M & A Law Prof Blog

Editor: Brian JM Quinn
Boston College Law School

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)

Thursday, January 14, 2010

More on NACCO Industries from Davis Polk

Brian recently posted about the NACCO Industries case (here), As he reminds us:

NACCO reminds us that if you are going to terminate a merger agreement, you better comply with all its provisions.  If you don't, if you perhaps willfully delay your notice to the buyer about a competing proposal, you might not be able to terminate without breaching.  And, if you breach, your damages will be contract damages and not limited by the termination fee provision.  Remember, you only get the benefit of the termination fee if you terminate in accordance with the terms of the agreement.  Willfully breaching by not providing "prompt notice" potentially leaves a seller exposed for expectancy damages.

Davis Polk has just issued this client alert, drawing a few more lessons from the case.  Here's a sample:

A recent Delaware Chancery Court decision raises the stakes for faulty compliance with Section 13(d) filings, holding that a jilted merger partner in a deal-jump situation may proceed with a common law fraud claim for damages against the topping bidder based on its misleading Schedule 13D disclosures.  NACCO Industries, Inc. v. Applica Inc., No. 2541-VCL (Del. Ch. Dec 22, 2009).  The decision, which holds that NACCO Industries may proceed with numerous claims arising out of its failed 2006 merger with Applica Incorporated, also serves as a cautionary reminder to both buyers and sellers that failure to comply with a "no-shop" provision in a merger agreement not only exposes the target to damages for breach of contract, but in certain circumstances can also open the topping bidder to claims of tortious interference.


January 14, 2010 in Break Fees, Contracts, Corporate, Deals, Federal Securities Laws, Leveraged Buy-Outs, Merger Agreements, Mergers, Private Equity, Transactions | Permalink | Comments (1) | TrackBack (0)

Monday, December 28, 2009

Just in time for the holidays

The M&A Market Trends Subcommittee of the ABA just announced that the 2009 Private Target Deal Points Study is now available to Subcommittee members here.   Highlights of the 2009 Study were presented last month at an ABA telecast on "M&A Negotiation Trends: Insights from the 2009 Deal Points Study on Private Targets." The MP3 is available here

If you want full access to this and the many other valuable studies published by the subcommittee, you must be (or know really well)  an active member. You can directly sign up for update alerts here

One supplement already in the pipeline focuses on financial sellers (i.e., VCs and private equity groups). Benchmarking "financial seller deals" with the Study sample generally, the subcommittee is trying to answer the age-old question: "Do financial sellers really get a better deal?" It expects to release this supplement at the Subcommittee's meeting in Denver (April 23-24)


December 28, 2009 in Deals, Leveraged Buy-Outs, Merger Agreements, Mergers, Private Equity, Private Transactions, Research, Transactions | Permalink | Comments (0) | TrackBack (0)

Tuesday, September 22, 2009

Massa and Zhang on Cosmetic Mergers

Massa and Zhang's Cosmetic Mergers: The Effect of Style Investing on the Market for Corporate Control is appearing in the current Journal of Financial Economics. Here's the abstract.

Abstract:  We study the impact of “style investing” on the market for corporate control. We argue that the choice of the bidder is influenced by the fact that the merge with a firm that belongs to an investment style more popular with the market may boost the bidder's value. By using data on the flows in mutual funds, we construct a measure of popularity, which relies directly on the identification of sentiment-induced investor demand, rather than being a direct transformation of stock market data. We show that differences in popularity between bidder and target help to explain their pairing. The merger with a more popular target generates a halo effect from the target to the bidder that induces the market to evaluate the assets of the less popular bidder at the (inflated) market value of the more popular target. Both bidder and target premiums are positively related to the difference in popularity between the target and the bidder. However, the target's ability to appropriate the gain is reduced by the fact that its bargaining position is weaker when the bidder's potential for asset appreciation is higher. We document a better short- and medium-term performance of less popular firms taking over more popular firms. The bidder managers engaging in these cosmetic mergers take advantage of the window of opportunity induced by the deal to reduce their stake in the firm under convenient conditions.


September 22, 2009 in Mergers | Permalink | Comments (0) | TrackBack (0)

Wednesday, July 29, 2009

What must a Board do to satisfy its Revlon duties?

Milbank, Tweed reviews the decision of the Delaware Court of Chancery in Police & Fire Ret. Sys. of the City of Detroit v. Bernal, et al. and concludes

 [The Delaware Supreme Court’s recent decision in Lyondell Chemical Company v. Ryan] confirmed that directors may aggressively pursue a transaction that they determine in good faith to be beneficial to shareholders, despite the absence of an auction process, so long as their actions are reasonable and aimed at obtaining the best available price for shareholders. However, . . . the language used by the Court in Bernal certainly suggests that when a company has attracted more than one bidder, the best way for a board to satisfy its Revlon duties and maximize shareholder value is to follow a robust sale or auction process that avoids taking actions that could be perceived as favoring one bidder over another. As Court of Chancery decisions in recent years have demonstrated, when only one bidder exists, Delaware Courts are reluctant to upset the deal and risk losing an attractive opportunity for target company shareholders. In contrast, when more than one bidder is involved, Delaware Courts are more comfortable scrutinizing a deal and taking steps to permit an auction to continue.

Get the full story here.



July 29, 2009 in Asset Transactions, Deals, Going-Privates, Leveraged Buy-Outs, Management Buy-Outs, Merger Agreements, Mergers, Private Equity, Takeovers, Transactions | Permalink | Comments (2) | TrackBack (0)

Wednesday, June 17, 2009

Breaking the Bank

Last night's Frontline episode gives a blow-by-blow of the BoA/Merrill deal in crisp Frontline style.  Watch it over lunch at your desk.

For those of you keeping score at home, the material adverse change language is from the merger agreement is below.  Having it in front of you will come in handy at certain points while watching the show.

3.8 Absence of Certain Changes or Events. (a) Since June 27, 2008, no event or events have occurred that have had or would reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect on Company. As used in this Agreement, the term “Material Adverse Effect” means, with respect to Parent or Company, as the case may be, a material adverse effect on (i) the financial condition, results of operations or business of such party and its Subsidiaries taken as a whole (provided, however, that, with respect to clause (i), a “Material Adverse Effect” shall not be deemed to include effects to the extent resulting from (A) changes, after the date hereof, in GAAP or regulatory accounting requirements applicable generally to companies in the industries in which such party and its Subsidiaries operate, (B) changes, after the date hereof, in laws, rules, regulations or the interpretation of laws, rules or regulations by Governmental Authorities of general applicability to companies in the industries in which such party and its Subsidiaries operate, (C) actions or omissions taken with the prior written consent of the other party or expressly required by this Agreement, (D) changes in global, national or regional political conditions (including acts of terrorism or war) or general business, economic or market conditions, including changes generally in prevailing interest rates, currency exchange rates, credit markets and price levels or trading volumes in the United States or foreign securities markets, in each case generally affecting the industries in which such party or its Subsidiaries operate and including changes to any previously correctly applied asset marks resulting therefrom, (E) the execution of this Agreement or the public disclosure of this Agreement or the transactions contemplated hereby, including acts of competitors or losses of employees to the extent resulting therefrom, (F) failure, in and of itself, to meet earnings projections, but not including any underlying causes thereof or (G) changes in the trading price of a party’s common stock, in and of itself, but not including any underlying causes, except, with respect to clauses (A), (B) and (D), to the extent that the effects of such change are disproportionately adverse to the financial condition, results of operations or business of such party and its Subsidiaries, taken as a whole, as compared to other companies in the industry in which such party and its Subsidiaries operate) or (ii) the ability of such party to timely consummate the transactions contemplated by this Agreement.



June 17, 2009 in Current Events, Material Adverse Change Clauses, Mergers | Permalink | Comments (1) | TrackBack (0)

Monday, May 25, 2009

Rubinovitz on Fixed Costs

Robert Rubinovitz's paper, "The Role of Fixed Cost Savings in Merger Analysis" is now appearing in the Journal of Competition Law & Econ.  Here's the abstract:  

Among the many motivations for mergers, clearly one of the more important considerations is the extent to which the merger will generate cost savings for the firms involved. Standard economic models demonstrate that a decrease in marginal cost leads to a lower price, whereas a decrease in fixed costs does not necessarily have this effect. Thus, from the Antitrust Agencies' perspective, in a merger analysis, emphasis should be placed on marginal cost savings because these efficiencies will create short-run benefits for consumers, in terms of lower price and higher output, and should be given the most weight. Of late, increasing attention has been given to how fixed cost savings can improve consumer welfare. One key insight is that demonstrating the direct effects of fixed cost savings on consumer welfare may require a longer time horizon than marginal cost savings or may require embedding these savings in a dynamic context. This paper exhibits an approach that provides straightforward predictions on the relationship between fixed costs, prices, and consumer welfare. When the fixed cost of producing quality decreases, it is shown that consumer welfare increases. The clear implication of this model is that fixed cost savings should be given weight in the analysis of the potential effects of a merger on consumer welfare.

- bjmq

May 25, 2009 in Antitrust, Mergers, Research | Permalink | Comments (0) | TrackBack (0)

Wednesday, September 5, 2007

MGIC/Radian Deal -- RIP

MGIC Investment Corporation and Radian Group Inc. jointly announced today that they have terminated their pending merger.  Here were the very nice comments each had for the other in their joint press release:

Curt Culver, MGIC Investment's CEO, said, "I am pleased MGIC and Radian were able to reach this amicable resolution. During the course of the merger process, our MGIC team met many fine people from Radian. We wish them the best."

S.A. Ibrahim, Radian Group's CEO, said, "Our mutual decision to terminate the pending merger represents the best outcome for both companies under the circumstances. We wish MGIC and its employees well."

MGIC is clearly the much happier of the two, though, as MGIC had previously asserted that a material adverse change had occurred to Radian permitting MGIC to terminate their merger arrangement.  To my knowledge, this is the first deal to be terminated on MAC grounds because of the sub-prime mortgage crisis.  And a quick review of the termination and release agreement finds that it will be a clean break.  MGIC will not pay any funds to Radian in connection with this termination.  I have to admit, I am a bit surprised about this.  Based on the publicly available facts, Radian appeared to have reasonable grounds to deny that a MAC had occurred.  Nonetheless, advised by Wachtell, Radian has chosen to drop any claims and the value in them.  Presumably, they know more than I do. 

Ultimately, the case points to why there is so little case-law on MACS out there -- the parties typically settle these cases by terminating the deal or renegotiating the price (as appears to be the trajectory of the Lone Star/Accredited Home deal).  And given the settlement and the lack of full disclosure here, it is hard to draw any conclusions from this termination for the other pending MAC cases out there.  Oh -- and those nice comments above -- well expect them in all of the parties' comments on the terminated deal.  Each agreed in the termination agreement to a non-disparagement clause for the next 18 months.  Hopefully, this clause will not chill their speech and prevent full disclosure by Radian to its shareholders of the facts which led to this deal termination.  They are having a hard enough day today as it is. 

September 5, 2007 in Material Adverse Change Clauses, Mergers | Permalink | Comments (0) | TrackBack (0)

Wednesday, August 29, 2007

Topps's Predictable Postponement

Earlier this week Topps announced that it would postpone the special meeting of Topps’ stockholders to consider and vote on the proposed merger agreement with affiliates of The Tornante Company LLC and Madison Dearborn Partners, LLC  to Wednesday, September 19, 2007.  The meeting was to have been held on August 30.  (NB. the postponement is 20 days so as to avoid problems with the Delaware long form merger statute (DGCL 251(c)) which requires twenty days notice prior to the date of the meeting.)

In the press release, Topps disclosed its belief that the merger was likely be voted down if the meeting was held on August 30. Topps also justified delaying the meeting by stating that:

the Executive Committee believes that stockholders should have the opportunity to consider the fact that Upper Deck has very recently withdrawn its tender offer and ceased negotiating with Topps to reach a consensual agreement, and that no other bidder has emerged to acquire Topps. In addition, as a result of the developments with Upper Deck, Topps would like additional time to communicate with investors about the proposed $9.75 all cash merger with Tornante-MDP . . . .Finally, given the recent turmoil in the credit markets and the impact that this turmoil may have on alternatives to the merger (including alternatives proposed by Crescendo Partners), Topps believes stockholders should be provided with additional time to consider whether to vote in favor the transaction.

The postponement was not a surprise.  When VC Strine's issued his decision earlier this month in Mercier, et al. v. Inter-Tel, upholding the Inter-Tel's board's decision to postpone a shareholder meeting under certain defeat, I predicted that postponement of the shareholder meeting would now be a tool more extensively utilized by boards to attempt to salvage troubled deals and permit arbitrageurs to exercise greater influence on M&A deals.   But, in Topps's case they have kept the record date at August 10, so that arbs will not be able to influence the outcome as much; a practice I hope becomes common in these situations.  This is particularly true given the posture of the Topps deal; the stock is now trading well below the price it was when the Upper Deck offer was pending and the prevailing arb position is more likely short because of it (though this is speculation from a lawyer not an arb, if anyone has more concrete information please let me know).   

I haven't had time of late to write more generally on the Topps deal.  But, it is hard not to blame the Topps board here.  The Topps board has been heavily criticized by its shareholders for accepting the Tornante bid and for undue management influence in this process.  This made resistance to the Upper Deck bid appear illegitimate in many shareholders eyes, even if Topps was right and Upper Deck's bid was merely an illusory one made by a competitor to obtain confidential information.    With the Upper Deck bid withdrawn, the Topps board is now locked in a vicious fight with the Crescendo Partners-led The Committee to Enhance Topps to obtain Topps shareholder approval.  But with three proxy advising firms, including ISS, now recommending against the transaction, Topps still has a long way to go.  By the way, the proxy letters going back and forth between the parties are fantastic -- check them out here

August 29, 2007 in Mergers, Proxy, Takeovers | Permalink | Comments (0) | TrackBack (0)

MGIC/Radian Deal -- MIA

The MGIC Investment and Radian Group Inc. merger took an interesting turn this past week.  On August 7, MGIC in a public filing disclosed that it believed a material adverse change had occurred with respect to Radian in light of the C-BASS impairment announced that previous week.  C-Bass is the subprime loan subsidiary jointly owned by MGIC and Radian; it has been hit hard by the subprime crisis and has experienced greater than $1 billion in losses in the last few months. MGIC further stated that it had  requested additional information from Radian and expected to complete its MAC analysis the week of August 13. Radian, not surprisingly, refuted MGIC's assertion in its own filing.  At the time, Radian stated that it was "compelled to carefully assess the proprietary nature of the subsequent information requests [of MGIC] to ensure that Radian does not provide MGIC with an unfair competitive advantage in the event that MGIC decides that it does not have an obligation to complete the merger.."

The Radian/MGIC deal raises similar issues as the Lone Star/Accredited Home Lenders deal, and they are both governed by Delaware law.  In particular they both raise mixed legal/factual issue of whether any material adverse change is disproportionate to Radian to an extent greater than the adverse changes to the industry generally (see my post on this here; see the MAC clause in the merger agreement at pp. 7-8).  Given the similarities between the Lone Star/AHL deal and this one, I expected Radian and MGIC to wait until VC Lamb issues his decision and opinion in the Lone Star/AHL litigation in late September/early October before proceeding.  And that appears to be what is happening.  On Aug 21, MGIC sued Radian in federal district court in Milwaukee (its home town), to obtain information from Radian it believes is required to be delivered under the merger agreement and it needs to properly assess whether a MAC occurred (see news report here).  MGIC is stalling for time through a nice legal maneuver.  The deal is now likely on hold for the next month. 

The MGIC/Radian litigation also highlights the importance of tight forum selection clauses.  Clause 9.11 of the merger agreement stipulates that the parties accept jurisdiction in any suit for specific enforcement of the transactions contemplated by the agreement in any New York court.  But this is not mandatory submission to jurisdiction.  This may or may not have been the parties bargained for intent in future disputes (i.e., it may have just been a quick negotiation following the form late at night without really thinking through the possibilities of such an agreement).  But, whatever the case, by suing for information in a Milwaukee court, Radian has now established home court advantage for any subsequent MAC litigation fight. 

August 29, 2007 in Litigation, Material Adverse Change Clauses, Mergers | Permalink | Comments (0) | TrackBack (0)

Tuesday, August 21, 2007

Strine Strikes Again: Mercier, et al. v. Inter-Tel

On August 14 in Mercier, et al. v. Inter-Tel, Vice Chancellor Strine upheld the decision of a special committee to postpone a shareholder meeting to vote on an acquisition proposal which was made on the day of that meeting.  In his opinion, Strine held that postponement was appropriate under the "compelling justification" test of Blasius Industries, Inc. v. Atlas Corp., 564 A.2d 651 (Del. Ch. 1988), since "compelling circumstances are presented when independent directors believe that: (1) stockholders are about to reject a third-party merger proposal that the independent directors believe is in their best interests; (2) information useful to the stockholders' decision-making process has not been considered adequately or not yet been publicly disclosed; and (3) if the stockholders vote no... the opportunity to receive the bid will be irretrievably lost." 

The opinion is important for three reasons.  First, Strine is the first to hold the "compelling justification" test of Blasius to be met [Ed. Note -- this is actually the second case see the correction below].  Second, this being a Strine opinion, he uses the opportunity presented to attempt a rewrite of the Blasius standard.  Third, the opinion provides important guidance for a board wishing to postpone a shareholder meeting on an acquisition proposal.  Ultimately, the decision increases a target board's ability to control an acquisition process and influence its outcome.

The summary facts are these:  Inter-Tel had agreed to be acquired by Mitel Networks Corporation for $25.60 a share in a cash merger.  A competing proposal was put forth for a recapitalization of Inter-Tel by the founder of the company who was also a director.  Institutional Shareholder Services and several shareholders also subsequently came out in opposition to the Mitel merger.  Faced with certain defeat, the special committee of the board of Inter-Tel voted on the actual day of the meeting to postpone it in order to attempt to persuade sufficient shareholders to change their vote.  In the postponed meeting, the shareholders voted to approve the merger based in part on the changed recommendation of ISS and subsequent deteriorated financial condition of Inter-Tel.

First, the technical points in the opinion concerning the shareholder meeting postponement:

  1. The board here "postponed" the meeting rather than adjourning it once it had been convened.  The Delaware General Corporation Law does not address this practice, but practitioners have generally believed that this is permissible.  Strine's acceptance of this postponement without comment in his opinion implicitly confirms this. This, together with Strine's ultimate holding, opens up a wide technical loop-hole for future boards to "postpone" shareholder meetings when faced with an uncertain vote rather than adjourning them.  Given today's market volatility and the uncertainty behind a number of deals, expect this option to be exercised in the near-future (e.g., a likely candidate is Topps).
  2. Inter-Tel ultimately set the new shareholder meeting date twenty days after the old one.  The Delaware long form merger statute (DGCL 251(c)) requires twenty days notice prior to the date of the meeting.  The opinion thus leaves the question open whether a postponed meeting is a new one for these purposes such that the full twenty days notice period starts anew. 
  3. Inter-Tel's proxy had included a provision granting the board the power to "adjourn or postpone the special meeting" to solicit more proxies.  This provision was included due to informal SEC proxy requirements that shareholders must approve any adjournment.  In the case of Inter-Tel there were insufficient votes voting to adjourn the meeting.   In footnote 38 of the opinion, Strine stated that "[i]f the special meeting had actually been convened, Inter-Tel's bylaws would seem to have required stockholder consent to adjourn." Section 2.8 of Inter-Tel's By-laws states that "The stockholders entitled to vote at the meeting, present in person or represented by proxy, shall have the power to adjourn the meeting form time to time."  Thus, Inter-Tel side-stepped this dilemma through a postponement.  Note that a separate by-law would have been required to give the Chair of the meeting power to adjourn the board in the absence of the necessary shareholder vote. 

Now for the more interesting part, the doctrinal issues:

In his opinion, Strine first distinguished the holding of In re Mony Group, 853 A.2d 661 (Del.Ch. 2004); there the Delaware Chancery Court applied the business judgment rule to analyze a board decision to postpone a shareholder meeting on an acquisition proposal and set a new record date(NB.  I've always thought this decision to be doctrinally problematical).  Strine found Mony distinguishable since there the merger was going to be approved; the directors would therefore be removed if the vote went through and so were disinterested and the shareholders still free to accept or reject the merger.  Here, Blasius was applicable since the merger would likely not be approved, an event which would keep the directors in office.  Strine then proceeded into an analysis of the Blasius standard invoking adjectives such as "bizarre" and "crude" to describe it.  He concluded by stating that the Blasius approach should be "reserved largely for director election contests or election contests having consequences for corporate control.”  Here, Strine judicially constricted the reach of Blasius from that decision itself and the Delaware Supreme Court's decision in MM Companies, Inc. v. Liquid Audio, Inc., 813 A.2d. 1118 (Del. 2003) which speak of applying the standard to board actions which have "the primary purpose of interfering with or impeding the effective exercise of a shareholder vote."  Accordingly, his holding here may not be one the Delaware Supreme Court ultimately agrees with. 

Strine then attempted to recast Blaisus as interpreted by Liquid Audio itself:

Although it does not use those precise words, Liquid Audio can be viewed as requiring the directors to show that their actions were reasonably necessary to advance a compelling corporate interest . . . . Consistent with the directional impulse of Liquid Audio, I believe that the standard of review that ought to be employed in this case is a reasonableness standard consistent with the Unocal standard.

Strine pines here for a "legitimate objective" test but ultimately acknowledges that this is a reading that cannot currently be wholly jibed with the "compelling justification" standard of Blasisus/Liquid Audio.  So, he concludes by applying this "compelling justification" standard to the facts at hand to find that the following factors were sufficient to justify a same-day meeting postponement: (i) ISS's suggestion that it might change its negative recommendation if it had more time to study recent market events (including the debt market's volatility and the bidder's refusal to increase the consideration), (ii) the founder's competing proxy proposal for a recapitalization that was still being reviewed by the SEC, and (iii) the desire to announce the company's negative second-quarter results.  Strine found that the directors acted with "honesty of purpose" and noted that they did not have any entrenchment motive because they would not serve with the surviving entity.  Thus, the Blasisus standard was satisfied and the plaintiff's request for a preliminary injunction of the merger denied.

There is obviously more to this opinion and commentators will rush to fit this within the various doctrinal standards of the Delaware courts (hint:  start with Strine's own article on the subject).  Moreover, the opinion contains the usual Strine nuggets including an aside that we Americans have more words for money than Eskimos for snow.  But perhaps the most interesting point in the opinion was Strine's observations on arbitrageurs and their effect on acquisition proposals.  Here, the board had specifically based its postponement in part to permit arbitrageurs more time to increase their positions so as to vote in favor of the merger, though, ultimately it appears that they did not effect the vote.  Strine addressed this issue by specifically refusing to:

premise an injunction on the notion that some stockholders are 'good' and others are 'bad short-termers . . . . .

And while Strine left open the door for future challenges if arbitrageurs do indeed effect the outcome in such circumstances, the difficulty of proving who are the shareholders voting may open a small gate here for undue influence.  Hopefully, this is a gate that the Delaware courts will police thoroughly so as to prevent boards from unduly shifting a shareholder vote.   

Thanks and credit for some of the observations on this post to J. Travis Laster & Steven M. Haas of Abrams & Laster LLP who have put together a superb client alert on this opinion. 

Correction:  Steven M. Haas helpfully wrote to correct a point above:  "Strine actually found a compelling justification in Hollinger.  There, like Inter-Tel, he found a compelling justification . . . .That reminds me of one of my favorite Strinisms from the ABRY Partners oral argument: "What happens in Dover.... Sometimes gets remanded back to Wilmington...."

August 21, 2007 in Delaware, Mergers, Takeovers | Permalink | Comments (0) | TrackBack (0)