On May 9, 2012, the Board of Governors of the Federal Reserve System issued an order approving the acquisition of 80% of the shares of common stock of The Bank of East Asia (U.S.A.) National Association, by Industrial and Commercial Bank of China Limited. This Order marks the first occasion on which the FRB approved the acquisition of a U.S. bank by a Chinese bank since the Bank Holding Company Act of 1956 was amended by the Foreign Bank Supervision Enhancement Act of 1991. The FBSEA, which increased federal supervision of foreign banks operating in the United States, requires the FRB to make a finding that a foreign bank seeking to acquire control of a U.S. bank is subject to comprehensive supervision on a consolidated basis ("CCS") by its home country supervisor. The Order marks the first time that the FRB has made a full and unqualified CCS determination for a Chinese bank to acquire control of a U.S. bank.

The Order should create the opportunity for other leading Chinese banks to acquire U.S. banks of a relatively modest size. Although the CCS determination is nominally bank-specific, in practice a CCS determination for one bank in a country is typically precedential for all similarly-situated banks in that country. In addition, because the FRB takes the position that a CCS determination is required before a foreign banking organization can obtain financial holding company status, the Order should pave the way for Chinese banks and their holding companies that are subject to the BHC Act to become FHCs.

I found this recent Dealbook piece entitled "The Curious Case of the Telus Proxy Battle" because I have long been fascinated by the problems of overvoting and similar anomalies in the shareholder meeting process that impedes the integrity of a meeting's voting results. Another case in point is the article that Carl Hagberg mentioned in the his Shareholder Service Optimizer recently about the hedgie who inadvertently let slip that he was planning to vote both his own shares - plus a nearly equal number that he "borrowed"...from himself. Hopefully, the SEC will get around to fixing these serious problems as its proxy plumbing rulemaking gets off the ground. A few days ago, Telus withdrew its proposal in the face of the allegations...

Here are some interesting thoughts from Kevin Miller of Alston & Bird related to this blog about a recent WSJ article entitled "Shortcomings of Valuation Opinion in Great Wolf Buyout":

1. Myth: Fairness Opinions are Valuations

Reality: The financial analyses underlying fairness opinions are not valuations or appraisals, they are merely financial analyses performed by a financial advisor to assess whether it is appropriate to render a fairness opinion. Financial advisors are not engaged to provide valuations and the financial analyses they perform often result in divergent implied valuation reference ranges, not all of which may individually appear to be supportive of the proposed purchase price. However, viewed in their entirety, with different subjective emphases placed on the various analyses based on the financial advisor's experience and judgment, the financial analyses may be viewed as supporting a fairness conclusion. How do we know that the financial analyses performed by a financial advisor are not valuations or appraisals? Because the opinion and the associated proxy disclosure are unambiguous on that point:

"Any estimates contained in these analyses are not necessarily indicative of actual values or predictive of future results or values, which may be significantly more or less favorable than as set forth below. In addition, analyses relating to the value of the businesses do not purport to be appraisals or to reflect the prices at which the businesses could actually be sold."

2. Myth: LBO Analyses are Valuation Analyses

Reality: LBO analyses only reflect a private equity firm's capacity to pay. In contrast to more traditional valuation analyses based on (i) a discounted cash flow analysis, (ii) selected company analyses and (iii) selected transaction analyses, an LBO analysis does not purport to provide any indication of the intrinsic or inherent value of a business but instead merely indicates the price that a private equity firm might be willing to pay based on several critical assumptions including, without limitation, (a) an assumed capital structure; (b) a PE firm's cost of debt financing, (c) a PE firms cost of equity financing (often expressed as a hurdle rate of return below which the PE firm will generally not make an investment), (d) anticipated cost savings and synergies, and (d) a hypothetical exit multiple.

Financial advisors to the target will often be required to make guesses based on experience and professional judgment with respect to many of these and other assumptions and those guesses may not accurately reflect the private equity firm's actual proposed capital structure, cost of debt or equity financing or anticipated cost savings and synergies, etc. Such analyses tend to be more useful as negotiating tools - do we think their bid reflects the most they may be willing to pay? - and not as an indication of intrinsic or inherent value. Private equity firms are not always the best buyers and the price they are willing to pay may not fully reflect the intrinsic or inherent value of a business. Among other things, many financial advisors keep reference ranges generated by an LBO analysis off their football fields or otherwise distinguish them from the other more traditional types of financial analyses used to support the rendering of a fairness opinion.

3. Myth: If a Buyer is willing to pay a lot more than the ranges of values indicated by the seller's financial advisor's analyses, then the Seller's financial advisor got it wrong

Reality: Though not relevant to the Great Wolf transaction, sellside financial advisors in a cash transaction do not generally include the potential cost savings and synergies a buyer expects to achieve as a result of the merger in the financial analyses performed to support the rendering of a fairness opinion. Those cost savings and synergies are generally treated as an asset of the buyer and consequently not something that should be taken into account in assessing the fairness of a proposed purchase price to the seller. That can lead to anomalous results as was seen in the 3Par transaction where two bidders, both of which could achieve substantial synergies made bids substantially in excess of the ranges of values indicated by the financial analyses performed by the seller's financial advisor.

The magnitude of the bids did not indicate that the seller's financial advisor got it wrong but merely that the competing bidders were willing to share a portion of their potential synergies with the target's stockholders. The ability of a seller's board to extract a significant portion of a buyer's expected synergies in a competitive bidding process is another reason that advisors will often caution a board that merely because a price is fair, doesn't mean it should be accepted.

Here's news culled from this Richards Layton memo: In Martin Marietta Materials, Inc. v. Vulcan Materials Co., C.A. 7102-CS (Del. Ch. May 4, 2012), the Court of Chancery upheld a pair of confidentiality agreements and temporarily enjoined Martin Marietta Materials from prosecuting a proxy contest and proceeding with a hostile bid for its industry rival Vulcan Materials Company.

For years, Vulcan had expressed interest in a friendly transaction with Martin Marietta. In the spring of 2010, the parties executed two stringent confidentiality agreements to enable their merger and antitrust discussions. Both parties were seeking to avoid being the target of an unsolicited offer by the other or by another buyer when they entered into the confidentiality agreements. Accordingly, the agreements protected from disclosure the companies' confidential information as well as the fact that the parties had merger discussions.

After its economic position improved relative to Vulcan, Martin Marietta decided to make a hostile bid for Vulcan; it also launched a proxy contest designed to make Vulcan more receptive to its offer. The Court found that Martin Marietta used protected confidential material in making and launching its hostile bid and proxy contest.

The Court then construed the language of the confidentiality agreements to determine that Martin Marietta had breached those agreements by (1) using protected information in formulating a hostile bid, since the information was only to be used in an agreed-to business combination; (2) selectively disclosing protected information in one-sided securities filings related to its hostile bid, when such information was not disclosed in response to a third-party demand and when Martin Marietta failed to comply with the agreements' notice and consent process; and (3) disclosing protected information in non-SEC communications in an effort to "sell" its hostile bid.

The Court held that, although the confidentiality agreements did not expressly include a standstill provision, Martin Marietta's breaches entitled Vulcan to specific performance of the agreements and an injunction. The Court therefore enjoined Martin Marietta, for four months, from prosecuting a proxy contest, making an exchange or tender offer, or otherwise taking steps to acquire control of Vulcan's shares or assets.

Last week, the WSJ Blog ran this interesting analysis entitled "Great Wolf Shows Shortcomings of Banker Valuation Opinions." Check it out!

Tune in tomorrow for the webcast - "LLCs: Understanding Capital Account and Allocation Concepts for M&A" - to hear Tarik Haskins of Morris Nichols, Andy Immerman of Alston & Bird and Chris Rosselli of Alston & Bird explain the capital account and tax implications of how LLCs are being used in deals today. Here are Course Materials you should print in advance...

A while back, Nixon Peabody's issued its "2011 MAC Survey," which explores trends in the use of material adverse change clauses in M&A deals and reflects insight on a range of issues related to the allocation of risk between transacting parties in mergers and acquisitions.

John Grossbauer of Potter Anderson notes: Last Friday, Delaware Vice Chancellor Noble granted a motion to expedite a claim by Carl Icahn that the Board of Directors of Amylin Pharmaceuticals breached its fiduciary duties by not waiving an advance notice bylaw to permit stockholders to nominate candidates for election to the board following the Board's rejection of an unsolicited offer by Bristol Myers. The Vice Chancellor found that Icahn had adequately alleged that the Board "radically changed its outlook for the Company" in a manner that potentially justified reopening the nomination process.

The decision is merely on a motion to expedite, which has a low standard whereby plaintiff need only articulate a "colorable claim" to succeed. Nevertheless, the opinion does suggest an interesting line of attack in instances where a board rejects a hostile bid (or makes some other major strategic decision) after the deadline for nominations has passed. The company's announcement of a sales process could moot the case, as it appears Icahn may have gotten the result he wanted without running a slate.

With today's big JOBS Act webcast taking place over on TheCorporateCounsel.net later today, I thought it was appropriate to point out this Gibson Dunn blog entitled "Private Placement of Publicly Traded Equity Securities as Consideration in an M&A Transaction after the JOBS Act."

Here's news culled from this recent Wachtell Lipton memo:

The recovering, but still uncertain, economy and real estate markets have led to diverging opinions and concerns over the future value of a target's assets which might otherwise prevent agreement on transaction pricing. As discussed in prior memos, contingent consideration structures have for years been used to bridge differences between buyers and sellers in uncertain times. With the burgeoning trend of increased M&A activity involving smaller banks, it is important to remember that these structures, while requiring careful thought, can be useful in both small and large deals alike to creatively address pricing challenges.

Capital Bank Financial Corp.'s recently announced agreement to acquire Southern Community Financial Corporation is the third transaction in the last 18 months in which that acquiror has utilized a contingent value right, or CVR, as a portion of the consideration. The CVR provides the opportunity for additional value to Southern Community shareholders if the portfolio performance exceeds a designated benchmark, while allowing Capital Bank to limit its exposure if performance should deteriorate. It has a value determined by the performance of Southern Community's legacy loan and foreclosed asset portfolio at the end of a five-year period. Payments under the CVR may range from zero to $1.30 per share in addition to the primary merger consideration of $2.875 per share. Any payments would only be made at the end of the five-year measurement period. The CVR was structured so as not to require registration with the SEC, avoiding not only the cost of registration but also the ongoing reporting requirements. Consequently, the CVR is not transferable, does not grant any voting or dividend rights, bears no stated rate of interest, and will not be certificated.

The recent restructuring of BB&T's agreement to acquire BankAtlantic from BankAtlantic Bancorp is a variation on this theme. Faced with the injunction obtained by the holding company TruPS investors to the original deal, the parties devised a creative structure to make it economically possible for BB&T to assume the TruPS. To compensate BB&T for doing so, the parties agreed that BankAtlantic Bancorp would capitalize, with assets to be retained by it under the original deal, a vehicle in which BB&T would have a 95% preferred interest. BankAtlantic Bancorp (and ultimately its shareholders) will retain a minority preferred interest in the vehicle, as well as the full residual interest. The risk BB&T is assuming is mitigated by careful diligence of the underlying assets as well as the structure of the asset vehicle, which provides BB&T with a preferred return, overcollateralization relative to the TruPS obligation and an additional guaranty from BankAtlantic Bancorp. The BankAtlantic Bancorp shareholders, like those in analogous deals with contingent consideration to target shareholders, retain in this structure significant upside potential from improving economic conditions post-closing, specifically those affecting legacy loan performance.

These transactions are but two recent examples of the art of the possible in bank M&A. Other transactions in recent years including a contingent consideration component include Capital Bank Financial Corp.'s controlling investments in Capital Bank Corporation and Green Bankshares, Inc. and Capital One Financial's acquisition of Chevy Chase Bank. While often shareholders and other constituencies may prefer a fixed or certain consideration where possible, the two parties to a potential deal may have very different ideas of what that certain consideration should be. With industry conditions still recovering and potentially volatile in the coming months, contingent consideration terms may in some cases be the best way to bridge this gap and strike a deal.

Last week, in In re Answers Corp., Delaware Vice Chancellor Noble refused to dismiss a complaint challenging a merger plaintiffs alleged was entered into hurriedly before very positive results for the target were released that were anticipated to drive up the price of the target stock. VC Noble found the allegations against the outside directors for going along with the rushed process were sufficient to allege bad faith, although it signaled plaintiff was unlikely to prevail on that claim after trial. It also found the aiding and abetting claim against the buyer survived a motion to dismiss, although it also expressed skepticism about the viability of this claim at trial.

The use of blogs and social media in contested battles continues as noted in this DealBook piece:

Daniel S. Loeb is bringing a blog to a Web fight. In his effort to overhaul the board of Yahoo, the head of Third Point has started ValueYahoo.com, his own site, which features information on his coming proxy fight. The site, which went live at 10:30 Monday morning, includes an outline of his agenda, a mission statement and profiles on his slate of proposed directors. Shareholders and other interested readers can also subscribe to the site to get updates on breaking stories or new content.

And yes -- in true new Web fashion -- you can also "like" Mr. Loeb's battle for Yahoo's board by becoming a fan of the site's Facebook page.

Although investors have used the Web to disseminate information on past proxy contests, Mr. Loeb's full site is a novel approach. It serves two purposes. For one, it is a central hub of information for Yahoo shareholders considering Mr. Loeb's proposal. And second, the medium is intended to show investors that Mr. Loeb gets the Web, according to one person close to Third Point, who spoke on the condition of anonymity because of the looming proxy contest. Third Point plans to update the site daily, with frequent contributions from Mr. Loeb himself.

The activist hedge fund investor is locked in a battle with Yahoo's board, which is trying to stymie his attempts to add four new directors, including himself. Mr. Loeb, who owns a 5.8 percent stake in Yahoo, filed a preliminary proxy filing last month. Although Yahoo has made some overtures, including an offer to add one of Mr. Loeb's candidates, Harry Wilson, to the board, Mr. Loeb has criticized the board for not taking his demands seriously and failing on several corporate governance issues.

We have posted the transcript for our recent webcast: ""The SEC Staff on M&A."

Here's news culled from this Jones Day memo, repeated below:

The two U.S. antitrust agencies have been waiting for leadership positions to be filled, which may provide clearer signs on the direction of antitrust enforcement after three years of the Obama Administration. Recent action by the U.S. Senate now has brought a full complement of Commissioners to the Federal Trade Commission, and the Department of Justice will continue with new interim leadership.

There are five Commissioner seats at the FTC. The Commissioners are nominated by the President with consent of the Senate. The FTC has been operating with only four Commissioners since the departure of Commissioner and former Chairman Bill Kovacic, a Republican, who left the FTC and returned to George Washington University in October 2011. As no more than three FTC Commissioners may belong to the same political party, the President had nominated Maureen Ohlhausen, a Republican, to fill Kovacic's seat. She served as the FTC's Director of the Office of Policy Planning from 2004 to 2008 and before that in other FTC positions. Commissioner Ohlhausen has experience in antitrust, privacy, and cybersecurity, and she should bring a strong voice to FTC decisionmaking in both competition and consumer protection matters. The Senate confirmed Ohlhausen's nomination last week.

The Senate also confirmed FTC Chairman Jon Leibowitz to a second term. A Democrat, he was first appointed to the Commission in 2004 and was designated by President Obama as Chairman in 2009. Under Chairman Leibowitz, the FTC has been an active enforcer in technology, energy, and healthcare matters, and ratcheted up the agency's efforts to stop "pay-for-delay" patent settlements in the pharmaceutical industry.

The term of Commissioner Thomas Rosch, the other Republican on the Commission, will expire in September 2012. Commissioner Rosch has announced he will remain at the FTC until his successor is confirmed. Given the politics of this election year, it is not likely that a replacement will be nominated until after the November elections and, if there is a change in Administration, this may not happen until well into 2013. Thus, Rosch likely will remain at the FTC beyond his term. Commissioners Edith Ramirez and Julie Brill, both Democrats appointed by President Obama, remain on the Commission.

At the DOJ Antitrust Division, following the departure of Assistant Attorney General Christine Varney, Principal Deputy Sharis Pozen had taken the Acting AAG title, but with a plan to remain at the Antitrust Division only until the end of April. Last week, the Attorney General announced that, upon Pozen's departure, Deputy AAG Joseph Wayland would take the Acting AAG post. Wayland has served as the Antitrust Division's Deputy Assistant Attorney General for Litigation since September 2010. He is an experienced commercial litigator and has focused on matters in which DOJ has considered taking antitrust cases to trial, including the challenges to H&R Block's acquisition of TaxAct and the proposed merger of AT&T and T-Mobile USA.

Wayland may hold the Acting AAG title for some months, due to the same election year politics that have delayed nominee confirmations at the FTC. The President has nominated Bill Baer, a partner with Arnold & Porter, to be the new AAG. Baer is a highly respected antitrust lawyer and former Director of the FTC Bureau of Competition. However, the Senate has not yet scheduled a hearing on his nomination, and again it is possible that the Senate will not act on this nomination until soon after the November election or even later.

Naturally, businesses and their antitrust counsel look forward to learning how the November election may shape the direction of antitrust enforcement. In the interim the U.S. antitrust agencies are quite capable of pursuing investigations and bringing enforcement actions even without a full complement of permanent leadership positions filled. As examples, both agencies have brought litigated merger challenges in the last few months, such as DOJ's lawsuit to block AT&T's proposed acquisition of T-Mobile USA and FTC's action to block the combination of two hospital systems in Illinois, OSF Healthcare and Rockford Health System.

I've been blogging daily for weeks on the JOBS Act on TheCorporateCounsel.net - and that's where we are posting oodles of resources including two upcoming webcasts - but here's M&A-related info from Davis Polk, repeated below:

On April 5, President Obama signed into law the Jumpstart Our Business Startups Act (the "JOBS Act"), which as we've previously noted represents a very significant loosening of restrictions around the IPO process and post-IPO reporting obligations. While most of the commentary on this legislation has thus far focused on its impact on capital markets matters, there are implications for private company mergers and acquisitions as well.

Late-stage private companies contemplating an M&A or IPO exit often undertake so-called "dual-track" processes in which they simultaneously file an IPO registration statement with the SEC and hold discussions with prospective acquirors. The IPO side of the process effectively becomes a stalking horse for M&A discussions and tends to force the hand of prospective acquirors that might otherwise not move as quickly as the target would like. The publicly filed registration statement both attracts attention and provides prospective acquirors with a sort of first-stage diligence that theoretically helps encourage bids.

Under the JOBS Act, emerging growth companies or "EGCs" will now have the ability to file their registration statements confidentially, so long as the confidential filings are ultimately released at least 21 days before the road show. Whether confidential filings will become the norm remains to be seen; there are a number of reasons why an IPO candidate might want to continue to use the traditional public filing process, including the publicity, customer and employee-related benefits of having a highly visible registration statement. For many companies, however, these benefits will be outweighed by the competitive advantages of keeping early filings confidential. The optionality that confidential filings create may be hard to resist: A confidential filer can now pull its deal without the stigma associated with withdrawing a publicly filed registration statement.

The ability to file confidentially creates another sort of optionality for a company undertaking a dual-track process, in that it can now conduct both sides of the process outside the public eye. The ability to tell a prospective buyer that the IPO process is already reasonably far along is a powerful tool, and being able to surprise a buyer with a registration statement that has already been through multiple rounds of SEC review will give targets a greater degree of control in dual-track negotiations. Companies pursuing a dual-track process will need to balance these advantages against the alternative approach of making their IPO filings fully visible to prospective acquirors, which could theoretically attract additional bidders or facilitate the process by making their diligence easier. If confidential registration statements become the norm, a non-confidential filing may come to suggest something other than an ordinary IPO process. But a company that files confidentially may also be sending a signal to buyers if it ostensibly starts the 21-day clock by publicly releasing its filings and then fails to begin its road show within a reasonable period of time.

Lastly, the relaxation of restrictions on "test the waters" pre-marketing has implications for private targets regardless of whether they undertake a dual-track process or a standalone M&A process. As we noted in our March 26 memorandum, there is a potential inconsistency in the JOBS Act regarding whether an EGC can engage in such pre-marketing more than 21 days before a public filing. Regardless of how the inconsistency is resolved, however, the EGC's advisers can engage in pre-marketing to qualified institutional buyers and accredited investors, which provides an additional way to conduct a market check for a company that has an acquisition offer in hand - or for that matter, even one in the midst of price negotiations.