Wednesday, March 9, 2011
John Armour, Justice Jack Jacobs and Curtis Milphaupt have recently published a comparative article on hostile takeover regimes in developing economies. The piece, The Evolution of Hostile Takeover Regimes in Developed and Emerging Markets: An Analytical Framework, is now appearing in the Harvard Journal of International Law.
Abstract: In each of the three largest economies with dispersed ownership of public companies—the United States, the United Kingdom, and Japan—hostile takeovers emerged under a common set of circumstances. Yet the national regulatory responses to these new market developments diverged substantially. In the United States, the Delaware judiciary became the principal source and enforcer of rules on hostile takeovers. These rules give substantial discretion to target company boards in responding to unsolicited bids. In the United Kingdom, by contrast, a private body consisting of market professionals was formed to adopt and enforce the rules on hostile bids and defenses. In contrast to those of the United States, the U.K. rules give the shareholders primary decisionmaking authority in responding to hostile takeover attempts. The hostile takeover regime in Japan, which developed recently and is still evolving, combines substantive rules with elements drawn from both the United States (Delaware) and the United Kingdom, while adding distinctive elements, including an independent enforcement role for Japan’s stock exchange.
This Article provides an analytical framework for business law development to explain the diversity in hostile takeover regimes in these three countries. The framework identifies a range of supply and demand dynamics that drives the evolution of business law in response to new market developments. It emphasizes the common role of subordinate lawmakers in filling the vacuum left by legislative inaction, and it highlights the prevalence of “preemptive lawmaking” to avoid legislation that may be contrary to the interests of important corporate governance players.
Extrapolating from the analysis of developed economies, the framework also illuminates the current stateand plausible future trajectory of hostile takeover regulation in the important emerging markets of China, India, and Brazil. A noteworthy pattern that the analysis reveals is the ostensible adoption—and adaptation—of “best practices” for hostile takeover regulation derived from Delaware and the United Kingdom in ways that protect important interests within each emerging market’s national corporate governance system.
Monday, January 24, 2011
So, tomorrow Chancellor Chandler will take up the question of whether to order the Airgas board to pull its pill. Air Products, you'll remember, has been pursuing Airgas for many months now. Airgas has steadfastly said "No." In the fall Air Products elected three members to the board and got shareholders to vote to approve a new bylaw that would have moved up the next annual meeting to January - thereby cutting short the defense that time provides in the classified board. The Chancery Court upheld the bylaw change. But then, in a little bit of a stunner, the Delaware Supreme Court overruled the Chancery Court's opinion. The Chancellor, I assuming confident that his opinion wouldn't be overruled, had put off the question of whether to order the rights plan pulled to a date just past the accelerated shareholder meeting date. That was a nice way to avoid the question of the pulling the pill -- had the Chancery Court's opinion not been overruled, the shareholders would have met by now, and presumably, voted in a new majority for the board, thus making the question of the pill moot. The Delaware Supreme Court decision ensured that this was not to be.
So, Chancellor Chandler is put in the uncomfortable position of having to consider whether to order a board that has lost the first round in a proxy contest whether it must pull its rights plan. Of course, Chancellor Chandler is not opposed to issuing such an order in the right circumstances. In the Craigslist case he order the board to pull its pill. Craigslist was a bit of a unique case. How many closely-held firms have shareholder rights plans anyway? Probably just Craigslist. The Airgas case is more difficult. Why? Well because it's precisely the kind of case that the Chancery Court has studiously avoided hearing for year. In his 2002 paper, which is a response to a paper from Profs. Bebchuk, Coates, and Subramanian, Vice Chancellor Strine described just this scenario as the "professorial bear hug" intended to forces judges to deal directly with the fiduciary duty issues related to the pill.
The question the authors ask us to decide affirmatively is fundamental: Can control of the corporation be sold over the objections of a disinterested board that believes in good faith that the sale is inadvisable? That is, at bottom, the authors want to force the hand of the Delaware courts to decide, once and for all, that impartial and well-intentioned directors do not have the fiduciary authority to "just say no" for an indefinite--even perpetual--period to a noncoercive tender offer made to their company's shareholders. ...
... When the stockholders of a corporation with an ESB have expressed their desire to receive a fully funded, all-shares tender offer in a fair, noncoercive board election that was preceded by an adequate opportunity for the incumbent board to develop a better strategy and make their case to the target stockholders, does a well-motivated and well- informed majority of independent, incumbent directors who believe that the offer is inadequate have the power to block that tender offer by continuing to deploy a poison pill?
And that, in essence, is what is at stake tomorrow in Chancellor Chandler's courtroom. A couple of months ago, I predicted that we'd never get to see this day. I also predicted that the Del. Supreme Court wouldn't overturn Chancellor Chandler's bylaw decision and that the Pats would beat the Jets (not cover the spread, just beat them). Clearly, I'd be a mess if I had to make my living in Vegas, so I'm making no predictions. Chancellor Chandler has shown himself to be sufficiently peeved at being overruled in his earlier decision that I think most bets are off. I continue to be amazed that the Delaware Supreme Court wasn't able to look ahead to tomorrow and realize that by knocking down the bylaw they set up this Just-Say-No case to come before Chandler, and inevitably them. Why is that a better outcome than letting the bylaw survive? I don't know. Anyway, tune in tomorrow for all the fun.
Tuesday, November 23, 2010
See that there? That's egg on my face (ARG-DelSupCtOpinion). It's a total victory for Ted Mirvis and Wachtell. The Supreme Court even cited approvingly to the ABA's form book.
The Supreme Court overturned the Chancery Court, basically holding that since everyone has always assumed the language "in the third year following the year of their election" means a "three year term" for directors, then four months between annual meetings is too truncated to count as an annual meeting. So a bylaw that moves the annual meeting to a date that isn't near the "traditional" date, but still "in the third year following the year of their election" is invalid. That seems like a victory for poor (or sloppy) drafting: "in the third year following the year of their election" or "three year term" ... whatev's.
Of course, the court leaves unanswered the next question - okay, so what's the minimum amount of time between annual meetings? Five months? Six months? More?
So the good news? By ruling against the bylaw, the Supreme Court has given new life to Air Products challenge to Airgas' "just-say-no" defense. Could it be that we might finally get "just-say-no" litigated? We'll see. Air Products' challenge to Airgas' poison pill is next up in the docket.
Sunday, November 14, 2010
Not entirely surprising given the decision by the Canadian government not to approve the potential sale of Potash to BHP. BHP could have come back within 30 days with an improved offer and tried to convince the government of its ability to generate a "net benefit" for Canada with its ownership of Potash. But in the end BHP decided against taking that route - arguing that it had already gone a long way. It issued the following statement:
The company had offered to commit to legally-binding undertakings that would have, among other things, increased employment, guaranteed investment and established the company’s global potash headquarters in Saskatoon, Saskatchewan.
The investment commitment included US$450 million on exploration and development over the next five years over and above commitments to spending on the Jansen project. An additional US$370 million would have been spent on infrastructure funds in Saskatchewan and New Brunswick. BHP Billiton would also have applied for a listing on the Toronto Stock Exchange.
In addition, BHP Billiton was prepared to make a unique commitment to forego tax benefits to which it was legally entitled and, as a condition of the Minister’s approval, BHP Billiton was prepared to remain a member of Canpotex for five years. Both of these undertakings were intended to allay any concerns the Province of Saskatchewan may have had regarding potential losses in revenues.
Further, to give the company an even stronger Canadian presence, BHP Billiton undertook to relocate to Saskatchewan and Vancouver over 200 additional jobs from outside Canada. BHP Billiton would have maintained operating employment at PotashCorp’s Canadian mines at current levels for five years and would have increased overall employment at the combined Canadian potash businesses by 15% over the same period.
In the end that wasn't enough. The Investment Canada Act turns out to be a pretty potent takeover defense.
Friday, November 12, 2010
The Deal Prof does a great job of plowing through Genzyme's old proxy statements to give us a deeper look at why Sanofi will be unlikely to do much to stop Genzyme from re-staggering its board should it want to. The reason revolves around Massachusetts' staggered board statute (156D, Sec. 8.06). Unlike Delaware staggered boards are the default for Massachusetts public companies. Steven walks through the proxies and points out that back in 2006 the board, and not the shareholders, de-staggered the board. Because the board took the initial action, the statute permits the board to stagger it at any point in the future without going to the shareholders.
That's a good trick. And one more reason why if Sanofi wants this deal to happen, it's going to have play nice.
Tuesday, November 9, 2010
Sanofi and Genzyme have been exchanging letters. In the first one, Sanofi's CEO Christopher Viebacher sent a letter to Genzyme CEO Henri Termeer. In the letter Viebacher makes the following points:
First, you indicated that you believe that the Genzyme Board can, at any time, opt to immediately stagger the terms of its members, extending the terms of two‐thirds of Genzyme's current directors for an additional one to three years. ...
Second, you stated that the Genzyme Board retains the ability to adopt a "poison pill". As you are well aware, if adopted, the poison pill would prevent Sanofi-Aventis from acquiring Genzyme, regardless of your shareholders' support for a transaction.
Third, you indicated that the Genzyme Board may wield the Massachusetts anti-takeover statutes in a manner that would, as a practical matter, prevent Sanofi‐Aventis from acquiring Genzyme without the cooperation of Genzyme's Board, notwithstanding your shareholders' support of a transaction.
Since the stockholders destaggered the Genzyme board in 2006, presumably Genzyme would stagger the board through a bylaw amendment adopted by the board. In his letter, Viebacher suggests that taking these defensive actions would be inconsistent with "maximizing shareholder value." I suppose he wants Termeer to get concerned that he might violate his fiduciary duties as a director of a MA company should he not immediately agree to a sale of Genzyme to Sanofi. Well, Termeer has little to fear. As I've written before, MA companies are very management friendly and have written out of the law any of the pesky obligations put on boards by Delaware decisions like Revlon and Unocal. Just-say-no is alive and well in Massachusetts. Clearly, the Genzyme board is engaged and informed. That's basically going to be enough. The brush off letter from Termeer back to Viebacher seems to indicate that Termeer knows this, too.
Monday, November 8, 2010
The Star up in Canada defends the country's right to say no to foreign investment, but still worries that the fix might be in:
Yes, the Canadian government's actions last week sent a message to the rest of the world: that we are no longer willing to be the Boy Scouts of international finance.
If the Potash Corp. episode has taught us anything, it is that the Investment Canada process is far too opaque. When Industry Minister Tony Clement said the takeover of Potash Corp. did not meet the “net benefit” test under the Investment Canada Act, he was prevented by law from saying why. If Clement turns around after the 30-day appeal period and says BHP has improved its offer and now meets the test, how would we know?
Some looking at the situation with Potash seem to think that the Investment Canada Act and the current climate could prove the ultimate takeover defense for Research in Motion (Blackberry). Given the extremely competitive market for smart phones, that's some comfort for RIM's board, I suppose.
Thursday, November 4, 2010
Last week the Premier of Saskatchewan gave the thumbs down to the BHP bid for Potash. Yesterday afternoon, Canada's Industry Minister Tony Clement released a statement expressing a similar sentiment:
"I can confirm that I have sent a notice to BHP Billiton indicating that, at this time, I am not satisfied that the proposed transaction is likely to be of net benefit to Canada.
"I came to this decision after a careful and rigorous review of the proposed transaction. BHP Billiton has 30 days to make any additional representations and submit any undertakings.
"At the end of that period, I will make a final decision.
"The confidentiality provisions of the Investment Canada Act prohibit me from discussing specifics of an ongoing case.
"I can assure Canadians, however, that I will provide an explanation of the reasons behind my final decision at the time that decision is made, in accordance with the provisions of the Act.
"Canada has a long-standing reputation for welcoming foreign investment. The Government of Canada remains committed to maintaining an open climate for investment."
So the ball is now back in BHP's court. It looks like it's up to them to woo the government of Canada if they want this deal to happen.
Wednesday, November 3, 2010
The Airgas appeal before the Delaware Supreme Court gets underway in about 30 minutes (care of Courtroom View Network). In the meantime, Lucien Bebchuk and his co-authors put a post on the Harvard Corporate Governance Network blog describing their work on staggered boards that figured so prominently in Ted Mirvis argument before the Chancery Court. They highlight what they concluded, and, importantly, what they didn't conclude.
Back in 30 minutes when the fun starts.
The Supremes...sitting en banc.
Ted Mirvis is now making the argument for Airgas
"For over 100 years everyone has believed that the terms of a staggered board are three years."
Ridgley: Are you arguing that a year term must be exactly 365 days?
Mirvis: No, not exactly 12 months, but if there are situations where it is inadvisable to have a meeting exactly 12 months apart that's okay, but not without limits.
Redgley: But, what is the limit?
Mirvis: Should be worked out on a case by case basis.
Berger: Could directors move the annual meeting date by 6 months for business reasons?
Mirvis: If the directors wanted to do it, there would be no one to complain. Stockholders can't do it if it deprives a director of his/her term because the term is a creature of statute.
Mirvis is arguing that this is a question of statutory interpretation and not necessarily one of interpretation of the charter.
Holland, helping out Mirvis with friendly questions:
Essential Enterprises makes another appearance. You might as well read it.
Bebchuk et al's post gets a shout-out. You should read that, too.
Mirvis is done.
Air Products' counsel making his case:
Per 211, the time and place of the annual meeting should be set per the manner established in the bylaws. Now making a textual argument interpreting the charter in support of his position. If Airgas is right, then none of the words in the charter (contract) don't matter.
Chief Justice Steele:
Discussing the Seitz opinion in Essential Enterprises, again.
Berger asking questions that sound sympathetic to Airgas' position:
Discussions of the meaning of the ABA form book for public company charter docs.
Through all the back and forth, it's not exactly clear where the Supremes are in their thinking - whether they have latched onto Airgas' "it's all about the statute and common understanding" or with Air Products' "we're only doing a plain reading of the charter" argument. Then again ... they let Air Products' counsel make his argument almost unheeded for the last five minutes.
Mirvis is back now for a minute making the same common understanding argument. I think his argument that because Air Products has the same charter language as Airgas that it somehow disqualifies Air Products' interpretation of Airgas' charter isn't all that useful.
... and that's it!
Tuesday, November 2, 2010
You'll remember that Airgas lost in the Chancery Court on the question whether or not the terms of its staggered board were for three calendar years or for that period of time required for three shareholder meetings to occur. The two turn out to be different. They've taken that issue to the Delaware Supreme Court where no doubt they will be making another version of the argument that the court should not interpret the plain language of the charter but rather a more ... common understanding. As I noted before, that's not an argument that will likely carry the day. Nevertheless, they are before the court this morning and, thanks to the crew over at Courtroom View Network, I'll be watching live.
Given that the board of Airgas has already begun "discussions" of a sort with Air Products one wonders why they are pursuing this appeal. I suppose if they win, they think they can just walk away from the talks about the talks.
Anyway, oral argument is scheduled for 10:00am.
Update: 10:00am - tomorrow, Nov. 3! That's what happens when you're on leave. The calendar becomes a blur.
Friday, October 29, 2010
BHP Billiton's hostile bid for Potash Corporation of Saskatchewan continues to provide interesting lessons for M&A buffs. You can’t underestimate the power of a hostile deal, especially a cross-border one with regulatory uncertainty, to raise enormous amounts of risks for both sides.
For Potash Corp this week has brought both good and bad news. The good news is, potash (the mineral) is in high demand, with Potash Corp reporting stellar quarterly profits. The bad news is that, in a weird twist not often seen in hostile deals, the stock of Potash Corp may not be trading as high as it should be (i.e. the fundamental value isn’t reflected in the current stock price) because of the uncertainty surrounding the BHP bid. In fact, Potash’s Q3 investor presentation spends much time driving home this point, providing a “hypothetical unaffected stock prince analysis” and honing in on the inadequacy of BHP’s offer.
Potash Corp investors that are hoping that as a result of the company's strong earnings BHP would raise its offer may not see that happening anytime soon. Recent reports indicate that, in addition to Saskatchewan, the Canadian federal and other provincial governments may get in the way of any possible takeover by a non-Canadian buyer. Despite the fact that BHP’s offer is likely too low at the moment in light of the improving trends in fertilizer prices, based on statements (“I think we're going to get screwed” ) by a source allegedly close to BHP, it appears raising the offer is not likely at the top of their list given the tense negotiations with the Canadian government. Of course, BHP issued a statement trying to distance itself from this comment, stating that "We have absolute confidence in the integrity of the Investment Canada process. We continue to have ongoing negotiations with the Investment Review Division, but we do not comment on these discussions in the media.” We will see on November 3rd when the Canadian authorities complete their review of the bid.
BHP and its management are under a lot of presssure with this deal. In addition to the problems they are encountering with the Canadan government, if they lose this deal, it will be the second big hostile deal that they have failed to complete in the last two years. Furthermore, losing out on the Potash deal will be painful and costly given the amount of resources they have devoted to it over the past several months.
In the meantime, Potash Corp’s CEO is also trying to calm things down, indicating that the company is looking for a white knight and has engaged in “very active conversations about alternatives to BHP’s hostile offer.” Given the way the things are going in Canada with the BHP bid, it will be interesting to see whether these other options involve foreign buyers.
Monday, October 25, 2010
As devoted readers know, we’ve spent a lot of time covering BHP Billiton’s hostile bid for Potash (see for example this, this, and this). The deal is a classic example of cultural issues in cross-border transactions and the risks that arise in deals where government approval plays an important role. Not only are the parties dropping cash on the people of Saskatchewan, but the provincial government, as Brian noted last week, is wading deeply into this deal. In addition to last week’s shenanigans, the Saskatchewan Premier Brad Wall is playing the nationalist card in today’s press release urging the Canadian federal government to block the deal, stating that BHP’s former Chair views Canada as a “Branch Office” and that
"[I]t's up to our federal government to ensure we retain Canadian control of our natural resources and that we don't become a ‘branch office,' like BHP apparently sees us," Wall said. "Mr. Argus' words and BHP Billiton's apparent view of Canada should give the federal government plenty of pause as it considers its response to the largest foreign takeover in Canadian history. If Australian business leaders like Mr. Argus are concerned about ceding too much control of Australia's natural resources to foreign control, shouldn't our government feel that same concern about Canada's resources?"
Some conservatives in Canada are now accusing Saskatchewan of becoming the next Venezuela (going a bit overboard, no??) for allegedly asking BHP to pay a billion dollars of potential lost taxes up front…Let the fun continue.
Friday, October 22, 2010
Wednesday, October 6, 2010
I've written on this before (and also here, and here). In the 1980s during the great takeover boom and hollowing out of the industrial heartland, many states adopted amendments to their corporate codes that codified directors' fiduciary duties, so-called "constituency statutes". In general, these provisions made it clear that a director need not "maximize shareholder value." Rather, in complying with their fiduciary obligations, directors may take all sorts of things into consideration - the impact of their decisions on various constituencies, including employees, the community, the environment, the color of the sky, whatever.
When these statutes were first passed, they were heralded as way to protect jobs, etc. Earlier this year, Michigan passed one hoping it would protect local jobs from corporate raiders. Lots of other states have similar constituency statutes. For example, Oregon has one (Sec. 60.357). You can find them all over. In general, these statutes reject Unocal and Revlon as binding on directors of corporations in those jurisdictions.
My problem with these statutes is that they strike me as a bit of a head fake. While they certainly give boards the power they need to protect local communities, etc should they so desire, they don't actually require directors to protect those constituencies. In effect, such statutes, simply give directors another fiduciary lever to pull when negotiating with a potential acquirer.
I've said this before, but you know a board might be very concerned about the impact of a potential acquisition on employees and the community when the bid is $69. At $75, the board's concerns about the impact on the community might start to fall away. Why not move the HQ to Paris? It's so much nicer there than Cambridge. At $85? Employees ... we have employees?!
There's no requirement that a board share the incremental price increase with those stakeholders who will lose out when a transaction is ultimately done. Does anyone really think that a board, having invoked this provision to say no, will then turnaround a cut a check to the local community the day after it accepts an offer to sell? In the end, the price paid goes to shareholders, not to the employees or the community or the environment. To the extent these statutes get sold to legislators as important tools to protect local companies (and jobs and communities) from outside raiders, they are, in that sense, a bit of a scam. These statutes put all the cards into the hands of directors. And that's fine, if that's what you want to do.
Along those lines, I spent the afternoon in the MA Business Litigation Session yesterday with a couple of students. We went to observe motions being argued in the consolidated case against Genzyme. You'll remember that Genzyme and its directors were sued (8 lawsuits!) after they turned down a friendly merger proposal from French Sanofi (this is before Sanofi went hostile).
In their complaints, the plaintiffs made a variety of allegations of the sort you might expect - by not accepting or negotiating the offer from Sanofi that the board violated is fiduciary duties to "maximize shareholder value" [Revlon], etc. Here's the thing, though. Massachusetts has a constituency statute (156D, Sec. 8.30).
Section 8.30. GENERAL STANDARDS FOR DIRECTORS
(a) A director shall discharge his duties as a director, including his duties as a member of a committee:
(1) in good faith;
(2) with the care that a person in a like position would reasonably believe appropriate under similar circumstances; and
(3) in a manner the director reasonably believes to be in the best interests of the corporation. In determining what the director reasonably believes to be in the best interests of the corporation, a director may consider the interests of the corporation’s employees, suppliers, creditors and customers, the economy of the state, the region and the nation, community and societal considerations, and the long-term and short-term interests of the corporation and its shareholders, including the possibility that these interests may be best served by the continued independence of the corporation.
So, here come the shareholders with the extremely premature claim that Genzyme's directors somehow violated their fiduciary duties to the corporation because they turned down an unsolicited offer from Sanofi. But, Genzyme is a MA corporation and MA is not Delaware. If the directors act in good faith, and then come to the determination that it's in the best interests of the corporation and the city of Cambridge for Genzyme to stay independent, no court in MA will disagree with them. The plaintiff shareholders simply have no case because (so far) the constituency statute is working exactly as intended.
I think this is interesting, because just as labor, community, etc. have no case to prevent a sale notwithstanding the presence of a constituency statute, neither do shareholders have a voice to push one. The directors call the shots. I often wonder, other than directors, what constituency these constituency statutes serve.
Wednesday, September 29, 2010
It's been an exciting couple of weeks on the proxy fight side. Yesterday, Barnes & Noble announced the results of the proxy contest instigated by Ron Burkle of Yucaipa. Management board members were returned and the dissidents lost (WSJ). But here's the thing - management directors got 44% of the vote and Yucaipa's slate got only 39%. OK, that's still a win for management under current voting rules for a company without a majority voting provision in its bylaws. However, given that Riggio undoubtedly voted the 30% or so that he controls in his favor, the fact that management could only come back with 44% of the quorum (not the total shares outstanding) is pretty pathetic. And Burkle doesn't off easy either - apparently Aletheia sat on the sidelines, not voting a large percentage of its stock (FT.com). Turns out when Burkle's legal team was arguing at trial over the summer that they hadn't made an agreement - even a wink and a nod - with Aletheia that they were right! Sorry I ever doubted them. But I bet you Burkle is wishing he might winked and nodded a bit more.
Over at Airgas, the parties are going to court next week to argue over the question of the validity of the bylaw amendment that calls for a shareholder meeting in January 2011. Air Products won that vote. Air Products was also successful in getting their slate of directors elected ousting three incumbent Airgas directors, including Peter McCausland, the CEO and Chairman. Not but a couple of days later the Airgas rump board expanded its size by one and reappointed McCausland to the board. Sure, I know, the board has the authority to expand or decrease its size and that it's perfectly within its rights to reappoint McCausland. But, c'mon.
All in all, it's been a couple of interesting weeks on the proxy contest front. I suspect that neither the Barnes & Noble fight nor the Airgas/Air Products contest are near over.
Tuesday, September 28, 2010
For readers who are following our posts (here and here) on BHP Billiton’s hostile bid for Potash, you should take a look at this post by the Deal Professor which considers the possible steps that Potash can take to deter BHP. There is a lot of uncertainty in this transaction, including a host of regulatory and political issues. For now, Potash’s sideshow litigation is moving along in U.S. federal court. Potash has the opportunity to at least drag this out a bit with a ruling allowing the discovery process to proceed.
Friday, September 24, 2010
I'll just add this brief comment to Afra's good post on the state of the proposed Potash/BHP transaction. Potash has sued BHP in federal court over this BHP's hostile offer (Download Potash complaint). It's worth noting that since the complaint alleges various violations of the Williams Act, which you'll remember is the disclosure regime that governs tender offers, Potash is limited in the remedies that it can ask for. The best remedy for inadequate or incorrect disclosure is .... well ... disclosure. That's why the injunction that Potash is asking for is tied to slowing the offer down until the disclosure can be corrected. In the real world of large NY law firms, that isn't a whole lot of time ... 24, 48 hours to kick out an amended Schedule TO?
I have no doubt that if Potash could get an injunction preventing the offer from going forward, it would. In fact, they hint at it in the complaint - suggesting the tender is coercive because BHP is only seeking 51% has not conditioned the offer on receiving more than 67% of the outstanding shares. I think they're hoping that a judge will agree with them and enjoin the whole deal. Well, that's not going to happen. There's no obligation under the Williams Act that an offerer buy 100% of the outstanding shares, and buying less than all, without more, is just not coercive. In any event, the courts have regularly ruled that the Williams Act is not intended to be a defensive weapon to protect management from unwanted bids. A plaintiff is only going to get an injunction to block a bid if the preferred remedy - disclosure - isn't enough to avoid irreparable harm (see Rondeau v Mosinee Paper), and I don't see the irreparable harm here.
Wednesday, September 22, 2010
A heated cross-border hostile takeover saga (with big US connections) has been occurring over potash (a key input for fertilizer and other agricultural products), and the moves by the various players should remind our readers of classic plays in the hostile takeover game. In August of this year, British-Australian giant BHP Billiton (the jilted former suitor of Rio Tinto back in 2008) launched a $39 billion takeover bid for Canadian company Potash Corporation of Saskatchewan Inc. (“PotashCorp”). PotashCorp’s board has been actively resisting BHP’s bid, putting forth the usual argument that BHP’s offer is opportunistic, inadequate and coercive, that Potash is better off alone rather than selling to BHP (without of course ruling out a potential sale at some point), and that “superior offers are expected to emerge.” PotashCorp’s management has not relied only on the standard letters, press releases and regulatory filings to resist BHP, as Brian noted earlier, PotashCorp’s CEO has also posted videos to communicate with the company’s shareholders. Meanwhile BHP’s CEO is busy meeting with Canadian lawmakers and defending the Potash bid to his shareholders. Now, there is also news that China’s Sinochem Corp. has allegedly hired expensive bankers (are there any other kind…) to explore a rival offer for PotashCorp. In light of potential competition from Sinochem, BHP’s CEO stated yesterday that BHP would be willing to walk away if the offer didn’t make sense for his shareholders. Of course, this could also be because it is not clear that BHP’s shareholders buy the argument that the PotashCorp acquisition is the way to go (especially since there is a lot of evidence that big transactions like this rarely add value for the shareholders of the buyer). Moreover, unlike these kinds of big deal involving US companies where shareholders of the acquirer often do not get voting rights, BHP may need shareholder approval for its offer under the UK Listing Rules which require approval from shareholders of the acquirer of larger (Class 1 transactions), meaning a transaction that amounts to 25 percent (or more) of any of the company‘s gross assets, profits, or gross capital, or in which the consideration is 25 percent (or more) of the market capitalization of the company‘s common stock.
PotashCorp isn’t waiting around to see if Sinochem comes forward with an offer, it has also filed a suit in US federal court seeking to block the takeover and accusing “BHP of making false and misleading statements in regards to how it plans to run the combined company in the future.” PotashCorp has also raised the BHP shareholder vote issue, stating in its complaint that “BHP failed to disclose to PCS shareholders that on the day it launched its hostile bid, and thereafter in light of the market reaction to the offer price, it was reasonably likely that a vote of BHP shareholders – required under U.K. law for any acquisition where the consideration equals 25% or more of the acquirer’s market capitalization – would be required. Indeed, even BHP’s lowball bid was equal to approximately 23% of BHP’s market capitalization at the time the tender offer was commenced. BHP’s misleading omission deprived PCS shareholders of critical information in at least two respects: that approval of the transaction was uncertain, and that the need for shareholder approval could constrain BHP’s ability to increase its bid to a level closer to fair value.”
For M&A buffs, it is worth keeping an eye on this deal, there are a lot of moving targets and I wouldn’t be surprised if more legal, strategic and regulatory issues arise.
Thursday, September 9, 2010
It used to be that a board in response to an unwanted offer a board would just send a press release to PR Newswire and then file a 14D-9. My ... how times have changed. Potash is presently fending off an unwanted bid from BHP and rather than simply issue a press release, they go to YouTube! (H/T WSJ Deal Journal) Here's Potash CEO Bill Doyle explaining the board's reasons for rejecting the offer:
It's a simple, low budget production. I wonder why they thought it would be more useful than a press release. It's certainly not easier - it takes CEO time and still requires a filing with the SEC. Since you can't file a video clip, yet, the whole thing has to be transcribed before its filed. Here's the filing for the video. It's also not the kind of thing that CNBC or some other business network is going to want to air. I wonder what it's for.
Oh and here's Bill Doyle on those dastardly arbitrageurs ... you know who you are ...
To be honest, I still think the guys over at Woot! know how to use video to communicate with their customers and shareholders. Can you imagine the impact of a monkey puppet rejecting BHP's bid?!
Tuesday, April 27, 2010
I thought we had moved beyond much of this silliness.
I guess I was wrong. According to the Detroit News, the
The bill (Senate Bill 1174) requires that any acquisition of a domestic (
The bill (Senate Bill 1174) requires that any acquisition of a domestic (
My problem with these kinds of efforts, other than them being vanity pieces, is that they are
often touted as pro-employment/pro-community laws and supported by both labor and community leaders. The truth is, though, they are not.
You know - the buyer will lay everyone off and give nothing back to the
community - that kind of thing. For example – here’s a letter
to the editor of the Detroit News making just that argument with respect to
My problem with these kinds of efforts, other than them being vanity pieces, is that they are often touted as pro-employment/pro-community laws and supported by both labor and community leaders. The truth is, though, they are not. You know - the buyer will lay everyone off and give nothing back to the community - that kind of thing. For example – here’s a letter to the editor of the Detroit News making just that argument with respect to this bill.
But nothing in the law
requires the board to do anything for labor or the community. Indeed, I suspect that at the right price the
board of a target
But nothing in the law
requires the board to do anything for labor or the community. Indeed, I suspect that at the right price the
board of a target
If legislators think they are passing these
laws to protect local communities and jobs, they should guess again.
If legislators think they are passing these
laws to protect local communities and jobs, they should guess again.