M & A Law Prof Blog

Editor: Brian JM Quinn
Boston College Law School

Wednesday, September 15, 2010

Don't forget to vote ...

... your Airgas stock, I mean.  The shareholder meeting is today and they have two major issues on the table:  1) a contested director election; and 2) a bylaw amendment to push up the next shareholder meeting.   I think the second proposal is intriguing.  The deterrent power of the combination of the poison pill and the classified board comes from the lengthy delay that the structure forces upon any potential acquirer.  Going through two election cycles before you can take control is a lot to risk - a year can be a long time when you have a lot of money at risk.  That's where the bylaw amendment comes in.  By having shareholders vote to amend the bylaws to provide for a shareholder meeting in January 2011 Air Products is trying to create its own short-cut and reduce the time/risk involved in holding three seats with a pill in place.  Interesting.  So remember to get out and vote.


Update:  Looks like the Air Products directors have won.  Here the press release from Airgas.  The outcome of the bylaw amendment is a little uncertain (from the press release):

Airgas continues to believe that Air Products' by-law proposal to require a Meeting of Stockholders be held on January 18, 2011 - only four months after the 2010 Annual Stockholder Meeting - and that all future annual meetings of stockholders be held in January is invalid under both Delaware law and Airgas' Certificate of Incorporation. We also believe that the proposal has not been approved because it received the affirmative vote of less than 67% of the shares entitled to vote generally in the election of directors. As previously announced, Airgas intends to seek an expedited judicial determination on the validity of this by-law.

September 15, 2010 in Takeover Defenses | Permalink | Comments (0) | TrackBack (0)

Friday, September 10, 2010

eBay-Craigslist: Pill Enjoined

 Chandler handed down his decision in the eBay-Craigslist trial and ruled, mostly, in favor of eBay.  According to the Bloomberg report:

The poison pill was enacted “to punish eBay for competing with Craigslist” and not “in response to a reasonably perceived threat or for a proper corporate purpose,” Chandler said in his decision. ...

Trial testimony didn’t establish that Buckmaster and Newmark “acted in good faith and in pursuit of a good corporate purpose when they deployed” the pill, Chandler said. The judge concluded that the pair “resented eBay’s decision to compete with Craigslist” and set up the defense “as a punitive response.”

But it wasn't a complete win for eBay.  eBay had challenged Craigslist's staggerd board as a defensive measure and argued that it too should be evaluated under Unocal.  Chandler didn't bite.  The staggered board was left in place. 

I'm still looking for a copy of the opinion in a form that doesn't require me to pay Lexis $50!  If anyone has it and is willing to share, I'll read it for you!


 BTW: Those of you who took my corporate law final will find the facts in this case oddly familiar.  

 Update:  Thanks to those of you who sent me copies of the opinion - Download EBay v Newmark. Greatly appreciated. 

Update:  You can always count on Francis Pileggi and the Delaware Litigation Blog.  He's got the opinion here. Chandler summarizes the mixed bag opinion in the David v. Goliath case in the following way: 

... the battle in Delaware has not been as one-sided a victory for the smaller contender as was the contest between the fabled Israelite and Philistine: more fortunate than Goliath, eBay leaves this field with only a gash across its forehead; less fortunate than David, craigslist leaves this field with something less than total victory.

In applying the Unocal analysis to Craig Newmark and Jim Buckmaster's decision to adopt a rights plan, Chandler focused the threat identified by Jim and Craig (why not Newmark and Buckmaster?).   It appears that they identified the "threat" to be the prospect of eBay or some other corporate behemoth one day turning Craigslist into a money making operation.  Here's how Chandler dealt with that "threat":  

Jim and Craig did prove that they personally believe craigslist should not be about the business of stockholder wealth maximization, now or in the future. As an abstract matter, there is nothing inappropriate about an organization seeking to aid local, national, and global communities by providing a website for online classifieds that is largely devoid of monetized elements. Indeed, I personally appreciate and admire Jim’s and Craig’s desire to be of service to communities.The corporate form in which craigslist operates, however, is not an appropriate vehicle for purely philanthropic ends, at least not when there are other stockholders interested in realizing a return on their investment. Jim and Craig opted to form craigslist, Inc. as a for-profit Delaware corporation and voluntarily accepted millions of dollars from eBay as part of a transaction whereby eBay became a stockholder. Having chosen a for-profit corporate form, the craigslist directors are bound by the fiduciary duties and standards that accompany that form. Those standards include acting to promote the value of the corporation for the benefit of its stockholders. The “Inc.” after the company name has to mean at least that. Thus, I cannot accept as valid for the purposes of implementing the Rights Plan a corporate policy that specifically, clearly, and admittedly seeks not to maximize the economic value of a for-profit Delaware corporation for the benefit of its stockholders—no matter whether those stockholders are individuals of modest means or a corporate titan of online commerce.  If Jim and Craig were the only stockholders affected by their decisions, then there would be no one to object.  eBay, however, holds a significant stake in craigslist, and Jim and Craig’s actions affect others besides themselves. ...

Directors of a for-profit Delaware corporation cannot deploy a rights plan to defend a business strategy that openly eschews stockholder wealth maximization—at least not consistent with the directors’ fiduciary duties under Delaware law.


September 10, 2010 in Takeover Defenses | Permalink | Comments (0) | TrackBack (0)

Tuesday, September 7, 2010

Will the 'Just Say No' Defense Ever Get Litigated?

I'm of the mind that the answer to that question is likely no.    In his Stanford Law Review paper of a few years ago (Professorial Bear Hug), Vice Chancellor Strine made it clear that ... well ... it wasn't clear.  Of course we professors would like a court to rule once and for all on the question of whether a classified board can simply sit on its poison pill in the face of an unsolicited offer.  The courts, I think, are happy with this constructive ambiguity as it relates to  the limits of the uses of a pill.  For example, the Federal District Court in Delaware suggested in Moore v Wallace (persuasive, but not precedent) that a Delaware state court might permit the defense.  Vice Chancellor Allen in Interco, on the other hand, made it clear that there were limits to such a defense and employed a Unocal analysis with respect to 'threats' facing the corporation.  Allen understood threats to be of only of two types: threats to voluntariness and the threat of a inadequate price.    In context of a single-tier, all-cash bid, there is no threat to voluntariness, there is just the threat that the bid is inadequate.  In any event, the Supreme Court rejected that analysis in  Paramount v Time leaving us really at sea as to the limits of a 'just say no' defense.  The 'just say no' defense really lies at the heart of the most crucial discussion in the corporate law - who should make the decision about the fundamental future of the corporation: the board or the stockholders.  You'd think it would eventually get litigated once and for all.

 A few months ago it looked like we might have a chance to see it happen.  Air Products launched an all cash tender offer for Airgas.  Airgas just sat on its pill and said 'no.'   Air Products then filed suit.   Here's a copy of the complaint.  I came to the realization last week that this case would never get before a chancellor.  It's scheduled in the Chancery Court for October 1, but that it turns out is just creative scheduling.  In fact, it will likely never get that far.  

Airgas' shareholder's meeting at which shareholders will likely decide the fate of Air Products' offer is scheduled for September 15.   Over the weekend, Air Products upped its offer to $65.50, a whopping 50% premium over the prebid price for Airgas.  Air Products also announced that if it is unsuccessful in its proxy contest, it will walk away and not pursue Airgas further.  And just like that, the challenge to the 'just say no' defense will go away.   Litigating this issue will likely have to wait for another day, unless of course Air Products succeeds in the proxy contest and elects three of its own directors and the remaining directors continue to fight.


September 7, 2010 in Takeover Defenses, Takeovers | Permalink | Comments (0) | TrackBack (0)

Tuesday, July 13, 2010

Yucaipa v Barnes & Noble (day 4)

Today is the last day of the Yucaipa v Barnes & Noble trial in Delaware with Vice Chancellor Strine presiding.  Once again, I get to watch courtesy of Courtroom View Network

B&N's outside counsel from Cravath, Scott Barshay is back on the stand.  Says that the "family transfer provisions" that got Burkle so upset early on weren't the idea of anyone in the company and that it all came from Cravath.   Barshay is walking through the process of adoption of the rights plan and its amendments.   And very quickly the defense is done.

Barshay  Defense713

Barshay is now on cross examination.  

- "Mr. Barshay, isn't it a fact that the first time you met any members of the board was five minutes before the pill was adopted?"  

- "Yes."

Five minutes?  Ouch. 

Counsel is trying to tag Barshay for immediately considering adoption of a rights plan once Burkle surfaced.  There's an objection.  Strine steps in to calm the children, noting that considering the adoption of a pill would not be an altogether uncommon response.   

Pushing Barshay again on his knowledge of the board before he met them for the first time.  It sounds like he had no idea who was going to be in the room or the background of anyone on the board.  How is that possible?  He certainly didn't give a lot of push back on that line of questioning.  

Lots of questions regarding the presentations on the rights plan that Barshay prepared for Daniels (24 pages) and the 2 page presentation for the board.  Seems like a pretty standard overview of how pills work.  Hope B&N didn't pay too much for it.  I could have told them the same for less.  

Shoutout for Chuck Nathan!  An article by Chuck Nathan gets commended to the viewing audience.   I guess that's me.  I suppose I should find out which article they are talking about.

  "Does the pill as it stands does not prevent Riggio and his family from acquiring more stock.  Is that correct?"  


Because Riggio's adult children aren't living with him, they are not affiliates and don't trigger the beneficial ownership definition under the pill.   Barshay tries to push back by pointing to the 13D group requirements, but concedes the defense's general point.  Tries to argue that Burkle's kids could buy stock and not trigger the beneficial ownership rules.  Defense counsel corrects him by noting that Burkle's kids live with him so, no.  Now working through some pill math.  Counsel makes the point that the board can accumulate stock without triggering the rights plan while Yucaipa's acquisition of stock would trigger the plan.  Cross examination is done.

On re-direct - discussion of whether or not a pill can impede a proxy contest.  Barshay's view is that a pill is not triggered by a proxy contest.  Indeed, notes that no pill as ever been triggered by a proxy contest.


 Strine asking some questions regarding setting of the trigger for the pill at 20%.

Mr. Barshay is excused.  B&N lead director Michael Del Giudice is called.  


Lots of questions regarding Del Giudice's background and how he came to the board.  Everybody - including Strine - is reliving the unfortunate Dukakis presidential campaign and the "tank" incident for which Del Giudice disclaims any responsibility.  

Back from the morning break and the plaintiffs object to agreement that has not been produced.  The agreement disclaims Del Giudice's financial interest accruing to Rockland that result from any Riggio investment in Rockland.   Strine doesn't appear happy that the document hasn't been produced and rules as such.   

OK, back to direct testimony.  Discussion of the board meeting at which the pill was adopted.   Interesting, but not surprising - Riskmetrics' reaction to a pill adoption was a topic of conversation in the boardroom and that the pill was designed in order to be as "Riskmetrics friendly" as possible.

Now on cross, plaintiff's counsel is all geared up for a "Law & Order" gotcha moment, but technical difficulties screw it up.  That, and the fact that Del Giudice immediately offers up that he was wrong in his deposition that mistated that Zivaly was not an independent director.  You could almost see plaintiff's counsel say - not so soon!  I'm not there yet!  

I suspect the next couple of minutes will be anticlimatic.

Why are they dragging up the ghost of the Dukakis campaign again?  Do they have to ask whether Dukakis won 10 states?  Really, where does that get us?    Painting Del Giudice as a political fund raiser and Riggio as one of his "go-to" money guys in NY Democratic circles.  Don't think that'll go far. Plaintiff's counsel have moved on to describe the various investments that Riggio has made in Del Giudice's Rockland entities.  This might have more legs.  Riggio made a $20 million investment in Rockland.  

 I think plaintiffs might be confusing (or obfuscating) good corporate governance with the corporate law.  Plaintiffs seem to be implying that because the B&N board is waiting for the SEC to implement rules with respect to independent compensation consultants before it changes its own policy that there is some sort of conflict.  That's a weak argument.


    Q: If stockholders got together and voted to pull the pill, would that trigger the pill?

    A:  If there is an arrangement or understanding to vote against the pill, that would trigger the pill.

That seems like the wrong answer.  What good is stockholder approval of the pill if stockholders can't organized to vote against it?   This question is better asked of the Cravath lawyer.  Del Giudice isn't a legal expert and shouldn't be permitted to provide a legal opinion on the mechanics of the pill.   Del Giudice has clearly moved beyond his level of knowledge and he knows it. 

Break for lunch.

Back from lunch.  Couple of questions about whether a group of stockholders representing 20% of all the shares might be required to pay a premium to vote their shares for a director.  I'm not sure what that's supposed to mean, but whatever.  Plaintiffs are done.

Del Giudice is now on re-direct.  Turns out Riggio's $20 million investment is not yet funded.  

Del Giudice is excused and defense rests.  Various motions regarding admission of evidence. 


Strine is venting (for the benefit of the viewing audience apparently) about the lack of tabs and readability of post-trial briefs.    


Look at this thing -- no tabs!

Strine is now riffing on the European takeover directive and creeping takeovers.  The pill here is being used in a somewhat unusual circumstance.  Now you have two block-holders and how to do you deal with them?  Eichler and Aletheia seems a mystery to Strine.  Why do they refuse to vote their shares?  He thinks they may have their own fiduciary issues.   He's giving hints for post-trial briefs.  

There is skepticism factor that Yucaipa will face in a proxy contest because they are unwilling to make an offer or go on the board.  

Snooki?!  Yes, Snooki is a character on that Jersey show.  How did Snooki make an appearance in Strine's comments?  Anyway.

The 20% threshold is sticking in his mind - because Riskmetrics will focus on it - that why the board went for that number.  What's not sticking in his mind is whether the board considered or should have considered a larger trigger because of the Riggio block already in place.   

It's clear that the differential trigger has gotten Strine's attention - and not in a good way. 

Yucaipa needs to sharpen what it wants in this trial - do you want to acquire more shares?  Do you just want to feel love?  Compares Yucaipa to an adolescent who wants to ask a girl out, but only if she will say yes...

And thus ends Strine's rambling.  Briefs are due on Friday evening and then answering briefs on Monday evening.  Post-trial arguments will occur late next week. 


July 13, 2010 in Cases, Delaware, Takeover Defenses | Permalink | Comments (0) | TrackBack (0)

Monday, July 12, 2010

Yucaipa v Barnes & Noble (day 3)

Once again thanks to the folks at Courtroom View Network, court in Yucaipa v Barnes & Noble is back in session with VC Strine presiding.  Nachbar has some initial objections with respect to demonstratives used with those reports.  

Kenneth Nachbar making his objections:


 VC Strine sounds like a guy who bet on the Netherlands.  Not happy about a demonstrative prepared over the weekend.  Oh, no.  We're back at 6th grade math.  The objection is to a demonstrative prepared by the plaintiff to walk through the 6th grade math that caused Strine to break out in a cold sweat on Friday. 

VCS:  "It's out.  ... Honestly speaking, if it's so simple, you could have gotten [the demonstrative] to them on Saturday."


OK, moving on.  Now, Daniel Burch, plaintiff's expert, is back on the stand discussing proxy contests and solicitation of proxies.  VC Strine is now questioning Burch regarding how one puts together a proxy contest without triggering a 13D filing.   Burch is now on cross.  Lot's of challenges to the fact that the first draft of his report was prepared by an associate and that he made subsequent corrections to it. 

Colloquy between Strine and Burch:

Strine712  Birch

On re-direct.  I'm surprised that actual ownership percentages of B&N are really still in issue.  Now some discussion about probable votes in the case of a proxy contests.  Here's a demonstrative chart comparing Burch's report and the defendant's expert (Harkin).  We'll hear from Harkin later.


 Nachbar objects to leading questions.  Sustained. But, with a warning - if Nachbar wants to be "persnickety" then Strine will let the plaintiffs be persnickety later.  I expect there will be fewer of these objections going forward.  

VCS to Burch:  You are free to stretch your legs and enjoy the Dunkin Donuts on the subterranean level of the courthouse.  Burch is excused.

And that's it for the plaintiff's witnesses. 

Defense calls their expert, Peter Harkins.  While the plaintiff's experts have tried to make the argument that the shareholder rights plan would make it impossible for a dissident to win a proxy contest, Harkins is making the argument that a dissident can win a proxy contest.

On cross:  generating these table and charts just requires math, right?  Right.  Why are we talking about math, again?  VC Strine is quiet this morning...maybe mulling the World Cup.

Breaking for lunch.

Back.  Harkins is back on the stand under cross.  Lots of questions about Alethia's voting (or no-voting) policy.  

Strine interrupts to give both sides a hint about what he's thinking. He wants some help with his "limited mind" in post-trial briefings.  Specifically, how or why people on either side think that Alethia might at the same time have a policy not to vote its shares and at the same time help finance a proxy contest.  It doesn't make sense to him and he'd like people to think about it and explain it to him in post-trial briefs.

Back to cross.  Harkins is dismissed after a brief colloquy with Strine regarding the scope of his expert testimony. 

Next up for the defense - Jennifer Daniels, former GC for B&N.  

She is testifying about the early stages of B&N's adoption of the pill.  The argument that the defense is making here is that Jennifer Daniels, as a good GC, moved on her own to start things moving on the adoption of the pill - it's all good corporate stewardship and nothing to do with Riggiio actively seeking to stop Burkle from running a proxy contest.  

On cross - 

     PL Lawyer: Ms. Daniels, did you think you might be a witness in Delaware on this issue?

     JD: I was told I might have to give a deposition, and that a I might be required at trial, but was told at the time that "we're not there yet" ...

     VCS: Oh, but now the dream has come true and here you are...

Since Daniels is no longer an employee of B&N (she's at NCR now), she's appearing voluntarily.  Plaintiffs appear to be trying to make her look like a tool of Cravath and an incompetent lawyer.  

      You didn't advise the board that Morgan Stanley had been paid $4 million for its work in the College Books transaction? Morgan Stanley also advised on the rights plan.   

Don't know if that will fly.  Anyway, she's getting annoyed. Strine injects some more levity and then orders a recess.  

Back again.  Plaintiffs return to the line of questioning suggesting that hiring MS was a conflicted transaction because Riggio had previously hired MS in the College Books transaction and that Daniels is a bad lawyer because she listened to outside counsel on the issue of MS.   The independent directors didn't get their own counsel - separate from company counsel - with respect to the question of adopting the rights plan.  This issue is potentially problematic, but will it have legs? 

On cross, plaintiff's attorneys are now trying to paint Daniels as being motivated by how to protect Riggio's position when she was having discussions with Cravath.  She answers that she was thinking about all the possible questions that she might be asked.   I wonder if this impresses Strine.  Surely, he's hand plenty of contact with GC's like Daniels.   We'll see.  He's been quiet.

Ouch.  Draft minutes of board meeting are in evidence.  OK, you're all on notice - never let a junior lawyer draft minutes of a board meeting cause the other side is going to enter them into evidence.  And the plaintiffs are done for the day. 


July 12, 2010 in Cases, Delaware, Takeover Defenses | Permalink | Comments (0) | TrackBack (0)

Thursday, July 8, 2010

Pills in Court Today

It's been a busy day in Delaware - thanks to the wonders of the Internet and Courtroom View Network, I've been watching  the Versata v Selectica appeal before the Delaware Supreme Court (yesterday) and the Yucaipa v Barnes & Noble trial today.  The Yucaipa trial is going on in Vice Chancellor Strine's courtroom right now.  It's a four day bench trial.  

Investor Ron Burkle has already testified that B&N's pill is "draconian" and confusing.   There's now a lot of testimony by board member Patricia HIggins along the lines of the "I don't recall" and "I'm not personally aware" nature right now.  I'll be summarizing the proceedings later tonight or tomorrow.  


-Update I:  In a brief recess right now.  Higgins has been testifying in great detail about the process by which the board went about adopting the shareholder rights plan - and in doing so, she's hitting all the Unocal key words - informed, reasonable, threats, etc.

  -Update II

   Burkle lawyer: I object.  

   VC Strine: To what?

   Lawyer:  That which has not yet been uttered, but may be uttered.

   VCS (to witness): Don't utter that, otherwise it will be smote.  And bad things can happen when we start striking testimony...

-Update III: Greg Taxin now on the stand testifying as an expert (ex. 764 for those of you with Bloomberg Law).  He's testifying on proxy contests, the election of directors, and rights plans.   Testifying that there are two provisions that impact one's ability to run a proxy contest:  1) the 20% trigger, while insiders own more than 30%; and 2) the definition of beneficial ownership.  Nice charts - illustrating how often dissident proxy contests can win.  He's relying on data from SharkRepellent.  Dissidents seem to have won 32% of proxy contests over the past decade.

Here's the chart:


July 8, 2010 in Takeover Defenses | Permalink | Comments (0) | TrackBack (0)

Tuesday, July 6, 2010

Pills, Pills, Pills

It's a big week for the shareholder rights plan in Delaware.  We've got two high profile cases.  The first is the challenge to Barnes & Nobles' shareholder rights plan in the Chancery Court.  We've blogged about that saga here already.  Second is Versata's challenge to the Selectica NOL pill that will be heard at the Supreme Court.   Paul Thomas and Randall Thomas have a new paper on the Selectica NOL pill, Resetting the Triggering on the Poison Pill: Selectica's Unanticipated Consequences.  They argue that dropping the trigger level down to less than 5% will have an important, and potentially negative impact on the market for corporate control.  This paper is worth reading before dropping in on the arguments later this week.

Abstract: The Delaware Chancery Court recently applied the Unitrin case to uphold the validity of an NOL Rights Plan with a 5 percent trigger level in Selectica, Inc. v. Versata Enterprises, Inc. The Chancery Court’s ruling is sufficiently expansive that it sanctions the reduction of Rights Plans’ trigger levels to 5 percent at all Delaware corporations. Using a weighted voting model, we show that such an across the board reduction of trigger levels would have important, unanticipated consequences. In particular, we demonstrate that it would favor hedge funds and private equity firms at the expense of strategic acquirers, and that it would greatly increase the power of third party proxy voting advisors. We conclude that the Delaware Supreme Court should consider these unintended side effects in crafting its decision in this case, and that it should adopt an expansive reading of the meaning of preclusive defensive tactics based on its earlier precedent in Unitrin and Moran.

July 6, 2010 in Takeover Defenses | Permalink | Comments (0) | TrackBack (0)

Thursday, July 1, 2010

NOL Pill Arguments Set

The Delaware Supreme Court has set July 7 for arguments in Versata's appeal of Vice Chancellor Noble's ruling in Selectica v Versata.   Briefs in the case are available via the Harvard Corporate Governance Blog. (Versata's brief and Selectica's answering brief).  The issue at stake is the legality of a shareholder rights plan with a 4.99% trigger adopted to protect Selectica's NOLs.  The Chancery Court held that board's adoption of the plan was consistent with their obligations under Unocal.  Hopefully the argument will be carried on CVN so we can watch from the luxury home.


July 1, 2010 in Cases, Delaware, Takeover Defenses | Permalink | Comments (0) | TrackBack (0)

Thursday, June 24, 2010

More on the Constitutionality of DGCL 203

The May edition of The Business Lawyer just arrived in my inbox.  This edition is the proceedings from a recent symposium on the constitutionality of state anti-takeover laws (DGCL 203) in spired by Guhan Subramanian et al's piece, Is Delaware's Antitakeover Statute Unconstitutional? Evidence from 1988-2008.  The symposium includes contributions from Eileen Nugent (A Timely Look at DGCL Section 203), A. Gilchrist Sparks (After 22 Years, Section 203 of the DGCL Continues to Give Hostile Bidders a Meaningful Opportunity for Success), Stephen P. Lamb (A Practical Response to Hypothetical Analysis of Section 203's Constitutionality), and Larry Ribstein (Preemption as Micromanagement) among others. 

Definitely summer beach reading.  Too bad it's not available in a Kindle version!


June 24, 2010 in State Takeover Laws, Takeover Defenses | Permalink | Comments (0) | TrackBack (0)

Tuesday, May 4, 2010

Canadian Standards Re Poison Pills

Apparently, there are limits to the use of poison pills in Canada.  As you likely know, Carl Icahn has a tender offer pending for all of the outstanding stock of Lions Gate.  In response to Icahn appearing, Lions Gate amended its shareholder rights plan.  Icahn then brought an action with the British Columbia Securities Commission seeking to have the plan nullified.   Last week, the British Columbia Securities Commission ordered a halt to any trading of securities to be issued to be issued pursuant to Lions Gate's pill.   Notwithstanding the order, Lions Gate management is still scheduled to submit the plan to LGF shareholders for approval on May 12, 2010.  To that end, management is still recommending shareholders vote in favor

A couple of things worth noting with respect to shareholder rights plans in Canada.  In general, the provincial securities commissions have the right to review such plans.   In reviewing such plans, the commissions will apply their own version of intermediate scrutiny.  In re Royal Host provides the Canadian framework for thinking about whether or not a board must pull a pill.   In re Royal Host entails and examination of relevant factors, including: 1) when the plan was adopted; 2) whether shareholders had approved the plan; 3) whether there is broad support for the continued operation of the plan.  This standard has been widely adopted by Canadian regulators - the provincial securities commissions.  In a subsequent case, Falconbridge, the Ontario Securities Commission applied the Royal Host approach in nullifying a shareholder rights plan.  The BC Securities Commission has also previously applied the Royal Host approach. 

Although the Commission did not make its reasons for nullifying the Lions Gate pill known, one can guess that the BCSC applied the Royal Host factors to the facts (pill adopted in response to Icahn appearing; shareholders have not yet approved the plan; and there appears to be shareholder support for the Icahn offer) and decided that on balance, the shareholders would be better off without the pill in place.  


May 4, 2010 in Takeover Defenses | Permalink | Comments (0) | TrackBack (0)

Thursday, April 15, 2010

Do ATP's Harm Stockholders?

Straska and Waller have a paper forthcoming in the Journal of Corporate Finance, Do Antitakeover Protections Harm Shareholders?  They think not. 

AbstractWe reexamine the negative relation between firm value and the number of antitakeover provisions a firm has in place. We document that firms with characteristics indicating low power to bargain for favorable terms in a takeover, but also indicating high potential agency costs, have more antitakeover provisions in place. We also find that for these firms, Tobin’s Q increases in the number of adopted provisions. These findings are robust to several methods that control for endogeneity. Our evidence suggests that adopting more antitakeover provisions is beneficial for certain firms and challenges the commonplace view that antitakeover provisions are universally harmful for shareholders.

April 15, 2010 in Takeover Defenses | Permalink | Comments (0) | TrackBack (0)

Wednesday, April 7, 2010

The Death of a FUN Deal

As predicted by our friend the Deal Professor, Apollo Management’s proposed $2.4 billion leveraged buyout of Cedar Fair, the amusement park operator, has died. This deal and its death are important for two reasons.  One, it's yet another confirmation that the LBO market is going to continue to be slow at least in the next year.  Second, the deal represents the dangers that boards face in moving forward with M&A transactions. The two sides terminated the deal, with Cedar Fair agreeing to pay Apollo $6.5 million for its expenses, in advance of a scheduled April 8th unitholders meeting since it was clear that the deal would be voted down by Cedar Fair’s unhappy investors.  This is a big blow to the Cedar Fair board that just months ago unanimously approved the transaction and even got two fairness opinions (for which they paid $3 million in total) to support their recommendation.  Knowing that the company is now in a vulnerable position, in connection with terminating the Apollo deal, the board also adopted a 3 year poison pill with a 20% trigger. 

The next few months will likely not be FUN for the Cedar Fair board and management.  The company has a heavy debt load which it will need to refinance.  In addition, the company’s next scheduled unitholders meeting is on June 7th.  The company’s investors, some of whom tried to hold a meeting on the street when the company postponed the initial meeting to vote on the Apollo deal, are really unhappy with the board and management.  I expect that there will be a big push to replace at least some of these people.  The Cedar Fair board and management should brace themselves for a wild ride in the next few months.  I suspect that the Cedar Fair investors are not going to be distracted by all the fun they can have on the company’s two new roller coasters, the Intimidator305, a 305-foot-tall roller coaster at Kings Dominion, and Intimidator, a 232-foot-tall roller coaster at Carowinds.

In the meantime, I look forward to following the fallout from this deal.  Busted deals may not be fun for the players, but they do provide some amusement for law profs.

- AA

April 7, 2010 in Deals, Leveraged Buy-Outs, Private Equity, Takeover Defenses | Permalink | Comments (0) | TrackBack (0)

Wednesday, March 31, 2010

Poison Pill Use Declines

A Reuters piece cites FactSet SharkRepellent data to note that the number of shareholder rights plans in effect is at the lowest since 1990.

The number of U.S. incorporated companies with a poison pill in effect hovered at 1,000 on Tuesday, hitting the lowest level since 1990, according to FactSet SharkRepellent. In comparison, the number of poison pills in force at the end of 2001 totaled 2,218.  ...

The drop in poison pills has mirrored a drop in other takeover defenses, such as having a board of directors with staggered election terms. At the end of 2009, only 164 companies in the S&P 500 had a staggered board, down from 294 at the end of 2001, according to FactSet SharkRepellent.

Interesting, but as Prof. Jack Coffee notes in the article, just because a board doesn't have a pill in place, doesn't mean it can't adopt one in about five minutes.   The drop in staggered boards, I think, is more significant.  Without the combination of the pill and the staggered board, the rights plan can delay, but not prevent, a hostile bid that is undertaken in conjunction with a proxy contest.  

On that front SharkRepellent notes on its website that the number of proxy fights has soared recently.

The number of proxy fights against U.S. companies has soared from 42 in 2004 to last year's record total of 133. 


March 31, 2010 in Hostiles, Takeover Defenses | Permalink | Comments (0) | TrackBack (0)

Wednesday, March 24, 2010

K&E on Poison Pill Plumbing

Following the recent uptick in implementation of poison pills, K&E has published this client alert that nicely details the mechanics of various provisions of a shareholders rights plan.


March 24, 2010 in Takeover Defenses, Transaction Defenses | Permalink | Comments (3) | TrackBack (0)

Wednesday, March 3, 2010

Astellas Hostile Offer

Astellas Pharma launched a hostile offer for OSI Pharmaceuticals yesterday.  In conjunction with the offer, Astellas filed suit in the Delaware Chancery Court seeking to have the board pull its pill.  Astellas' central claim is that OSI brushed off its offer without considering it.  From the complaint:

The Director Defendants failed to conduct a good faith and reasonable investigation of Astellas Pharma’s offer. Instead, the Director Defendants summarily refused to engage Astellas Pharma in a meaningful dialogue and failed to reasonably inform themselves about Astellas Pharma’s offer. The Director Defendants could not possibly be well informed concerning the offers that they have flatly rejected because they have declined to engage in any meaningful discussion or negotiation with Astellas Pharma, either directly or through their legal and financial advisors, to learn more about Astellas Pharma’s offer. This failure to conduct a good faith and reasonable investigation of Astellas Pharma’s offer is a violation of the Director Defendants’ fiduciary duties.

 Presumably, sometime over the next 10 days the OSI board will meet to review the Schedule TO that's now on file with the SEC and inform themselves about the offer.  Once they do that, it won't leave much for Astellas to complain about.


March 3, 2010 in Cases, Takeover Defenses | Permalink | Comments (0) | TrackBack (0)

Tuesday, March 2, 2010

Selectica NOL Pill Okay'd

Vice Chancellor Noble issued his ruling in Selectica v. Versata (Richards, Layton & Finger posted the opinion) late last week.   This case is worth noting for two reasons.  First, it involves one of the very few cases of a shareholder rights plan being triggered.  Second, Selectica's pill is not what you might consider to be a typical pill.  As originally envisioned, the shareholder rights plan is intended to be a defensive measure to prevent a hostile takeover.  The way it's worked in practice, with an effective pill in place and combined with a staggered board, potential hostile acquirers are forced to deal with the target board or accept the risks involved in a drawn out proxy fight.  

In November 2008, Selectica amended the pill it had in place in order to protect the value of net operating losses (NOLs) that it had on its books.  The purpose of the pill, while the company acknowledged that it had some anti-takeover effects, was to prevent an inadvertent accumulation of stock that might cause the company to lose the right to use its NOLs.  The amendment set the new trigger for the rights at 4.99%, grandfathering in 5% holders subject to limits on their further purchases.

Versata - a 5.1% shareholder and wholly-owned subsidiary of Trilogy, a Selectica competitor - decided to test pill and bought right through its limits.   After Selectica attempted unsuccessfully to enter into a standstill agreement with Trilogy, allowed the pill to trigger - diluting Trilogy.  The Selectica board then sought a declaratory judgment in Delaware in support of its actions.

When Vice Chancellor Noble reviewed Selectica's NOL pill, he made pretty short work of Trilogy's arguments against it.  First, a shareholder rights plan is an appropriate device to protect corporate policy, which includes the protection of NOLs.  Second, "the legitimacy of the poison pill is settled law."  Twenty-five years after Moran v. Household, there is no reason to think that Delaware is reconsidering the validity of the shareholder rights plan.  Third, the dilutive effect of the pill, while expensive for a potential acquirer, is not preclusive.  To be preclusive, the pill would have to make it virtually impossible, if not in fact impossible, for a potential acquirer to succeed. That was just not the case here.   And finally, the board's decision to protect the company's NOLs through the use of a pill was a reasonable response to the threat of losing them in the event a large shareholder developed a position in the company. 

No doubt the fellows over at BKS are studying the court's opinion here and thinking about next steps in that back-and-forth.


Update:  Here's a useful Latham memo from last year after the Selectica NOL pill got triggered.

March 2, 2010 in Cases, Takeover Defenses | Permalink | Comments (1) | TrackBack (0)

Wednesday, February 24, 2010

Limits on Termination Fees

While Delaware does not take a brightline rule approach to limiting the size of termination fees, other do.  Last week, I referred to a paper from John Coates comparing Delaware's standards with respect to termination fees with the UK's rule-based approach.  Well, last week, the Takeovers Panel in Australia, the Takeover Panel's cousin down under adopted new guidance on termination fees (break fees), limiting their size in most circumstances to no more than 1% of equity value of a transaction. 

In its guidance on lock-up devices, the Panel also warned against the potentially anti-competitive effect of what they call no-due-diligence obligations, particularly those that provide initial bidders with information rights in the event a second bidder happens along.  I blogged about the potentially anti-competitive effects of this kind of weak-form rights of first refusal before.  Delaware, however, is clearly okay with them (see Toys R Us).

One supposes that the announcement of a brightline rule with respect to termination fees in Australia provides a nice opportunity for a natural experiment.


February 24, 2010 in Takeover Defenses | Permalink | Comments (0) | TrackBack (0)

Thursday, February 18, 2010

BKS replies to Burkle

Dear Mr. Burkle:

Thanks for your letter.  If you don't like our shareholder rights plan, just vote against it when we submit to the shareholders for a vote some time in the next 12 months.  Anyway, we think you don't understand the rights plan, so we amended it to make it clearer for you.  Oh, and you can't add.


BKS Board

That's my version of the Barnes & Noble board's response to investor Ron Burkle.  You can read their version here.  The amendment to the rights plan is here.


February 18, 2010 in Takeover Defenses | Permalink | Comments (0) | TrackBack (0)

Wednesday, February 17, 2010

K&E on "Just Say No"

According to this client memo from K&E, recent takeover battles are bringing into question the continued vitality of the “just say no” defense, which allows the board of a target company to refuse to negotiate (and waive structural defenses) to frustrate advances from unwanted suitors.

According to the authors, "just say no" is more properly viewed as a tactic rather than an end, and when viewed this way,

it is apparent that the vitality of the “just say no” defense is not and will not be the subject of a simple “yes or no” answer from the Delaware courts. Instead, the specific facts and circumstances of each case will likely determine the extent to which (and for how long) a court will countenance a target’s board continuing refusal to negotiate with, or waive structural defenses for the benefit of, a hostile suitor.



February 17, 2010 in Current Events, Deals, Merger Agreements, Mergers, Takeover Defenses, Takeovers, Transactions | Permalink | Comments (0) | TrackBack (0)

Wednesday, February 10, 2010

"Just Say No" Challenge in Del.

Last week Air Products filed a suit in Delaware Chancery Court challenging Airgas' "Just Say No" defense. This has the makings of being an important case if it gets as far as a ruling.  

On the one side, we have Air Products launching a financed all-cash off for $60 (38% premium).  On the other side we have a board that is apparently uninterested in the offer and has turned it down as undervaluing Airgas. The board has a pill in place and has not opted out of DGCL Sec. 203.  The only other case we have challenging the "Just Say No" defense is Moore v Wallace (Fed Dist. Court Del).  In Moore v Wallace the Federal District Court interpreted Delaware law as permitting such a defense. The Chancery Court has never actually ruled on the issue, however.

Of course, this isn't a perfect set of facts.  It would be better if the Airgas had neither a pill nor 203 defenses in place.  As it is, the board's decision to sit on its pill and not waive 203 will likely be subject to Unocal review.  Nevertheless, this case may give the Chancery Court an opportunity to rule on the "Just Say No" defense.  Appropriately enough, Wachtell Lipton is serving as Airgas' legal counsel.


February 10, 2010 in Takeover Defenses | Permalink | Comments (3) | TrackBack (0)