DealLawyers.com Blog

In re Plains Exploration: A Revlon Review & the Kitchen Sink

John Grossbauer of Potter Anderson notes: In In re Plains Exploration & Production Co. Shareholder Litigation, Delaware Vice Chancellor Noble rejected claims for breach of duty based on alleged Revlon breaches and alleged disclosure violations in connection with a merger approved by the board of directors of Plains consisting of 7 independent directors and the CEO, who stood to receive a large payout as well as to become a senior officer of the combined company if the proposed transaction with Freeport-McMoRan Copper & Gold is approved.

The Court found no Revlon breach in the Board failing to form a special committee and in letting the CEO lead the negotiations with Freeport. Likewise, the failure to engage in a pre-signing market check or go-shop and the failure to negotiate a collar on the stock component of the consideration or obtain an equity "kicker" did not rise to the level of a breach of duty. The Court found the deal protections to be reasonable as well.

On the disclosures, the Court rejected claims that, among other things, unlevered free cash flow number be disclosed, because the Company did not provide them to its financial adviser, and that other alleged omissions about the banker's methodology were "quibbles." The Court also rejected claims concerning alleged omissions about conflicts by the CEO and bankers, saying they were adequately disclosed (including the fact the financial advisor may have holding in Freeport).

The Resurgence of Japanese Outbound M&A

Here's an excerpt from this Skadden Arps' memo about Japanese M&A:

The Nikkei has skyrocketed more than 50 percent over the last six months. Goldman Sachs has issued a report predicting a further 20 percent gain in the index before year-end. Japanese companies were the third-most active group of acquirers in the world in 2012, behind only the U.S. and virtually tied with Canada for second place.

This ferment of activity is taking place largely under the radar -- as global attention is far more focused on the potential economic effects accompanying China's emergence on the world stage.

What are the drivers of this uptick in Japanese outbound M&A activity? Is it sustainable? What are the challenges for the Japanese economy and its private sector? What are some practical tips for bridging the inevitable cultural gaps associated with Japanese company dealmaking? The following discusses what is happening in Japan to magnify its participation in the global M&A marketplace and what the future may hold.

Trending Upward: A Look at Record Japanese Activity

From the vantage point of the U.S. M&A market, Japan was the top inbound acquirer of U.S. targets in 2012, with more than one-quarter of the market share of deal value. By contrast, China represented about 7 percent of deal value and was only the fifth-most active acquirer of U.S. companies last year. While Japan's 2012 figure certainly was impacted by the $20.1 billion Softbank/Sprint megadeal announced in October, the country's participation in the U.S. M&A market has been trending steadily upward since 2009. Viewed over a longer period of time, Japanese outbound M&A activity is at an all-time high, far surpassing the late 1980s when Japanese investors were buying Rockefeller Center, Pebble Beach, Columbia Pictures and other high-profile assets worldwide. In fact, the deal value of outbound Japanese M&A in 2012 was more than three times that of 1990, considered the peak year of that era. Yet this resurgence of deal flow has not been a center of focus in the news media today, reflecting our view that Japanese companies appear to be welcome buyers in today's environment.

Today's Webcast: "FCPA Issues in Deals Today"

Tune in today for the webcast - "FCPA Issues in Deals Today" - to hear Mauricio Espana and Derek Winokur of Dechert and Rebekah Poston of Squire Sanders explain how FCPA diligence is being conducted, how reps & warranties related to FCPA violations are being negotiated, and more. Please print off these course materials in advance.

The Merger Agreement Myth

This academic study is food for thought regarding the time spent negotiating walk-away rights in public M&A deals. Here is the abstract:

Practitioners and academics have long assumed that the legal terms of acquisition agreements add value to mergers, yet legal scholarship has failed to subject this premise to empirical scrutiny. The conventional wisdom is that markets must value the tremendous amount of time and money that M&A lawyers invest in negotiating and tailoring the legal provisions of acquisition agreements to address the distinctive risks facing each merger. Otherwise, the merging parties would not spend so much on legal fees. But the empirical question remains of whether the legal terms of acquisition agreements add any value beyond the financial terms of mergers (negotiated by investment bankers). For this reason we designed a modified event study of target company stock prices that shows that M&A lawyers' extensive negotiations on the legal terms of acquisition agreements do not add significant value to mergers.

Our analysis of target company stock prices leverages the fact that merger announcements (which lay out the financial terms) are generally disclosed one to four trading days before the disclosure of acquisition agreements (which delineate the legal terms). We focused on a data set of cash-only public company mergers spanning the decade from 2002 to 2011 to ensure that the primary influence on target company stock prices is the expected value of whether a legal condition will prevent the deal from closing.

Our analysis shows that there is no economically consequential market reaction to the disclosure of the acquisition agreement. Markets appear to recognize that parties publicly committed to a merger have strong incentives to complete the deal regardless of what legal contingencies are triggered. We argue that the results suggest that M&A lawyers are fixated on the wrong problems by focusing too much on negotiating "contingent closings" that allow clients to call off a deal, rather than "contingent consideration" that compensates clients for closing deals that are less advantageous than expected. This approach can enable M&A lawyers to protect clients against the effects of the clients' own managerial hubris in pursuing mergers that may (and often do) fall short of expectations.

Takeover Litigation in 2012

Hats off to Kevin LaCroix for another fine blog entitled "Takeover Litigation in 2012" discussing Professors Davidoff & Cain's new paper showing litigation over deals continued at a high rate last year...

Has Stock Returned as the Currency of Choice?

Here's a blog from Gregory Bader of Gunster about the re-rise of stock in deals...

More on "Buyouts: Dell Pays Blackstone's Due Diligence Bills"

The Dell saga is reaching another chapter. As noted in this DealBook blog, Blackstone has dropped out of the bidding (for which it will be reimbursed for conducting diligence, as I have blogged before). The DealBook blog includes the text of Blackstone's letter, which supports the special committee's argument that Dell's business is on the decline.

Chart: Poison Pills

Here is a chart from The Conference Board providing stats on poison pills and fiduciary outs...

Corp Fin Grants No-Action Relief for Stock & Cash Tender Offer

Gibson Dunn's Jim Moloney recently blogged:

The Division of Corporation Finance recently granted no-action relief to Alamos Gold, a Canadian corporation, in connection with its proposed acquisition of Aurizon Mines Ltd., another Canadian corporation. The proposed acquisition is structured as a tender offer with consideration consisting of a mix of stock and cash subject to proration that would limit each form of consideration to a specified maximum aggregate amount in both the initial and any subsequent offering period. The Division granted an exemption from Rule 14d-10(a)(2) under the Exchange Act, which provides that no bidder shall make a tender offer unless the consideration offered and paid to any security holder for its securities tendered is the highest consideration paid to any other security holder for its securities tendered. In addition, relief was granted from Rules 14d-11(b) and 14d-11(f) under the Exchange Act, which provide that a bidder may offer a mix of consideration in a subsequent offering period provided there is no ceiling on any form of consideration offered, and the same form and amount of consideration is offered in both the initial and subsequent offering periods.

The Staff's position in Alamos Gold is consistent with the no-action relief granted in prior Canadian cross-border transactions involving a mix of stock and cash consideration subject to aggregate maximums, including Barrick Gold Corporation (avail. January 19, 2006) and Teck Cominco Limited (avail. June 21, 2006).

This relief comes at a time when there is a noticeable increase in cross-border M&A activity and shareholder activism in Canada. In particular, Coeur d'Alene Mines' recent announcement of its CAD$350 million acquisition of Orko Silver Corp. and First Quantum Minerals' CAD$5.1 billion acquisition of Inmet Mining Corp. Thus, when structuring acquisition transactions in Canada, and elsewhere, bidders should consider the Division's increasingly flexible approach to allowing the offer of stock and cash alternatives in tender offers.

Study: M&A Litigation

Cornerstone Research does a great job marketing its studies - and the latest M&A litigation one is no exception. Kevin LaCroix has read it and gives his analysis in this blog...