M & A Law Prof Blog

Editor: Brian JM Quinn
Boston College Law School

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Tuesday, June 23, 2009

Yahoo Shareholder Litigation Settled

In anticipation of a potential hostile approach by Microsoft last year, Yahoo adopted a "tin parachute" severance plan.  The "tin parachute" is a company-wide severance plan that makes payments to employees who lose their job following a change in control.  If part of the motivation for an acquisition is cost-reduction and if layoffs are part of the post-closing integration plan, then such a plan could be a deal-killer.  The Deal Professor discussed Yahoo's tin parachute in a post at the time.  In any event, the plan generated a lawsuit that, according to NY Times, was settled today.   Here's a copy of the proposed settlement agreement and amended severance plan.  The agreement modifies the plan to make it less onerous for a potential acquirer, but doesn't get rid of it altogether.  This watered-down plan must stay in place for at least 18 months from the date the settlement plan is approved, thus making it hard for the Yahoo board to lean on it, should Microsoft come knocking again. A new Section 5.1 also permits the board to amend or terminate the plan at any time.

-bjmq



June 23, 2009 in Litigation, Takeover Defenses | Permalink | Comments (0) | TrackBack (0)

Tuesday, May 26, 2009

Delaware Weighs in on Poison Puts

The credit crisis has brought the issue of the poison put to fore.  A "poison put" is a change of control provision in an indenture that prevents a debtor from having its board replaced as a consequence of a hostile acquisition without triggering a default event.   NRG has been waving the potential of such a default as a reason for its shareholders not to tender into Exelon's hostile bid for control of NRG ("NRG: Exelon's board proposal would accelerate $8B in debt").  


In April, the WSJ ran an article on the role of poison puts in slowing down the market for corporate control during the credit crisis.  Whereas in better times, potential sellers with restrictive debt covenants. ("Poison puts undercut mergers").  Below is a discussion from the WSJ on the effect of "poison puts" on the M&A market.  


  


The Delaware courts recently had a chance to weigh in on the validity of poison puts in the Amylin case.  The opinion is here: Download Amylin-Poison Put. The core issue in the Amylin case was whether a board can, in effect, tie their own hands, as well as the hands of shareholders by leaving it to third party creditors to decide whether or not a hostile bidder is acceptable.  If you'r familiar with the deadhand/slowhand poison pill cases, then it's hard to imagine a Delaware court deciding that a board may, consistent with its fiduciary duties, agree to poison put that effectively neuters shareholders' voting rights.

In the Anylin case, creditors sued to enforce the covenant and prevent a new board that won a proxy contest from taking their seats on the board.  Shareholders and the board opposed.  The court ruled with the board. The effect of which is that poison puts must be read more generously and in a manner that does not have the effect of entrenching management and disenfranchising shareholders.   There is a nice post on this decision on the Harvard Corporate Governance Blog (here). 

- bjmq

May 26, 2009 in Cases, Takeover Defenses, Transaction Defenses | Permalink | Comments (0) | TrackBack (0)

Wednesday, August 8, 2007

The Japanese Poison Pill (Redux)

The Wall Street Journal is reporting that the Japanese Supreme Court has upheld a landmark lower-court ruling affirming the use of a poison pill defense by Bull-Dog Sauce Co.   The lower court had held that Bull Dog, a Japenese condiment maker, could employ the defense to fend off an unsolicited offer to be acquired from Steel Partners Japan Strategic Fund (Offshore) LP, a U.S. fund.   Steel Partners is offering Yen 1,700 per share, a 25.8% premium to Bull Dogs's 12-month average closing share price.  Steel Partners is one of the best-known takeover funds in Japan and is seen as a symbol of shareholder activism in that country.

Steel Partners had sued Bull-Dog alleging that the poison pill was discriminatory and therefore in violation of Japanese law.  On June 24, 2007, 80% of Bull Dog's shareholders had voted to approve the issuance of stock acquisition rights underlying the poison pill at its annual general meeting of shareholders.  Both the lower court and the Supreme Court apparently relied heavily on this vote to find that the poison pill was not discriminatory because the company's shareholders had approved it.  According to the Journal:

Bull-Dog's defensive scheme gives all shareholders three equity warrants for each Bull-Dog share they own.  But the firm bars Steel Partners from exercising its warrants, instead granting it 396 yen ($3.33) for each warrant -- a 2.3 billion yen ($19.3 million) payout for Steel Partners -- but making it impossible for the U.S. fund to take control of the Japanese company.

A prior Journal report also calculated that the poison pill will dilute the fund's holdings to less than 3% from more than 10% if exercised.  Bull-Dog is now scheduled to redeem the warrants on Aug. 9.  This is a clear loss for Steel Partners.  But, as I stated in an earlier post on the lower court ruling: 

The decision is a bit of a surprise since in at least two other cases the Japanese courts had invalidated the use of a poison pill.  But the big difference here appears to be the shareholder vote.  Poison pills are often decried as denying shareholders the right to make their own decisions concerning a sale of their company.  Yet in this instance there was a vote which overwhelmingly validated use of this mechanism.  And Bull Dog's pill is a relatively mild one providing for limited dilutive effect.  The case can therefore be distinguished on these grounds and likely confined to justifying the use of a pill to fend off unsolicited bids in Japan in those instances where shareholders overwhelmingly oppose the transaction. 

For U.S. purposes, the decision also highlights a more democratic use of the pill.  One where shareholders get a say on its use to deter unsolicited offers.  This is a path which many activists in the United States have called for.   And it is one which permits shareholders a say in the important takeover decision, one they are today often deprived of.  For more, see Ronald J. Gilson, The Poison Pill in Japan:  The Missing Infrastructure

August 8, 2007 in Asia, Hostiles, Takeover Defenses | Permalink | Comments (0) | TrackBack (0)

Friday, June 29, 2007

The Japanese Poison Pill

The Wall Street Journal is reporting that yesterday a Tokyo court issued a landmark ruling upholding the use of a poison pill defense by Bull-Dog Sauce Co.   The court held that Bull Dog, a condiment maker, could employ the defense to fend off an unsolicited offer to be acquired from Steel Partners Japan Strategic Fund (Offshore) LP, a U.S. fund.   Steel Partners is offering Yen 1,700 per share, a 25.8% premium to Bull Dogs's 12-month average closing share price.  Steel Partners is one of the best-known takeover funds in Japan and is seen as a symbol of shareholder activism in that country.

Steel Partners had sued Bull-Dog alleging that the poison pill was discriminatory and therefore in violation of Japanese law.  Last Sunday, 80% of Bull Dog's shareholders had voted to approve the issuance of stock acquisition rights underlying the poison pill at its annual general meeting of shareholders.  The Tokyo District Court relied heavily on this vote to find that the poison pill was not discriminatory because the company's shareholders had approved it.   According to the Journal, the poison pill will dilute the fund's holdings to less than 3% from more than 10% if triggered. 

The decision is a bit of a surprise since in at least two other cases the Japanese courts had invalidated the use of a poison pill.  But the big difference here appears to be the shareholder vote.  Poison pills are often decried as denying shareholders the right to make their own decisions concerning a sale of their company.  Yet here there was a shareholder vote which overwhelmingly validated use of this mechanism.  And Bull Dog's pill is a relatively mild one providing for limited dilutive effect.  The case can therefore be distinguished on these grounds and likely confined to justifying the use of a pill to fend off unsolicited bids in Japan in those instances where shareholders overwhelmingly oppose the transaction. 

For U.S. purposes, the decision also highlights a more democratic use of the pill.  One where shareholders get a say on its use to deter unsolicited offers.  This is a path which many activists in the United States have called for.   And it is one which permits shareholders a say in the important takeover decision, one they are today often deprived of.  For more, see Ronald J. Gilson, The Poison Pill in Japan:  The Missing Infrastructure

June 29, 2007 in Asia, Takeover Defenses | Permalink | Comments (0) | TrackBack (0)

Friday, May 18, 2007

More on Alcan and the Problem of a Pacman Defense

The Wall Street Journal Breakingviews column has a piece today on the problems Alcan would face under Pennsylvania law if it initiated a Pacman defense against Alcoa.  For those who want more of a legal analysis, I refer you to my Wednesday blog post on this subject.

May 18, 2007 in Takeover Defenses | Permalink | Comments (0) | TrackBack (0)

Tuesday, May 15, 2007

Alcan, Alcoa and the Pacman Defense

On Monday, an analyst at Prudential Equity Group, John Tumazos, sketched out the benefits of a reverse takeover by Alcan of Alcoa.  Alcoa has commenced an unsolicited offer to acquire Alcan in a transaction valued at $33 billion.  A reverse takeover, known as the pacman defense, whereby a target turns the tables on an acquirer and offers to acquire it instead, has not been used in the United States since the 1980s (most notably in the Bendix/Martin Marietta wars) [correction: a reader pointed out that in 2000 Chesapeake Corp. employed a successful pacman defense against Shorewood Corp.; details of that transaction are here).  As reported by DealBook, the analyst highlighted the political benefits of a reverse-takeover; it will increase business by relocating the combined company outside the United States thereby stemming anti-American sentiment against Alcoa in other countries and be more politically palatable to the Quebec authorities where Alcan is headquartered and based.  And so it goes . . . .

The analyst may have been a bit too hasty in his calculus as to the balance of local politics.  Aloca is organized under the laws of the state of Pennsylvania.  Pennsylvania has the strictest anti-takeover laws in the country, including a constituency statute, business combination statute, control share acquisition statute, fair price statute, and employee severance statute.  For a good description of the Pennsylvania law and each of these provisions, see the article by William G. Lawlor, Peter D. Cripps and Ian A. Hartmann of Dechert LLP, Doing Public Deals in Pennsylvania:  Minesweeper Required.  Alcoa had the option to opt-out of these anti-takeover provisions when they were first enacted in 1990, but chose not to.  The company also has in its Certificate of Incorporation an anti-greenmail provision.  Although Alcoa doesn't currently have a poison pill, it could adopt one if Alcan made an offer.  Pennsylvania courts, unlike courts in Delaware and New York, have allowed targets to utilize no-hand provision in these pills.  The Pennsylvania courts also haven't yet considered the validity of a dead hand provision.  Any pill adopted by Alcoa to fend off an Alcan bid would therefore also likely contain these powerful anti-takeover devices.  Moreover, the Pennsylvania state legislature has been more than willing to change its laws to help a Pennsylvania organized company fight off an unwanted suitor when its current laws appeared insufficiently protective (most recently it acted to protect Sovereign Bancorp). 

The effect of all of this would be to permit Alcoa to effectively undertake a "Just Say No" defense to any Alcan pacman bid.  And while shareholder pressure may, if Alcan's bid goes high enough, force the Alcoa board to accept an offer this will likely take time and more consideration than Alcan, which is slightly smaller than Alcoa, can offer.  And Alcoa, also has a staggered board making a proxy contest a multi-year affair (and still facing the problem of Pennsylvania's antitakeover laws making any proxy contest win moot).  Compare this with Quebec law which permits Alcan to keep its poison pill for only a short period of time and has similar time limitations on other explicit anti-takeover maneuvers (see my previous blog post on this here).  In light of the comparative advantage of Alcoa, a pacman would have a small chance of succeeding against any protracted resistance by Alcoa and before Alcoa could complete its offer for Alcan.

Addendum:  Shares of Pennsylvania companies which have not opted out of the Pennsylvania anti-takeover statutes have been found to trade at a discount to their market comparables.  For more on this point, see P.R. Chandy et al., The Shareholder Wealth Effects of the Pennsylvania Fourth Generation Anti-takeover Law, 32 Am. Bus. L. J. 399 (1995).

May 15, 2007 in Hostiles, Takeover Defenses, Tender Offer | Permalink | Comments (2) | TrackBack (0)