Thursday, October 3, 2013
Browning Jeffries adds to the discussion on the litigation game and multipforum litigation in his new paper The Plaintiff Lawyer's Transaction Tax.
This article addresses the proliferation of frivolous litigation in the context of public company deals. In 2012 93% of public company mergers and acquisitions valued at over $100 million and 96% of such transactions valued over $500 million incurred litigation. Through these “merger objection suits,” plaintiffs’ attorneys have successfully attached a transaction tax – in the form of attorneys’ fees – as the cost of doing business for public company mergers and acquisitions. Armed with the knowledge that time is of the essence in these transactions, plaintiffs’ attorneys understand the leverage they have to force a quick settlement with a defendant company’s board. Adding to the attorneys’ leverage and the pressure on defendants to settle is the threat of larger-than-normal litigation costs since most large public company deals that attract litigation incur more than one suit, often in several different jurisdictions. When given the choice of either paying plaintiffs’ attorneys’ fees – particularly when the settlement is typically otherwise non-monetary – or jeopardizing a multi-million dollar transaction, boards of defendant companies seem, understandably, eager to choose the former.
This article explores the reasons for the increasing overabundance of merger objection litigation and the solutions that have been proposed or adopted to address it. Previous scholarship in this area has focused on the need to eliminate the multi-jurisdictional aspect of this litigation by funneling all such cases to the state of the target’s incorporation or otherwise easing the consolidation of cases across jurisdictions. Eliminating the multi-jurisdictional aspect of merger litigation would, no doubt, be a step toward curbing abusive strike suits in this arena by alleviating some of the settlement pressure imposed on defendants by the high costs of litigating a case in multiple forums. However, the other incentives to settle, particularly those imposed by the pressure of the deal timeline, would remain. As such, this article suggests that, in addition to funneling merger objection suits to the state of incorporation of the target, there need to be state solutions, beginning with Delaware, to further deter strike suits in this area. This article describes a combination of legislative reform and enhanced oversight of merger objection settlements by the Delaware Chancery Court as a possible solution to the merger objection litigation problem.
I get the sense that the increasing attention to this issue is leading us somewhere. Not quite sure where, but the needle is moving. For now, more ideas, please.
Tuesday, October 1, 2013
Ok, so the impacts of this 'shutdownado' are far and wide and sometimes a little unpredictable. As you probably know, the DOJ has been challenging the American Airlines/US Air merger on antitrust grounds in court. The trial is set to start on Nov. 25. Now, though, the DOJ is seeking stay during the government shutdown because government lawyers won't be available to prepare their case:
Absent an appropriation, the Department of Justice attorneys and employees are generally prohibited from working, even on a voluntary basis.
Not the worst thing in the world, I suppose. But, judges are still working and getting paid, though (thanks to their permanent appropriation). Somehow, the SEC is operational according to an announcement of the SEC's site. PCAOB is open because, well, it's not really a Federal agency (I know, there's a constitutional question there). FINRA is still open for business; it's an SRO afterall. But, the big news? That's right. BC's football game against Army this weekend might cancelled/postponed because of the 'shutdownado.' What?!
Hmm. Hey Congress! You suck!
Monday, September 30, 2013
In a recent (ok, last Spring, sorry), Vice Chancellor Laster tells it like it is, with respect to some shareholder plaintiffs out there. In the following colloquy during a settlement hearing in In re Gen-Probe, VC Laster questions counsel about their clients:
I wonder why counsel would ever take a client who owns just two shares of stock. I'm not totally naive about what's going on, but you'd think there would be someone out there with a few more shares they could approach.
Friday, September 27, 2013
So...what? You think you know who is going to get nominated to fill Chief Justice Steele's soon to be empty seat? Ha. You know nothing. Want some informed speculation, beyond, "Well, it's Strine, right?" then go here to the Delaware Grapevine. You'll get tidbits like this:
For now, there is no telling who will be next to assume the Supreme Court's center seat.
Within the state's legal circles, it would not be seen as a surprise if all four justices apply. Other names being mentioned are: Leo Strine Jr., the chancellor from the Court of Chancery; Jim Vaughn Jr., the president judge of the Superior Court; and Jan Jurden, a Superior Court judge.
Or even better, insight like this that might really inform who gets the nod:
All eyes are primarily on Leo Strine Jr., the chancellor on Chancery, and Jan Jurden, a judge on the Superior Court, as the major contenders for chief justice, although the field easily could include any or all of the justices, the presiding judges of other courts and various senior partners, particularly the ones with corporate law practices.
Strine is as aggressively brilliant as Jurden is logistically grounded, his Slytherin to her Gryffindor.
Before they were judges, they did a turn in the political trenches, Strine as the counsel to Tom Carper, when the Democratic senator was the governor, and Jurden as an officer for the New Castle County Democratic Party.
They practiced at firms known as incubators for judges, Strine at Skadden, the out-of-state behemoth, and Jurden at Young Conaway Stargett & Taylor, the homegrown powerhouse.
Strine has been through a cutthroat confirmation war already. Carper wanted to make him a vice chancellor in 1998, but Strine as his counsel was not known for suffering fools, and this attitude was perhaps not the best approach for dealing with the legislature, kind of known as a ship of fools. There were hard feelings.
Strine did get confirmed, but not before Carper agreed to name one senator's son a judge and another senator's nephew a Family Court commissioner.
Jurden had no such trouble when Ruth Ann Minner, the Democratic governor, put her on the bench in 2001. All she had hanging out there were the editorial cartoons drawn by Jack Jurden, her father. Her confirmation went easily.
It's cheaper than getting on the Acela and probably much better informed than what you'll hear in the Club Car.
Thursday, September 26, 2013
So, this issues gets debated back and forth quite bit. On the one side are those that argue that LBOs are good corporate governance. The presence of debt and the high degree of equity ownership by managers pushes managers to improve efficiency and profitability of the firm in order to quickly pay down that debt. In that way, the LBO structures reduces the agency problems that plague the public corporation. On the hand there are arguments that the LBO is nothing more than financial mumbo-jumbo that does little more than create opportunities for managers to enrich themselves.
Cohn, et al have a contribution to the debate. Their new paper is The Evolution of Capital Structures and Operating Performance after LBO: Evidence from US Corporate Tax Returns. Here's the abstract:
This study uses corporate tax return data to examine the evolution of firms' financial structure and performance after leveraged buyouts for a comprehensive sample of 317 LBOs taking place between 1995 and 2007. We find little evidence of operating improvements subsequent to an LBO, although consistent with prior studies, we do observe operating improvements in the set of LBO firms that have public financial statements. We also find that firms do not reduce leverage after LBOs, even if they generate excess cash flow. Our results suggest that effecting a sustained change in capital structure is a conscious objective of the LBO structure.
Tuesday, September 24, 2013
Matt Levine at Bloomberg sends up the latest idiot insider trading charged by the SEC. Not only are these guys trading in single stock options (save me, please), but the SEC tied the noose on them by tracking their Metrocard usage! Levine asks the right questions:
*** Like, wait, does the MTA track Metrocard use and associate it with a credit card? Or did they only catch these guys by saying "hey can we look at your Metrocard for a minute?"? Or what?
What struck me about the alleged trading in this case was that one of the traders allegedly used the proceeds from their ill-begotten gains to finance his independent film production company. Aren't there easier ways to finance indy films? What happened to credit cards? Here's the complaint.
Monday, September 23, 2013
So, no surprise to anyone that Blackberry has been circling the drain. Perhaps this latest announcement of letter of intent between Blackberry and one it's largest investors is the final sign that the end is near. Fairfax is proposing to acquire Blackberry for $9/share in cash. But, according to Bloomberg, it's not much actual cash. In fact, almost no new equity from Fairfax:
Fairfax doesn’t plan to invest more cash as part of the takeover bid, relying on others for the remaining financing. The investor will roll over its 9.9 percent stake in BlackBerry, worth $457 million as of today’s close, [Fairfax CEO] Watsa said. Other investors will be able to finance the rest of the purchase through equity and debt, he said.
Well, given the weak prospects of Blackberry, maybe shareholders want someone who will be willing to swing for the fences.
Kyle Wagner Compton's deep dive into the Delaware Chancery Court turns up another example of Vice Chancellor Laster trying to move mountains - in this case trying to get lawyers to refer to shareholder litigation as stockholder litigation. Vice Chancellor Laster denied a proposed order to consolidate a series of cases into a single case titled " In re Astex ShareholderLitigation" with the following:
"Shareholders litigation? Under what state's corporate law do you believe you are litigating?"
Laster has been trying to change conventions for while now. Students sometime ask what's the difference between shareholder and stockholder. The correct answer is, well, nothing, but...but...corporate law drafting isn't creative writing. To the extent one is looking at the statute, it's probably always better practice to rely on the language of the statute. Laster's effort is a small one to move away from the convention of calling representative litigation in Delaware shareholder litigation. Since the corporate code refers only to stockholders, proper usage should indicate captioning shareholder litigation, stockholder litigation.
Thursday, September 12, 2013
Boston College Law School expects to make one or more faculty appointments in subject areas that include: corporations, business law and related subjects. Other substantive areas, particularly in the first year core curriculum, may also be of interest.
JOB QUALIFICATIONS: We seek candidates who understand a range of pedagogies, including skills and experiential training. In addition, applicants must possess a J.D. or equivalent degree and outstanding academic credentials. Relevant experience in practice at an advanced level, challenging government service, or a judicial clerkship is strongly preferred.
APPLICATION PROCEDURE: Boston College and is an Affirmative Action and Equal Opportunity Employer. We strongly encourage women, minorities and others who would enrich the diversity of our academic community to apply. Boston College, a Jesuit, Catholic university, is located in Newton, Massachusetts, just outside of Boston.
Interested applicants should contact:
Renee Jones, Chair
Boston College Law School
885 Centre Street
Newton, MA 02459
Dole announced last night that its go-shop expired without any bidders. File that under "not surprised."
You'll remember that Chairman and CEO of Dole David Murdock is taking the company private using a structure that includes all of the procedural safeguards described in MFW. So, challenges to the transaction are going to be subject to the higher business judgment review standard.
Wednesday, September 11, 2013
The Delaware Supreme Court just issued its opinion in response to a certified question posed to it by the Ninth Circuit in the Countrywide shareholder litigation. The question posed to the court:
Whether, under the “fraud exception” to Delaware’s continuous ownership rule, shareholder plaintiffs may maintain a derivative suit after a merger that divests them of their ownership interest in the corporation on whose behalf they sue by alleging that the merger at issue was necessitated by, and is inseparable from, the alleged fraud that is the subject of their derivative claims.
Short answer: No, affirming Lewis v Anderson. While shareholders' direct claims survive the merger, deritivate claims are extinguished. In answering the certified question, the Supreme Court takes the time to remind us all that dictum is, well, just dictum, not new law.
Tuesday, September 10, 2013
This course is an overview of how acquisition agreements work. It will provide aspiring and practicing deal lawyers with an understanding of the deal process and their role in it.
The course will have four modules. Each module includes video lectures and a LawMeet® - an interactive exercise that involves posting a video response to a real world problem presented by a client or partner, followed by peer and expert review. Click here to see how a LawMeet® works. The first module will be available no later than September 9, 2013.
Students of mine who took this course last year thought it was great. If you are taking an M&A class now, or if you plan on taking an M&A class in the Spring, this MOOC would be a valuable addition.
Monday, September 9, 2013
Although the vote is not until September 12, Icahn threw in the towel today. From his letter to stockholders:
Well...okay then. What happened to the appraisal threat? I guess that's not going to happen, either?
Saturday, September 7, 2013
Statement from the Governor's office on Chief Justice Steele's retirement ann0uncement:
“A judiciary is only as good as the men and women who serve in it, and quite simply, Chief Justice Steele is as good as they get. In addition to serving as Chief Justice, he has been a Superior Court judge, a Vice Chancellor on our Court of Chancery, and a member of the Supreme Court,” said Gov. Jack Markell (D-Delaware). “He has been a tireless and forceful advocate for our state’s judiciary and indeed, for the entire State of Delaware. It is no secret that Delaware’s judiciary is the finest in the nation. I want to thank Chief Justice Steele for his tireless efforts in building and maintaining a court system that is truly a national model.”
Friday, September 6, 2013
Thursday, September 5, 2013
You'll remember that that in the UK they adopted the Cadbury Law in part as a backlash to the acquisition of that august candy maker by US based Kraft in 2010. Bloomberg has an excellent piece with an assessment of the law now that we've had some experience with it. While there were a number of changes in the takeover regime that came with the Cadbury Law, the one that seems to have had the biggest (and most protective) bite is the addition of a hair-trigger to the "put up or shut up" rules:
The so-called Cadbury Law stipulates that any hint of a transaction involving a U.K.-listed target -- unusual stock movement, a news article based on anonymous sources, or even a tabloid market column that cites stock-trader chatter -- can force a company to issue a press release confirming or denying the existence of negotiations and identifying any potential bidder.
At that point, an acquirer has 28 days to “put up or shut up” -- either making a firm, fully financed bid or walking away for six months, unless the target requests an extension. ...
Underscoring how practices have changed, earlier this month Vodafone twice issued press releases confirming media reports on its talks to sell its stake in Verizon Wireless -- even though bids for assets aren’t the focus of the new rules.
The regulations are meant to discourage so-called virtual bids that send stocks on a speculative tear, putting target companies in a defensive position and harming shareholders and employees if the bid never materializes, the Takeover Panel has said.
The effect of the hair-trigger is to force potential acquirers to disclose their interest well before a period where they might actually be comfortable to make a bid. The consequence is that it puts the power to provide extensions of the 28 day tolling period into the hands of the target. A hostile target board can use this power to put off a buyer.
What's interesting about the Cadbury Law and its effects a year or so on is that we (academic types) used to be able to point to the UK as the natural experiment for what a shareholder friendly regime might look like - a regime where target boards had little power to stand between an offeror and shareholders. Compare that regime to the US where states are extremely deferential to management in tender offer situations. But now, that balance is shifting. Boards in UK companies with the hair trigger rules now in effect have the ability through the use of leaks and forcing disclosure to wrest control of the process and insert themselves between offerors and shareholders.
Wednesday, September 4, 2013
First day of classes...this semester, I've brought the traveling roadshow down Commonwealth Ave to BU. They will soon get to know what I think about the following topic... Sam Waksal - (memba him?!) is now out and about and making the rounds on Bloomberg TV. He calls his insider trading conviction a "personal event." Okay, then. Thankfully, his insider trading conviction appears to have changed his approach to business...
Monday, September 2, 2013
Carlos Slim's America Movil has threatened to withdraw from its offer to purchase the 70% of the Dutch mobile carrier, Royal KPN NV, that it doesn't already own. America Movil's change of heart came after Royal KPN deployed it's poison pill to defend against the unwanted offer.
Now, the poison pill deployed by Royal KPN is different from an American poison pill. Remember, the power of the US-styled poison pill comes from the threat that it might be deployed and the difficulty presented in acquiring control once the pill is deployed. The defensive power of the Dutch pill comes from an actual transfer of control from public stockholders to a controlled foundation. The WSJ has a good description of how it works:
In the 1980s and 1990s, many Dutch firms set up defenses to protect themselves against hostile takeovers or activist investors. Although most barriers have been removed, many listed companies still have the possibility to block unsolicited takeover attempts through foundations they created.
Companies grant these foundations (in Dutch: Stichting) a call-option to buy preference shares which, if activated, allows them to take control of the company for a certain period of time.
The defense is barely used, however. Experts say it is a measure of last resort that deters investors in ordinary shares and only buys time to look for alternative strategic options.
In KPN’s case, the Foundation Preference Shares B KPN were set up in 1994 following the privatization of Koninklijke PTT Nederland NV, the former mother company of KPN. Its board comprises lawyers and former top executives at other Dutch companies, some of whom also sit on the boards of other foundations.
By deploying the pill, control is temporarily transferred from public stockholders to the foundation forcing a potential acquirer to negotiate with the foundation if the acquirer wants to gain control. The effect is the same as with the US-styled pill - putting the board (in this case the foundation board) in between the tender offeror and the shareholders. However, because the preference shares issued to the foundation are time limited, unlike the standard US poison pill, the Dutch pill is only a temporary defense. It's not a 'just say never' defense, just a 'not right now' defense.
Thursday, August 29, 2013
Here's a quick heads up for anyone in the DC area - the ABA's Antitrust Section will be sponsoring a Merger Practice Workshop. Looks like an interesting day. Information and registration link below:
Merger Practice Workshop -- September 12, 2013
George Washington University, Washington, D.C.
What really happens in merger reviews? Find out at the Antitrust Section’s new Merger Practice Workshop in Washington, D.C., on September 12. This is a demonstration-based program, and will take you through the life cycle of a hypothetical merger involving a leading social networking site (“Friendstop”) and a leading local listings website (“Hiplisting”). The one-day program will cover all phases of the merger process, including:
• pre-signing antitrust counseling
• negotiating regulatory deal covenants
• coordinating international competition filings
• second request compliance
• advocacy to competition authorities
• negotiating remedies and consent decrees
The Merger Practice Workshop will be a great opportunity to gain deep practical insights into the merger review process from some of the most experienced practitioners in the government (both FTC and DOJ), corporate and private practice sectors.
For more information and to register, please use this link: http://ambar.org/atmergers
Monday, August 26, 2013
OK, so there is a paper by Lucian Bebchuk et al, The Long Term Effects of Shareholder Activism, making its way around. The paper has already generated an aggressive response from Marty Lipton of Wachtell, Lipton that is going around by way of email. You know you may have hit a nerve when someone throws out the "There are three kinds of lies: lies, damned lies and statistics.” In any event, here is the abstract to the paper:
Abstract: We test the empirical validity of a claim that has been playing a central role in debates on corporate governance – the claim that interventions by activist shareholders, and in particular activist hedge funds, have an adverse effect on the long-term interests of companies and their shareholders. While this “myopic activists” claim has been regularly invoked and has had considerable influence, its supporters have thus far failed to back it up with evidence. This paper presents a comprehensive empirical investigation of this claim and finds that it is not supported by the data.
We study the universe of about 2,000 interventions by activist hedge funds during the period 1994-2007, examining a long time window of five years following the intervention. We find no evidence that interventions are followed by declines in operating performance in the long term; to the contrary, activist interventions are followed by improved operating performance during the five-year period following these interventions. These improvements in long-term performance, we find, are present also when focusing on the two subsets of activist interventions that are most resisted and criticized – first, interventions that lower or constrain long-term investments by enhancing leverage, beefing up shareholder payouts, or reducing investments and, second, adversarial interventions employing hostile tactics.
We also find no evidence that the initial positive stock price spike accompanying activist interventions fails to appreciate their long-term costs and therefore tends to be followed by negative abnormal returns in the long term; the data is consistent with the initial spike reflecting correctly the intervention’s long-term consequences. Similarly, we find no evidence for pump-and-dump patterns in which the exit of an activist is followed by abnormal long-term negative returns. Finally, we find no evidence for concerns that activist interventions during the years preceding the financial crisis rendered companies more vulnerable and that the targeted companies therefore were more adversely affected by the crisis.
Our findings that the considered claims and concerns are not supported by the data have significant implications for ongoing policy debates on corporate governance, corporate law, and capital markets regulation. Policymakers and institutional investors should not accept the validity of the frequent assertions that activist interventions are costly to firms and their long-term shareholders in the long term; they should reject the use of such claims as a basis for limiting the rights and involvement of shareholders.
Well, if nothing else, the contrversy surrounding the paper is generating attention for the work. I wonder if that was Wachtell's initial idea? My guess is no.