases from flowing out of Delaware will be enduringly successful without addressing the weaknesses in its current personal jurisdiction statute. I argue that Delaware should adopt a new statute that both will remedy the current flaws and will be effective in encouraging stockholder/plaintiffs to litigate in Delaware.

This is a new look on what is a now growing field of research - how to think about multi-jurisdictional litigation.

-bjmq

December 12, 2013 in Delaware | Permalink | Comments (1) | TrackBack (0)

Wednesday, December 4, 2013

Steele steps down quietly

You probably missed the quiet retirement dinner for the Chief Justice at the Wilmington Club last week.  Earlier this week, Delaware's Judicial Nominating Committee passed on all four names (Berger, Jurden, Strine, and Vaughn) to the governor for his consideration.  For now, Justice Holland is the senior justice on the court and the rest of us await Governor Markell's decision.    The Delaware Grapevine has all the inside info here.

-bjmq

December 4, 2013 in Delaware | Permalink | Comments (0) | TrackBack (0)