DealLawyers.com Blog

We have posted the transcript for our recent webcast: “Proxy Solicitation Tactics in M&A.”

This Reuters article provides an interesting summary of some of the issues relating to the proposed settlement – and the expected objection – in the In re Activision Blizzard settlement announced last November. In addition to an objection by a shareholder, other notables include:

– Plaintiffs’ attorneys fee request of $72.5 million, which I believe would be the second largest (at least M&A) fee award by the Delaware Chancery
– Per the proposed settlement, the addition of two independent directors to Activision’s board
– An objection to the settlement being filed by another plaintiffs attorney firm seeking to require that a portion of the $275 million settlement be dividended out to Activision’s stockholders

Tune in tomorrow for the webcast – “Private M&A Wake-Up Calls: Conflicted Board Risks, Post-Closing Unenforceability & Shareholder Approval/Duty of Care Traps” – to hear Cleary Gottlieb’s Ethan Klingsberg, Wilson Sonsini’s Marty Korman, Fenwick & West’s Andrew Luh and Morris Nichols’ Jeff Wolters cover the private M&A waterfront as new developments have shaken up this rapidly-evolving area.

Here’s an excerpt from this blog by Kevin LaCroix of the D&O Diary:

It is now well-established that pretty much every M&A deal attracts at least one lawsuit from a shareholder objecting to the transaction. According to research by Notre Dame business professor Matthew Cain and Ohio State law professor Steven Davidoff, 97.3% of all takeovers in 2013 with a value of over $100 million experienced at least one shareholder lawsuit. The lawsuits usually are filed almost immediately after the transaction is announced. Whether or not all of the transactions actually warrant litigation is a topic worthy of a separate blog post, but the fact is that in each case at least one shareholder is prepared to allow his or her name to be put on the lawsuit — which in turns raises the question of how it comes about that the shareholders in whose name the lawsuits are filed become plaintiffs in these cases.

The role of the named plaintiffs in these cases is an interesting one, and anyone interested in the topic will want to review Reuters reporter Tom Hals’ February 18, 2015 Special Report entitled “TV Stock Picker Leads Onslaught of Class Action Suits.” In his article, Hals take a close look at the M&A litigation blitz that has been waged in the name of Hilary Kramer, an investment newsletter author who has published a number of financial books and articles and who appears on Fox Business News.

Here’s a trend – law firms multi-purposing the content they prepare for speaking engagements. Pillsbury does this nicely by having Allison Leopold Tilley tape a 2-minute recap of takeaways from a M&A panel she did (see the vid on the right side of her bio). If you speak on a panel, let me know as I have other ideas of things you can do with the talking points and materials that you prepared…

We have posted the transcript for our recent webcast: “Rural/Metro & the Role of Financial Advisors.”

Here’s news from this WSJ article:

A Delaware judge awarded $25 million to plaintiffs’ lawyers who successfully sued investment bank RBC Capital Markets LLC over buyout advice it gave a client, but he declined to assess the fees on top of the payout to shareholders. The ruling by Vice Chancellor J. Travis Laster came during a court hearing Thursday, according to people involved in both sides of the case. A written order wasn’t immediately available.

Mr. Laster in October ordered the bank, part of Royal Bank of Canada, to pay about $76 million to former shareholders of Rural/Metro Corp., finding that the bank’s desire to win fees on both sides of the transaction–as an adviser to the company and a lender to the private-equity firm that bought it–tainted its boardroom advice and wasn’t adequately disclosed to the company or its shareholders.

Plaintiffs’ lawyers had sought fees over and above that amount–an unusual request, as attorneys fees are typically taken out of damages awards, not added on top. They argued RBC bankers had “lied repeatedly” during the trial, and that the bank’s court papers included statements it knew were false. Delaware judges can impose legal fees on top of client awards if they find a party acted in bad faith. Mr. Laster on Thursday said RBC made representations that were “problematic,” but said they didn’t merit imposing legal fees on top of the damages award, according to the people. The ruling saves RBC tens of millions of dollars.

With interest, the bank owes about $93 million as of Thursday, the people said. RBC has defended its actions and is expected to appeal. The ruling was the first in Delaware to hold a bank liable for merger advice, and is seen as opening the door to other such cases. Currently several Wall Street banks are facing suits over their roles on recent transactions.

As Canadian banks have expanded into the U.S. they have met their share of regulatory actions and litigation. RBC in December was ordered to pay a $35 million penalty for allegedly engaging in illegal futures trading with itself over a three-year period. The case, one of the biggest of its kind, was brought by the Commodity Futures Trading Commission. RBC had earlier denied the allegations and didn’t admit or deny them as part of the settlement.

Here’s a blog by Stinson Leonard Street’s Steve Quinlivan:

In Bear Stearns Mortgage Funding Trust 2006-SL1 v. EMC Mortgage LLC et al, the Delaware Court of Chancery explained the operation of Section 8106(c) of the Delaware statutes for the first time. The results are surprising to many, as the new statute can apply to M&A agreements executed years ago. Section 8106(c), which became effective on August 1, 2014, provides as follows:

Notwithstanding anything to the contrary in this chapter (other than Section 8106(b)) or in § 2-725 of Title 6, an action based on a written contract, agreement or undertaking involving at least $100,000 may be brought within a period specified in such written contract, agreement or undertaking provided it is brought prior to the expiration of 20 years from the accruing of the cause of such action.

According to the court, Section 8106(c) was intended to allow parties to contract around Delaware’s otherwise applicable statute of limitations for certain actions based on a written contract, agreement or undertaking. By stating that the written contract, agreement, or undertaking could refer to a “period specified,” Section 8106(c) created a flexible framework for defining the time in which suit can be brought. If the contract specified an indefinite period, then the action nevertheless must be brought “prior to the expiration of 20 years from the accruing of the cause of such action.”

The court explained that Delaware precedent explains that a modification of a limitations period is a procedural matter affecting remedies rather than a change in substantive law. Ordinary presumptions against retroactivity do not apply, and the modification applies to ongoing suits absent a showing of manifest injustice. If the Delaware legislature chooses to alter the statute of limitations, then the change applies not only to future claims, but also presumptively governs existing claims.

A court may limit the retroactive application of a change in the statute of limitations where retroactive application would cause injustice. According to the court, there was no injustice here. The defendants did not assert a timeliness defense until two years after the dispute arose, including after the parties had engaged in a lengthy meet-and-confer process that contemplated resolving loan disputes on their merits. During the meet-and-confer process, the defendants never argued that the Trustee’s claims were untimely. In addition, the case was still pending when the Delaware legislature enacted Section 8106(c) and when the statute became effective, so the amendment addressed live claims. It did not have the effect of reviving extinguished claims.

Turning to the purchase agreement used in connection with the securitization, the court observed the agreement contained provisions designed to modify the statute of limitations for purposes of claims for breaches of representations and warranties. Under Section 8106(c), those provisions are valid and effective. Analogizing to a real estate agreement, the court stated “Absent contract language providing to the contrary, pre-closing representations about the acquired property interest become ineffective post-closing.”

Once a transaction agreement provides for representations to survive closing, the next question is how long they can survive. Before the effectiveness of Section 8106(c), the maximum survival period was three years, because of certain Delaware decisions which held that parties could shorten but not lengthen a statute of limitations. But with the effectiveness of Section 8106(c), parties can now extend the statute of limitations up to a maximum of twenty years.

The court interpreted this purchase agreement to provide the defendant had 20 years to discover the breach under the new Delaware statute. Because this structure of the purchase agreement did not specify an outside date for bringing claims, it is subject to the 20 year statutory maximum in Section 8106(c).

The upshot of the decision is most parties will likely want to specificy a time certain for brining claims. Language such as “indefinite survival” should no longer be used if it can be avoided. M&A agreements should also explicitly provide that representations and warranties survive closing.

In this blog, Francine McKenna parses a new study – “Shared Auditors in Mergers and Acquisitions” – that documents a novel auditor conflict of interest. As Francine notes, data suggests that when an acquiring company and its target share the same auditor, the audit firms favor acquirers at the expense of audit clients who are M&A targets. These findings also strongly suggest that auditors prioritize their own self-interest and larger clients over smaller ones, and their public duty, when an M&A opportunity forces a choice between audit clients in the firm’s client portfolio.

As noted in this press release, shareholder activism grew significantly in 2014, with the number of companies targeted worldwide reaching 344, compared to 291 in 2013, according to “The Activist Investing Annual Review 2015,” published by Activist Insight, in association with SRZ. This Bloomberg article highlights the investors most likely to support activists. Other highlights from the review:

– Shareholder activists were more active than ever in 2014, based on the number of companies targeted and number of activists active. In fact, the number of targeted companies with no prior run-ins with activists over the last five years also increased, from 210 to 249.
– The number of activists running a public campaign, such as a demand for board representation or strategic alternatives, rose for its fifth consecutive year in 2014, to 203. In 2013, 160 activists ran a public campaign, up from 150 in 2012.
– Activists increasingly sought to push companies into M&A activity. Proactive M&A campaigns, where activists seek to push companies to acquire other firms or sell themselves, nearly doubled from 36 to 68 instances between 2013 and 2014. Reactive M&A, typified by opposition to deals or their terms, more than halved from 26 to 12 over the same period.

The “Activist Top Ten 2014” are:

1. Starboard Value LP
2. Third Point LLC
3. JANA Partners LLC
4. Icahn Enterprises LP
5. GAMCO Investors Inc.
6. Elliot Management
7. Pershing Square Capital Management LP
8. Trian Partners
9. ValueAct Captial
10. Corvex Management LP

Here’s the full report from last year fyi. And here’s a blog about two other shareholder activism roundups…