Tuesday, June 14, 2016
That was the question a friend asked. Apparently, someone decided Microsoft's proposed acquisition of LinkedIn was just too good to miss and purchased a boatload of call options just before the deal was announced. How much is a "boatload"? This much:
Hmm. Let's see. The average volume of LinkedIn call options back until February looks to be about 6 contracts per day according to this chart. Do you think the SEC would notice if I bought more than 600 contracts the day or two before the transaction is announced?! If I could put 600 in all caps I would have. It's just that ridiculous. Who ever this guy is, he is going to get caught. And you know what? He deserves to get caught. Just another example of someone's greed outpacing their common sense.
Monday, June 13, 2016
Drafting guru Ken Adams now has a print edition available of his ebook, "The Structure of M&A Contracts". I recommend this book to anyone dipping their toe into an M&A practice. Seriously. For many law students now becoming law firm associates, the M&A contract is a lengthy almost incomprehensible document. The usual path is simply to ignore it and slowly absorb the structure of the contract by osmosis over time. That's one approach, or you can take a more active approach to understanding the document and how it gets drafted.
Wednesday, June 1, 2016
The DOJ is pursuing criminal and civil charges against a former Barclays banker for allegedly paying for renovation of his bathroom with insider tips:
According to the complaint, McClatchey began tipping the Long Island-based plumber, a friend, in 2013, enabling him to execute trades ahead of merger announcements involving 11 companies, including Forrest Oil Corp and PetSmart Inc.
In exchange, the plumber made thousands of cash payments to McClatchey, in some instances placing cash in a gym bag that the banker brought with him to a marina in Long Island, and also provided home renovation services.
I think even under Newman free plumbing services is going to count as a personal benefit. Here's the civil complaint. The SEC is alleging that McClatchey received cash as well as bathroom renovation services in exchange for insider tips on upcoming mergers.
Tuesday, May 31, 2016
Well, Carl Icahn said $13.75 for Dell's 2013 going private deal was too low and he encouraged stockholders to seek an appraisal for their shares. While Mr. Icahn wasn't patient enough to hang in there, for those who were, they got a 22% bump in the consideration due to them according to Reuters. Vice Chancellor Laster just handed down an opinion in the Dell appraisal case that set the "fair value" of Dell shares at the time of the going private deal at $17.62. Here's the Dell appraisal opinion. So, according to the court, the special committee negotiated a price that was 22% below what the court believed was a fair value. Remember, the board was subject to Revlon during the going private process - so it was tasked not just with seeking a fair price, but with seeking the highest price reasonably available. One wonders whether how a board can fail to negotiate a fair price while still comporting with its fiduciary duties to seek the highest price available for its stockholders.
Tuesday, April 26, 2016
Two weeks after California recommended approval of the Charter-Time Warner Cable deal, now the DOJ/FCC have also cleared the way for that deal to close - but with conditions.
On April 12, California administrative law judge recommend approval of the deal under the conditions that 1) Charter upgrade all its California customers to high-speed, digital broadband within 30 months, 2) Charter comply with Federal open Internet access regulations, and 3) that for three years Charter not impose data caps on customers.
Then yesterday, the DOJ filed suit and settled an suit against the parties. In the proposed final judgment that has already be agreed to by the parties the government and the combined company agree to a number of conditions:
Based on imposed conditions that will ensure a competitive video marketplace and increase broadband deployment, an order recommending that the Charter/Time Warner Cable/Bright House Networks transaction be approved has circulated to the Commissioners. As proposed, the order outlines a number of conditions in place for seven years that will directly benefit consumers by bringing and protecting competition to the video marketplace and increasing broadband deployment. If the conditions are approved by my colleagues, an additional two million customer locations will have access to a high-speed connection. At least one million of those connections will be in competition with another high-speed broadband provider in the market served, bringing innovation and new choices for consumers, and demonstrate the viability of one broadband provider overbuilding another.
In conjunction with the Department of Justice, specific FCC conditions will focus on removing unfair barriers to video competition. First, New Charter will not be permitted to charge usage based prices or impose data caps. Second, New Charter will be prohibited from charging interconnection fees, including to online video providers, which deliver large volumes of internet traffic to broadband customers. Additionally, the Department of Justice’s settlement with Charter both outlaws video programming terms that could harm OVDs and protects OVDs from retaliation– an outcome fully supported by the order I have circulated today. All three seven-year conditions will help consumers by benefitting OVD competition. The cumulative impact of these conditions will be to provide additional protection for new forms of video programming services offered over the Internet. Thus, we continue our close working relationship with the Department of Justice on this review.
Importantly, we will require an independent monitor to help ensure compliance with these and other proposed conditions. These strong measures will protect consumers, expand high-speed broadband availability, and increase competition.
While this is a big win for network neutrality advocates, it's the kind of settlement that the government typically tries to avoid in the context of antitrust regulation. Typically, the government would go for cleaner divestitures. Here, divestiture isn't in the cards, but more heavy handed regulation of the combined entity is the answer. A similar approach was used to mixed effect a few years ago in the Comcast Universal merger. We'll see how this goes. Me? I've got Fios.
Monday, April 25, 2016
I'm happy to announce the publication of a new casebook: Hill, Quinn, and Davidoff Solomon's Mergers and Acquisitions: Law, Theory, and Practice:
Being an M&A practitioner or litigator requires not only a knowledge of the law—the statutes, cases, and regulations—but also the documentation and the practices within the transacting community. This brand new book prepares students for practice. It includes, and explains, deal documentation, and discusses how negotiations proceed, referencing both the relevant law and transacting norms. It covers Federal and State law, as well as other relevant regulatory regimes involving antitrust, national security, FCPA and other issues. It has questions designed to get students to understand the law and the underlying policy, and problems to get students familiar with transaction structuring.
The text covers the latest materials on developments in the transacting world—where the law is going, where practice is going, how each might inform the other. And the book also has significant breadth, including chapters on accounting and valuation that should be accessible even to students with less quantitative facility, as well as shareholder activism and international M&A.
Run out and get yours while you still can!
Wednesday, April 13, 2016
Over at The Chancery Daily, they have observed something interesting. There is has been a decline in letter opinions from the Chancery Court. I'd share some links, but The Chancery Daily is a newsletter, so you'll just have to pay for your own subscription. The Chancery Daily attributes that to the increased reliance by the courts on transcript/bench rulings. For many years the courts have admonished us all not to pay attention to transcript rulings as they do not create precedent. Sure, that makes sense if the rulings are off the cuff rulings from the bench. But as the Daily notes, there appears to be "an increasingly structured approach by the Court in rendering oral rulings, including recitations of underlying facts and explicit citation to legal authorities -- and may even resolve legal questions that are more than simply ministerial, or intended to keep litigation moving forward." So rather than being unstructured off the cuff rulings, these transcript rulings -- likely because the chancellors know that people read them carefully notwithstanding exhortations to the contrary -- are becoming more formalized with, in essence, chancellors reading formalish opinions into the record. The Daily believes the upshot of all of this is a decline in letter opinions. Twenty percent fewer by his guess. Yay for less paper. Or more paper, since it ends up printed in transcript opinions anyway. But, one has to pay for transcripts while letter opinions and memo opinions are free as part of the public record. Also, transcripts don't get hoovered up in many of the electronic legal databases. Interesting. Not entirely sure what to make of this trend, but it's worth keeping in mind.
Monday, April 11, 2016
Nothing happens, nothing happens, and then suddenly everything seems to be happening. Such is the story developing around the sale of Yahoo. The biggest surprise to me at least are the most recent names of potential bidders to pop up: DailyMail.com and Elite Daily. Elite Daily tags itself, "The Voice of Generation Y". What generation is Generation Y exactly? The Daily Mail is ... well ... let's just say one of its highlighted stories right now is Princess Kate's Marilyn Monroe moment in Delhi. Boy, has Yahoo taken a tumble. But here's an operative question for students out there as we approach exam period. Now that Yahoo has started a sale process, is the Yahoo board permitted to consider the fact that one of the bidding groups is an upstart internet site and the British tabloid when it is evaluating which of the various bids to take? Can it say, "We're never selling to that group, we're only selling to a real buyer like a Verizon"? So, not hiding the ball: we're in Revlon-land. Time to start thinking about how the board will maneuver its way through to sale.
Friday, April 8, 2016
The fact that most mergers aren't in fact value enhancers for stockholder's of the acquirer isn't exactly news to people who pay attention to these things. Sure, selling stockholders make out well. As they should. They typically receive a premium to sell their shares. But what about buyer's stockholders? Meh. Robert Bruner summarized a number of studies of the profitability of M&A activity and found:
The mass of research suggests that target shareholders earn sizable positive market-returns, that bidders (with interesting exceptions) earn zero adjusted returns, and that bidders and targets combined earn positive adjusted returns.
Over at Braid, where they play with data, they've recently posted a nice visualization of the same:
It's an interactive visual, so go on over to Braid (link) and play with it. It's really very interesting. And what else are you going to do on a Friday afternoon?
Wednesday, April 6, 2016
Yesterday, the Obama administration announced new rules to stem tax inversions. Today, Pfizer announced that it was terminating its merger agreement with Allergan, citing adverse changes in tax laws as the reason. The merger agreement defines Adverse Tax Law Change as:
“Adverse Tax Law Change” shall mean (x) any change in applicable Law (whether or not such change in Law is yet effective) with respect to Section 7874 of the Code (or any other U.S. Tax Law), (y) the issuance of an official interpretation of applicable Law, as set forth in published guidance by the IRS (other than News Releases) (whether or not such change in official interpretation is yet effective), or (z) the passage of a bill or bills that would implement such a change in identical (or substantially identical such that a conference committee is not required prior to submission of such legislation for the President’s approval or veto) form by both the United States House of Representatives and the United States Senate and for which the time period for the President of the United States to sign or veto such bill has not yet elapsed, in each case, that, once effective, in the opinion of a nationally recognized U.S. Tax counsel, would cause Parent to be treated as a United States domestic corporation for United States federal income Tax purposes following completion of the Transactions (it being agreed that, for this purpose, U.S. Tax counsel shall be entitled to make such reasonable assumptions as to the relevant facts and, with respect to notices described in Section 7805(b) of the Code published in the Internal Revenue Bulletin that announce the intention to issue future regulations, the most likely form that such regulations will take).
An Adverse Tax Law Change triggers a mutual right to terminate the merger agreement. Upon a termination, Pfizer agreed to reimburse Allergan's expenses up to $400 million. In the press release Pfizer indicated that the amount to be reimbursed would be $150 million.
According to the WSJ, the Pfizer-Allergan deal was the largest ever deal at $150 billion to be terminated. If the Obama administration was gunning for the Pfizer deal when it announced its new anti-inversion regulations yesterday, it hit its mark.
Tuesday, April 5, 2016
In its ongoing battle to stem the inversion tide, the Treasury Dept has just announced new anti-inversion "temporary regulations." The first of these provides companies with guidance that the Treasury will disregard stock acquired in prior inversions/acquisitions that may have been acquired in order to get around previous inversion rules:
It is not consistent with the purposes of section 7874 to permit a foreign company (including a recent inverter) to increase in its size in order to avoid the inversion threshold under current law for a subsequent acquisition of an American company. For the purposes of computing the ownership percentage when determining if an acquisition is treated as an inversion under current law, today’s action excludes stock of the foreign company attributable to assets acquired from an American company within three years prior to the signing date of the latest acquisition.
So structuring transactions to get around the anti-inversion rules won't work. Strikes me that Treasury is like a little Dutch boy trying plug holes in the dike with his fingers. Or, maybe a better metaphor, it's like Treasury is playing Whack-a-mole. It's hard to imagine Treasury will ever really win this fight. But, it won't be for lack of trying.
The second set of temporary regulations Treasury announced yesterday was a ban on earnings stripping (for some reason, I thought they already did this):
Under current law, following an inversion or foreign takeover, a U.S. subsidiary can issue its own debt to its foreign parent as a dividend distribution. The foreign parent, in turn, can transfer this debt to a low-tax foreign affiliate. The U.S. subsidiary can then deduct the resulting interest expense on its U.S. income tax return at a significantly higher tax rate than is paid on the interest received by the related foreign affiliate. In fact, the related foreign affiliate may use various strategies to avoid paying any tax at all on the associated interest income. When available, these tax savings incentivize foreign-parented firms to load up their U.S. subsidiaries with related-party debt.· Today’s action makes it more difficult for foreign-parented groups to quickly load up their U.S. subsidiaries with related-party debt following an inversion or foreign takeover, by treating as stock the instruments issued to a related corporation in a dividend or a limited class of economically similar transactions. For example, the proposed regulations:o Treat as stock an instrument that might otherwise be considered debt if it is issued by a subsidiary to its foreign parent in a shareholder dividend distribution;o Address a similar “two-step” version of a dividend distribution of debt in which a U.S. subsidiary (1) borrows cash from a related company and (2) pays a cash dividend distribution to its foreign parent; ando Treat as stock an instrument that might otherwise be considered debt if it is issued in connection with certain acquisitions of stock or assets from related corporations in transactions that are economically similar to a dividend distribution.
Monday, April 4, 2016
As I sit here watching inches and inches of snow pile up outside, I am reminded that it's actually Spring and the academic year is rapidly coming to a close. End of the academic year usually means piling up a few good reads to accompany some writing projects. I enjoy reading business history, so this summer should be fun. I have two books - I haven't read either of them yet, so this is not a review. First, though, is Dear Chairman. It's the story of some of Wall Street's best known activists over the years. I've already read the chapter on Benjamin Graham and it's good enough to keep me around. Second on my list for this summer is Bloodsport. It's a history of the beginnings of our current M&A wave - way back to the LBO buyout era of the 1980s. I suspect it covers a lot of the same ground as Bruce Wasserstein's Big Deal - a book I recommend to everyone. In addition to the stories of the best known deals of the 1980s, Bloodsport has a couple chapters on M&A's most iconic lawyers, including Joe Flom as well as Marty Lipton and the back story to the creation of the poison pill. That should be worth the price of admission.
Friday, April 1, 2016
Earlier this week when Starwood announced that Anbang had upped its bid for the hotelier, they were very careful with their language. The previous weekend when Anbang made its first topping bid, Starwood declared that bid a "superior offer" and started the process to terminate its merger agreement with Marriott:
On March 18, 2016, Starwood notified Marriott that Starwood had received the binding proposal from the Consortium that Starwood’s Board has determined that the Consortium’s proposal constitutes a “Superior Proposal” and that Starwood’s Board intends to terminate the Marriott merger agreement and enter into a definitive agreement with the Consortium. Consistent with the terms of the Marriott merger agreement, Marriott has the right until 11:59 p.m. ET on March 28, 2016 to negotiate revisions to the existing merger agreement between Marriott and Starwood so that the proposal from the Consortium no longer constitutes a “Superior Proposal”. Starwood will negotiate in good faith with Marriott during this period, and the Starwood Board will consider in good faith any changes to the Marriott agreement that Marriott may propose during this period. Starwood is not permitted to terminate the Marriott agreement to enter into the Consortium’s binding agreement unless the Starwood Board has determined that the Consortium’s offer continues to be a “Superior Proposal” once the negotiation period with Marriott has concluded, and taking into account any revisions to the existing Marriott agreement that are proposed by Marriott during this period. The Consortium has confirmed that its offer will remain outstanding until the expiration of Marriott’s negotiation period.
On March 26, 2016, Starwood received a non-binding proposal from the Consortium, under which the Consortium would acquire all of the outstanding shares of Starwood common stock for $81.00 per share in cash. Starwood’s Board of Directors, in consultation with its legal and financial advisors, determined that this proposal is reasonably likely to lead to a Starwood Superior Proposal (as defined in the Merger Agreement), allowing Starwood to engage in discussions with, and provide diligence information to, the Consortium in connection with the Consortium Proposal. Starwood commenced discussions with the Consortium on March 26, 2016 and, in those discussions, the Consortium made a revised proposal with an increased purchase price of $82.75 in cash per share of Starwood common stock. Starwood and the Consortium are continuing to discuss non-price terms related to the Consortium Proposal, and are working to finalize the other terms of a binding proposal from the Consortium, including definitive documentation.
Thursday, March 31, 2016
Apologies for disappearing from the Internet. I've been sucked into law school administration in recent months and ... frankly ... it's a lot of work. Anyway, I have resolved to carve out time and return to the blog. Lots going on ... Starwood, Yahoo, etc. So, lots to think about.
Thursday, December 31, 2015
A new paper suggests they are good for someone , but perhaps not you and me. Here's the abstract for Are Corporate Inversions Good for Shareholders?:
In 2014 alone, U.S. firms worth over half a trillion dollars announced their intention to expatriate to a foreign country -- a corporate inversion -- in order to reduce corporate income taxes. To discourage expatriation, U.S. law requires shareholders of inverting firms to realize a personal capital gains tax liability at the completion of the transaction. Thus, while reduced corporate taxes benefit all shareholders equally, a corporate inversion results in a personal tax cost that depends on the individual investor's tax basis and standing. We develop a model to value the net benefits of inversion and we show that the private returns to investors varies widely across individuals. We find that the benefits of inversion disproportionately accrue to the CEO, foreign shareholders, and short-term investors, while many long-term investors suffer a net loss.
Wednesday, December 9, 2015
Kudos to LUMA Partners for their very creative re-creation of Queen's Bohemian Rhapsody. Seriously. It's above and beyond what one might expect for a closing dinner. I really enjoyed. But, if you listen to the lyrics closely, it's a very melancholy inside look into the recent desperation of online advertisers. It's the kind of melancholy that lead to a sale of the corporation. It's not all wine and roses in M&A land...
Tuesday, December 1, 2015
No, no, no. The sky isn't falling. Yes, it's true that the $75 million damage award against RBC for aiding and abetting a duty of care violation by the board of Rural/Metro in connection with the company's sale was upheld, but the sky is not falling.
In the Rural/Metro Chancery Court opinion, Vice Chancellor raised the spectre of a falling banker sky when he emphasized the role of bankers as gatekeepers of the M&A process:
The threat of liability helps incentivize gatekeepers to provide sound advice, monitor clients, and deter client wrongs. Framed for present purposes, the prospect of aiding and abetting liability for investment banks who induce boards of directors to breach their duty of care creates a powerful financial reason for the banks to provide meaningful fairness opinions and to advise boards in a manner that helps ensure that the directors carry out their fiduciary duties when exploring strategic alternatives and conducting a sale process, rather than in a manner that falls short of established fiduciary norms. It is not irrational for the General Assembly to have excluded aiders and abettors from the ambit of those receiving exculpation under Section 102(b)(7). The statutory language therefore controls.
By holding bankers' feet against the fire and expanding liability for bankers, the fear of aiding and abetting liability might ensure financial advisors are more attentive to their obligations to clients. This prospect sent some shockwaves through the world of bankers. But that fear might have been a little over-wrought.
In yesterday's ruling, the Delaware Supreme Court made it clear that although the facts in this particular case supported an aiding and abetting claim, the ruling was not an expansion of banker liability along the lines suggested in the Chancery Court opinion: "[O]ur holding is a narrow one that should not be read expansively to suggest that any failure on the part of a financial advisor to prevent directors from breaching their duty of care gives rise to a claim for aiding and abetting a breach of the duty of care."
In narrowing its ruling, the court expanded on Vice Chancellor Laster's gatekeeper analysis and in the process narrowed its bite:
In affirming the principal legal holdings of the trial court, we do not adopt the Court of Chancery’s description of the role of a financial advisor in M & A transactions. In particular, the trial court observed that “[d]irectors are not expected to have the expertise to determine a corporation’s value for themselves, or to have the time or ability to design and carryout a sale process. Financial advisors provide these expert services. In doing so, they function as gatekeepers.” Rural I, 88 A.3d at 88 (citations omitted). Although this language was dictum, it merits mention here. The trial court’s description does not adequately take into account the fact that the role of a financial advisor is primarily contractual in nature, is typically negotiated between sophisticated parties, and can vary based upon a myriad of factors. Rational and sophisticated parties dealing at arm’s-length shape their own contractual arrangements and it is for the board, in managing the business and affairs of the corporation, to determine what services, and on what terms, it will hire a financial advisor to perform in assisting the board in carrying out its oversight function. The engagement letter typically defines the parameters of the financial advisor’s relationship and responsibilities with its client. Here, the Engagement Letter expressly permitted RBC to explore staple financing. But, this permissive language was general in nature and disclosed none of the conflicts that ultimately emerged. As became evident in the instant matter, the conflicted banker has an informational advantage when it comes to knowledge of its real or potential conflicts. See William W. Bratton & Michael L. Wachter, Bankers and Chancellors, 93 TEX. L. REV. 1, 36 (2014) (“The basic requirements of disclosure and consent make eminent sense in the banker-client context. The conflicted banker has an informational advantage. Contracting between the bank and the client respecting the bank’s conflict cannot be expected to succeed until the informational asymmetry has been ameliorated. Disclosure evens the field: the client board has choices in the matter . . . and needs to make a considered decision regarding the seriousness of the conflict.”). The banker is under an obligation not to act in a manner that is contrary to the interests of the board of directors, thereby undermining the very advice that it knows the directors will be relying upon in their decision making processes. Adhering to the trial court’s amorphous “gatekeeper” language would inappropriately expand our narrow holding here by suggesting that any failure by a financial advisor to prevent directors from breaching their duty of care gives rise to an aiding and abetting claim against the advisor.
So, bankers are not insurers of bad director behavior. Bankers are insurers of their own behavior. If bankers want the benefit of conflict waivers, then specific disclosure is the answer. If you are going to act in a way that might raise a conflict, then disclose the facts and allow the client board to make an informed waiver of those specific acts. I suspect that for the vast majority of the investment banking community, this is not going to be an issue. Conclusion: sky intact.
Friday, November 20, 2015
More change in Chancery now that word has come down that Vice Chancellor Noble is retiring in February, 2016. In recent years, there has been a new wholesale change on the bench in Chancery. Could it be that Vice Chancellor Laster will now be the most senior tenured Vice Chancellor? Time flies.
Wednesday, October 14, 2015
Gov. Markell has announced the nomination of Tamika Montgomery-Reeves, a Wilson Sonsini partner, to replace retiring Vice Chancellor Donald Parsons. Ms. Montgomery-Reeves will be the first African-American to serve as Vice Chancellor in the Chancery Court and the first woman since Justice Carolyn Berger was elevated to the Supreme Court in 1994. Ms. Montgomery-Reeves recently represented the defendants in the Riverbed Technologies litigation.
Riverbed may mark the beginning of the end for the litigation industrial complex. Vice Chancellor Glasscock began his opinion there with the following paragraph:
As a bench judge in a court of equity, much of what I do involves problems of, in a general sense, agency: insuring that those acting for the benefit of others perform with fidelity, rather than doing what comes naturally to men and women— pursuing their own interests, sometimes in ways that conflict with the interests of their principals. In this task, I am generally aided by advocates in an adversarial system, each representing the interest of his client. Of course, these counsel are themselves agents, but their actions are generally aligned with that of their principals in a way that does not require Court involvement. The area of class litigation involving the actions of fiduciaries stands apart from this general rule, however, especially in litigation like the instant case, involving the termination of ownership rights of corporate stockholders via merger. Such cases are particularly fraught with questions of agency: among others, the basic questions regarding the behavior of the fiduciaries that are the subject of the litigation; questions of meta-agency involving the adequacy of the actions of the class representative—the plaintiff—on behalf of the class; and what might be termed meta-meta-agency questions involving the motivations of counsel for the class representative in prosecuting the litigation. At each remove, there may be interests of the agent that diverge from that of the principals. This matter, involving the deceptively straightforward review of a proposed settlement, bears a full load of such freight.
While Glasscock hesitated, he signaled in this opinion that the Vice Chancellors have had enough. So... Welcome to the bench Ms. Montgomery-Reeves!
Wednesday, October 7, 2015
Gov. Markell is about to announce his nomination to replace Vice Chancellor Parsons who announced his retirement this past summer. Here's the thing. The Chancery Court has not had a female chancellor since Vice Chancellor Berger left the court to join the Supreme Court in 1994. Now, according to press reports Gov. Markell is considering three nominees - all women:
According to sources, the candidates are Abigail M. LeGrow, who is a Master in Chancery or judicial officer who assists the court; Tamika Montgomery-Reeves, a corporate lawyer and partner at Wilson Sonsini Goodrich & Rosati in Wilmington; and Elena C. Norman, a partner and corporate lawyer at Young Conaway Stargatt & Taylor in Wilmington. LeGrow and Montgomery-Reeves declined to comment. Norman could not be reached for comment.
The Senate will consider Gov. Markell's nomination on Oct. 28. That's the sound of glass cracking. Good.