M & A Law Prof Blog

Cleaning out the closets at Skype

So late last week, the FTC granted early termination to Microsoft and Skype for their announced deal.  Early termination of the HSR waiting period means that Microsoft and Skype can move towards closing that deal.  Now, comes the news from Bloomberg that Skype has fired a number of executives prior to closing: 

Skype Technologies SA, the Internet- calling service being bought by Microsoft Corp. (MSFT), is firing senior executives before the deal closes, a move that reduces the value of their payout, according to three people familiar with the matter.

The reasons for the letting go this group of 8 high level Skype execs prior to closing aren't known, but the Skype Journal blog reinforces what is hinted at in the Bloomberg report - that the firings were done in order to reduce the number of stock options that are vested at closing and thus raises the payout to venture investors.

Now, I have no way of knowing if increasing the payout for investors is in fact true or if the execs that were let go didn't get an equivalent cash payout on their way out the door.  My guess is that they did, but I don't know.  If on the other hand it's true, then it's pretty cheesy.  

The prospect of getting a large cash payout from valuable options after an IPO or a when unvested options are automatically vested coincident with sale is a huge part of the incentive package that keeps talented people working at start-ups.  If it's true, and I guess everyone in the Valley will know the truth soon enough, then it means that executives with unvested options will be spending more time than one might like ensuring their positions in the event of a sale rather than risk getting let go just before their big payout.  

-bjmq

Latham & Watkins on Cheap Stock Issues

In this helpful Client Alert Latham & Watkins reviews the accounting and tax issues associated with equity awards to company employees during the months preceding an IPO, and provides a summary of the related concerns of the Staff of the SEC. The alert includes specific, practical guidance on how to avoid cheap stock issues during the SEC Staff’s review of an IPO registration statement.

MAW

The Kauffman Foundation Wants to Friend You

    "The Kauffman Foundation invites scholars who are interested in discovering new insights into the field of entrepreneurship to join a group on Facebook for entrepreneurship scholars to connect and interact.

     View/join the Kauffman Entrepreneurship Scholars group at: http://www.facebook.com/group.php?gid=91330724824

     This group provides an opportunity for you to interact via discussion boards, news posts, link sharing, and other methods with other scholars of entrepreneurship. We hope you will take advantage of the group to connect with other researchers in the field of entrepreneurship."

MAW

SEC Votes to Adopt Antifraud Rule for Hedge, Private Equity & Venture Capital Funds

The Securities and Exchange Commission yesterday voted unanimously to adopt a new antifraud rule under the Investment Advisers Act.  The new rule makes it a fraudulent, deceptive, or manipulative act, practice, or course of business for an investment adviser to a pooled investment vehicle to make false or misleading statements to, or otherwise to defraud, investors or prospective investors in that pool. The rule will apply to all investment advisers to pooled investment vehicles, regardless of whether the adviser is registered under the Advisers Act.

The rule comes on the heels of the D.C. Circuit's decision in Goldstein v. Securities and Exchange Commission, striking down the SEC's attempt to make all hedge fund advisers register under the Investment Advisers Act.  But, this new rule is much less ambitious.  It is more of a clarification of enforcement powers that the SEC likely previously had than anything else.  The SEC has yet to post the final rules release on its website, but the proposing release can be accessed here.  And more importantly, the SEC has yet to act on the more ambitious and controversial other rule proposed in that proposing release which would revise the definition of accredited investor under Regulation D to raise the required net worth thresholds for private investors to invest in private equity and hedge funds.