November 23, 2015

Treasury & IRS Act Again to Limit “Inversions”

On Friday, the Treasury Department & IRS issued Notice 2015-79 announcing that they intend to issue regulations that will address inversion transactions and certain post-inversion transactions, expanding on guidance previously issued in Notice 2014-52. The widely anticipated “earnings stripping” guidance is absent from this Notice and continues to be pending, but Treasury – in this fact sheet – appears to indicate that it could be issued in the “coming months.” The Notice leaves the “Below-60″ Transactions unaffected – but imposes greater adverse consequences for “60-80″ Transactions. We are posting memos in our “Tax” Practice Area.

November 20, 2015

Delaware VC Noble to Retire

Here’s a Reuters article – and here’s the press release below:

Vice Chancellor John W. Noble has informed Gov. Jack Markell of his intention to retire from the Court of Chancery effective Feb. 26, 2016. “It has been an honor and a privilege to serve the people of the State of Delaware for fifteen years, but, for me, it is now time to move on to whatever life will bring next” wrote Vice Chancellor Noble in his letter to the Governor dated Nov. 18, 2015.

Vice Chancellor Noble has not announced his specific plans following his retirement from the bench. Chancellor Andre G. Bouchard issued the following statement on behalf of the Court of Chancery: “During his fifteen year tenure on the Court of Chancery, John has displayed consummate skill and a natural sense of equity and fairness as a judge. Known for his wry wit and calm demeanor, John has been a pleasure for litigants to appear in front of, and a fabulous colleague to work with. The judges and staff of the Court of Chancery will miss him dearly, but extend our sincerest thanks and congratulations to him for all he has done for the Court and our State.”

Delaware Supreme Court Chief Justice Leo E. Strine, Jr., who served with Vice Chancellor Noble on the Court of Chancery, joined Chancellor Bouchard in thanking Vice Chancellor Noble for his years of service: “It was my privilege to serve longer on the Court of Chancery with John than anyone. John never had a case he did not take seriously, and he applied his considerable intellect and instinctive sense of equity to every case, whether it was the largest corporate merger, a neighborhood dispute, or a guardianship case. All of us in the Judiciary will miss him enormously, and wish him and Nadine all the best as they embark on the next stages of their lives together.”

Gov. Markell, in accepting the Vice Chancellor’s letter, also added his thanks and well wishes: “During his fifteen years on the Court of Chancery, John Noble exhibited all the traits that make the Court the nation’s most respected forum for corporate litigation. Vice Chancellor Noble’s expertise, integrity, humility and impartiality furthered the Court’s reputation for excellence, predictability and fairness. I greatly appreciate his service to the State of Delaware.”

Vice Chancellor Noble was first appointed to the Court of Chancery in 2000 by Gov. Tom Carper and reappointed by Gov. Jack Markell in 2012. Vice Chancellor Noble holds a B.S. in Ch.E., magna cum laude, from Bucknell University and a J.D., cum laude, from the University of Pennsylvania Law School. Following law school, he served as a federal district court law clerk and then practiced with Parkowski, Noble & Guerke, P.A., in Dover, Delaware.

November 18, 2015

Delaware Merger Objection Lawsuits Decline After Rejection of Disclosure-Only Settlements

Here’s an excerpt from this blog by Kevin LaCroix:

At least based on the evidence that The Chancery Daily compiled, the plaintiffs’ lawyers have been paying attention. At least according to The Chancery Daily, fewer merger objection lawsuits are now being filed. In order to track these trends, The Chancery Daily compiled a list of all merger objection suits filed in the Delaware Chancery Court between January 1 and November 15, 2015. The fewest number of merger objection suits filed in any month took place in October, when there were only 16 suits filed. Tellingly, there were 14 filed in the first half of October and only two in the second half. During the first half of November, there were only five. The significance of these lower numbers can be seen by considering the number of merger objection lawsuit filings as a percentage of all corporate and commercial lawsuit filings; the Chancery Daily found that year-to-date lows of 23% and 18% in October and the first half of November, respectively.

The Chancery Daily also took into account the possible effect of difference in merger transaction activity. Between January and September 2015, the ratio of the number of merger objection lawsuits to the number of merger transactions with a value of over $100 million was over 1.0 (meaning there were more merger objection lawsuits than mergers). However, in October, there were 16 merger objection lawsuits and 24 merger announcements, for a ratio of .69 (a figure that may not fully reflect the sharp drop off in the second half of October, after Vice Chancellor Laster’s opinion in the Aruba case).

The Chancery Daily summarized its findings by saying that “While not conclusive, the decline in class action filings in October and the first half of November in the absence of corresponding declines in total filings or deal volume is consistent with plaintiffs’ reluctance to file in Delaware following the Aruba holding.”

November 17, 2015

Perrigo’s Defense Shows Role of Long-Term Shareholders in Hostile Takeovers

Here’s news from this Wachtell Lipton memo:

On Friday, shareholders of Perrigo Company plc convincingly rejected Mylan N.V.’s hostile takeover attempt, with holders of over 60% of Perrigo’s shares refusing to tender into what was the largest hostile offer in history to go to the very end. The outcome demonstrates that a well-articulated strategy and proven record of performance, and concerns about the corporate governance of a bidder offering stock, resonate with long-term shareholders as against a premium bid of questionable merit, even in the absence of transaction alternatives.

Mylan announced its unsolicited proposal in April 2015, which Perrigo’s board rejected as undervaluing the company. Because Perrigo had become an Irish company in a prior inversion transaction, it was prevented from adopting typical defenses, such as a rights plan, by a prohibition on the taking of “frustrating actions” against Mylan’s offer. The saga took numerous twists and turns over the following months, with Teva Pharmaceuticals Industries Ltd. announcing its own bid for Mylan shortly thereafter, which it later withdrew in favor of an alternative deal after facing fierce resistance from Mylan; proceedings before courts and regulators on three continents; and extensive public and investor relations campaigning and shareholder outreach.

Perrigo consistently emphasized its own long track record of substantial shareholder returns and growth, consistently high trading multiple and shareholder-focused corporate governance. These were contrasted with Mylan’s relatively weaker historical performance and significant governance concerns, demonstrated by its use of extreme defenses, such as a self-perpetuating board structure and the issuance of 50% of Mylan’s voting power to a Dutch trust, to fend off Teva’s 48% premium bid. Perrigo also repeatedly criticized the low premium being offered, Mylan’s weak growth prospects, and the substantial dilutive effect of the transaction on Mylan’s EPS, raising questions about the value of the Mylan shares being offered.

Along the way, much was discussed about whether merger arbitrageurs seeking short-term gains, who had acquired almost 25% of the shares, would be able to deliver Perrigo into Mylan’s hands. Much was also made about the fact that Perrigo did not agree to sell to a “white knight” or to do large acquisitions of its own, raising questions about whether a premium offer, even a questionable one, had put Perrigo on a “shot clock” to do the least bad deal that it could find. It did not. Perrigo’s long-term shareholders also accepted the judgment of the Perrigo board that Mylan’s offer was too low to serve as a basis for discussion, rejecting the often-asserted notion that a board is obliged to negotiate with any bidder who offers a premium. Friday’s result shows that a target company can win a takeover battle and defeat short-term pressures by pursuing a shareholder-focused stand-alone strategy of value creation, especially where it fights for and wins the backing of its long-term shareholders.

November 10, 2015

November-December Issue: Deal Lawyers Print Newsletter

This November-December issue of the Deal Lawyers print newsletter was just posted – & also sent to the printers – and includes articles on:

– Projections in Public Company M&A
– The Folly of Battling Activist Investors
– The $148M In re Dole Price Tag: Proper Processes for Going Private Transactions
– Countering Activists Who Use Options Trading to Avoid Detection
– Survey: Vast Majority Provide Enhanced Severance Benefits Below NEO Level in Change-in-Control
– Game Over? Delaware Rejects Disclosure-Only Settlement in H-P/Aruba Networks

Remember that – as a “thank you” to those that subscribe to both & our Deal Lawyers print newsletter – we are making all issues of the Deal Lawyers print newsletter available online for the first time. There is a big blue tab called “Back Issues” near the top of – 2nd from the end of the row of tabs. This tab leads to all of our issues, including the most recent one.

And a bonus is that even if only one person in your firm is a subscriber to the Deal Lawyers print newsletter, anyone who has access to will be able to gain access to the Deal Lawyers print newsletter. For example, if your firm has a firmwide license to – and only one person subscribes to the print newsletter – everybody in your firm will be able to access the online issues of the print newsletter. That is real value. Here are FAQs about the Deal Lawyers print newsletter including how to access the issues online.

November 9, 2015

Survey: Vast Majority Provide Enhanced Severance Benefits Below NEO Level in Change-in-Control

Here’s the key findings excerpted from this blog by Towers Watson about a recent change-in-control survey:

The survey responses suggest that enhancing severance for terminations in conjunction with a CIC is widespread. The vast majority (93%) of respondents indicated they do so for some portion of employees below the NEO level, with two-thirds (67%) of those companies offering enhanced cash compensation (salary and/or bonus) and accelerated vesting of equity and about a quarter (26%) offering only accelerated vesting of equity (see Figure 1).

Other key findings include the following:

– Many (40%) of those companies that provide enhanced cash compensation include employees below the senior vice president (SVP) level. And about half of companies that provide enhanced cash compensation do so for all employees at a given level, while half provide it selectively.
– The percentage of companies offering a flat severance amount irrespective of tenure versus those offering a tenure-based benefit is significantly higher for CIC severance than for other types of severance. For example, 61% of companies provide executive vice presidents (EVPs)/SVPs a flat severance benefit in the absence of a CIC, while 96% offer a flat benefit following a CIC. Employees below the EVP/SVP level see an increase in the percentage receiving a flat amount of severance, but neither the magnitude of increase nor the percentage receiving a flat amount are as high as for EVPs/SVPs.
– Those that switch from tenure-based to a flat amount in a CIC provide more severance as a result of the switch at most tenure levels.
– Of those that maintain tenure-based severance in a CIC, median minimum benefits are higher in a CIC situation than in a normal severance situation at all levels to guarantee a certain level of benefit for more recently hired employees. Of those that provide flat severance with or without a CIC, median benefits are one-third to one-half higher following a CIC at all levels.
– Treatment of bonuses for the year of termination is enhanced following a CIC in about half the respondents for EVP/SVPs and in a quarter to a third of the companies for employees at lower levels. The most common treatment is to pay at least full target bonus regardless of performance or portion of the year worked. The most common treatment of bonuses in normal severance situations is to pay a bonus prorated for the part of the year worked.
– The most prevalent treatment of both time-based and performance-based equity awards is accelerated vesting for those who are terminated following a CIC (i.e., double-trigger vesting).

November 5, 2015

M&A Forecast: Optimism Wanes

A look at Dykema’s “11th Annual M&A Outlook Survey” shows:

– Just 37% of respondents said they believed M&A activity would strengthen in the next 12 months – down from 59% of respondents in last year’s survey. 20% said they expect the market to weaken, compared with just 9% of respondents last year. Meanwhile, fewer than half (48%) of respondents were bullish about the U.S. economy overall for the next 12 months, compared with 62% in 2014.
– 52% said that strategic buyers most influenced U.S. deal valuation over the past 12 months, up from 42% in 2014. When asked why, some respondents noted availability of cash and financing for buyers seeking synergistic transactions.
– Although just 48% of respondents said they had a positive outlook on the U.S. economy over the next 12 months, the percentage was still higher than the results in all but three years since the question was first asked in the survey in 2005.
– Similarly, just 38% of respondents said they expect the U.S. economy to improve in the next 12 months, down from more than half who picked that choice in 2013 and 2014 but higher than the results in 2011 and 2012.
– Health care and technology were the top two sectors respondents picked for the most M&A activity in the next year, followed by energy, industrial/manufacturing and automotive. These rankings were similar to the 2014 findings.
– A stronger economy was the top choice given by respondents when asked to pick the factor that would most positively impact financial services M&A in the next 12 months. A weaker economy was cited as the top negative factor in the market.
– Of the 72% of respondents who expect an increase in M&A activity involving privately owned businesses, the most common explanation was concerns about aging business owners, as those owners may think valuations of their businesses are reaching top levels.

November 3, 2015

New Delaware Vice Chancellor: Tamika Montgomery-Reeves

According to the Chancery Daily, the Delaware Senate confirmed the nomination of Tamika Montgomery-Reeves, a partner at Wilson Sonsini, as Vice Chancellor of the Delaware Court of Chancery last week by a vote of 21-0. VC Montgomery-Reeves succeeds Donald Parsons whose term expires this month. As noted in this Reuters article, Tamika is the first female VC since 1994 – and the first black VC. About time to say the least.

Here’s an article from “Delaware Online”:

In what is being hailed as an historic step in promoting women lawyers to the Delaware bench, the slate of candidates for an upcoming vacancy on the state’s prestigious Chancery Court are all female. It is believed to be the first time in Delaware’s history that the commission charged with creating a short list of qualified candidates for the governor chose a lineup of exclusively women lawyers. The Judicial Nominating Commission, which screens all applicants, made its selection last week and the names have been sent to Gov. Jack Markell. He is expected to announce his nominee in mid-October.

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. Unless Markell rejected the entire slate, which experts say is extremely unlikely, America’s preferred court for resolving corporate disputes will have a female judge for the first time since 1994. It will be only the second time in the court’s 223-year history that a female will serve as a Chancery judge.

“This breaks glass,” said Claire DeMatteis, general counsel with Affinity Health Plan who last year wrote a critical article on the lack of women appointed to seats on the Chancery and Supreme courts. “Let’s put this in perspective: No litigant has gone before a woman judge in Chancery Court for 21 years.” “It’s about time,” said Elizabeth Wilburn Joyce, a partner in the women-owned Pinckney, Weidinger, Urban & Joyce in Wilmington, a member of the National Association of Minority and Women Owned Law Firms. “We are thrilled.”

November 2, 2015

Corp Fin Issues 2 New “Unbundling” CDIs

Here’s the intro from this blog by Cooley’s Cydney Posner:

The SEC has posted new CDIs addressing the issue of “unbundling” of proxy proposals under Rule 14a-4(a)(3), which requires that the form of proxy “identify clearly and impartially each separate matter intended to be acted upon.” The focus of the new CDIs is unbundling of proposals in connection with M&A transactions. These CDIs will replace the 2004 set of CDIs on this topic.

The new CDIs discuss when, in an M&A transaction in which the target’s shareholders receive equity of the acquiror and the agreement requires the acquiror to amend its organizational documents in a material respect, the target and/or the acquiror must present that amendment as a separate proposal on the proxy card, even though the amendment is embedded in the agreement. The CDIs also discuss the application of these principles to circumstances where the parties form a new entity to act as an acquisition vehicle that will issue equity securities in the transaction.