Kevin LaCroix has an interesting post today in his “D&O Diary Blog” about: “One of the most noteworthy recent trends in corporate and securities litigation has been the dramatic growth in the frequency of lawsuits relating to mergers and acquisitions activity. These lawsuits are not only becoming increasingly more common, but also increasingly more costly. The growth in this litigation activity has been so rapid that the significance of these trends may remain underappreciated.” Kevin goes on to analyze the trends at great length. Check it out!
Monthly Archives: November 2011
This November-December issue of the Deal Lawyers print newsletter was just sent to the printer and includes articles on:
- Nevada: Delaware of the West?
- Caveat Investor for Private Equity: Pointers for Investing Additional Capital
- Delaware Chancery’s $1.3 Billion Damage Award: 19 Take-Aways
If you’re not yet a subscriber, try a “free for rest of ’11″ no-risk trial to get a non-blurred version of this issue on a complimentary basis.
Here’s news culled from this Davis Polk alert:
On October 13th, the Department of Justice, Antitrust Division, Federal Trade Commission and the Competition Directorate-General of the European Commission (“DG Competition”) issued an updated set of best practices for coordinating merger reviews.
These best practices are intended to facilitate coordination, to the extent consistent with their respective laws and enforcement responsibilities, between the U.S. agencies and DG Competition when they are both reviewing the same merger (when the merger is subject to EU Merger Regulation, but regardless of whether the merger is subject to HSR notification). In such cases, the agencies have a mutual interest in reaching, insofar as possible, consistent, or at least non-conflicting, outcomes concerning both the timing of review and, if applicable, remedies.
Cooperation between the U.S. agencies and DG Competition is based primarily upon the 1991 U.S.-EU Agreement on the application of their competition laws. The purpose of that Agreement is “to promote cooperation and coordination and lessen the possibility or impact of differences between the Parties in the application of their competition laws.” Legal constraints in both jurisdictions concerning the sharing of confidential information about parties to a merger or acquisition remain in place, however, and so interagency coordination often depends not only on the agencies themselves but on the cooperation of the merging parties.
The original best practices issued in 2002 provided an advisory framework for interagency cooperation. The revised best practices (i) provide further guidance to merging parties about coordinating the two review processes in the U.S. and EU, (ii) recognize that mergers may also be subject to antitrust review in other countries, and (iii) emphasize coordination at specific stages of investigations, including the final stage where remedies are considered.
The following are the key points contained in the revised set of best practices:
- At the start of any investigation of a merger subject to review in both the U.S. and EU, the relevant DOJ Section Chief or FTC Assistant Director and DG Competition Unit Head should agree on a tentative timetable for regular consultations, which may include staff economists, taking into account the overall timing of the merger.
- In particular, the agencies will plan to consult with each other: (a) before the U.S. agency reviewing the merger either closes an investigation without taking action or issues a second request; (b) no later than three weeks after the European Commission (“EC”) initiates a Phase I investigation; (c) before the EC opens a Phase II investigation or clears the merger prior to Phase II; (d) before the EC closes a Phase II investigation without issuing a Statement of Objections or before DG Competition anticipates issuing a Statement of Objections; (e) before the U.S. agency staff makes its case recommendation to senior leadership; (f) at the commencement of remedies negotiations with the merging parties; and (g) prior to a reviewing agency’s final decision to seek to prohibit a merger.
- Coordination between the U.S. and EU agencies may include sharing publicly available information and, consistent with confidentiality obligations, discussing their respective substantive theories and analyses at various stages of an investigation, and potential remedies.
- The agencies should hold joint calls or meetings with the merging parties and agency staffs to coordinate timing of their respective investigations. The parties are encouraged to discuss timing concerns with the reviewing agencies as soon as possible, including providing basic information about the merger in advance of any filings, such as the names and activities of the merging parties, the geographic and product markets in which they operate, the other jurisdictions in which they have made or intend to make a filing and anticipated filing dates, and any other exigencies.
- The merging parties should suggest timeframes for the submission of documents or other information and interviews, including in DG Competition’s prenotification phase, so as to coordinate review timelines, particularly in the period prior to formal notification in the EU. Parties should generally aim to make U.S. and EU filings in parallel.
- The agencies may also coordinate further information and discovery requests and provide opportunities for the parties to make joint presentations or submissions of documents. Towards that end, the agencies may often seek to obtain confidentiality waivers from the merging parties, normally at DG Competition’s prenotification phase.
- Where appropriate and consistent with information-sharing constraints, the agencies may share draft remedy proposals and participate in joint discussions with the merging parties, prospective buyers of to-be-divested assets, and divestiture trustees, to ensure compatibility of those remedies. This process may result in the appointment of common trustees and/or agreement on the same purchaser(s) for assets to be divested in both jurisdictions.
From John Grossbauer of Potter Anderson: In Coughlan v. NXP, Delaware Vice Chancellor Glasscock interpreted a provision in a merger agreement by which NXP had acquired a company called Glo-Nav and agreed to certain earnout payments to former Glo-Nav stockholders. The Vice Chancellor applied the step-transaction doctrine to find that the creation by NXP of a new subsidiary of NXP to which it transferred assets including the former Glo-Nav assets, and the subsequent transfer by NXP of the subsidiary to a joint venture with ST Microelectronics, was covered by a provision of the merger agreement requiring the joint venture to either assume the earnout payments or to accelerate those payments to the former Glo-Nav stockholders.
However, the Court further found that the joint venture had complied with the obligation under the merger agreement to assume the obligations under the earnout provisions, and therefore the earnout payment did not accelerate upon transfer of the subsidiary to the joint venture, even though NXP retained the obligation to make the actual earnout payments when they became due.
Section 951(b)(2) of Dodd-Frank requires companies to hold a non-binding shareholder vote on executive severance packages (golden parachutes) in connection with M&A transactions that are presented for shareholder approval. Shareholder votes on golden parachutes have been required since April 25, 2011. Pearl Meyer & Partners recently completed a study on the outcomes of such shareholder votes held between April 25, 2011 and September 26, 2011.
According to the Pearl Meyer study, during this period, 37 companies included golden parachute disclosure and votes in their merger proxies, 24 of which to date have publicly disclosed the results of the golden parachute vote. Each golden parachute vote received support of a majority of shareholders, with the median vote equal to 91% approval. Interestingly, Pearl Meyer noted that the median support for the related merger transactions was 99%. The study shows that shareholders are generally voting in favor of golden parachutes where the shareholders approve of the related merger transaction, but at slightly lower rates.
Pearl Meyer also noted that ISS issued reports on 32 of the 37 transactions. Four of ISS’s reports contained a negative recommendation for the golden parachute votes. Of the golden parachute votes that did not receive ISS support, according to the Form 8-Ks filed reporting the results of such votes, a majority of shareholders still approved each golden parachute vote (albeit by a percentage somewhat below the median – approval votes ranged from 57% to 95%). Based on this early data, it appears that while ISS may have the ability to sway shareholder votes to some extent, the shareholders’ votes on golden parachutes are closely linked with shareholders’ views regarding the related merger transaction. The “say on golden parachutes” vote therefore may not greatly affect a company’s decision(s) with respect to the golden parachute payments offered to executives and officers.
In this podcast, Ken Favaro of Booz & Co. provides some insight into why a private equity firm would go public, including:
- Why have private equity firms gone public?
- Why have private equity firms diversified into new asset classes?
- What is the outlook for their core business?