Tune in tomorrow for the webcast – “Transaction Insurance as a M&A Strategic Tool” – to hear Dechert’s Markus Bolsinger, Aon Transaction Solutions’s Matt Heinz, Pepper Hamilton’s Jim Epstein, Norton Rose Fulbright’s Scarlet McNellie and Haynes and Boone’s George Wang discuss all the “in’s & out’s” as insurance in M&A transactions has gained in popularity.
Here’s a note from Richards Layton & Finger:
In Corwin v. KKR Financial Holdings LLC, No. 629, 2014 (Del. Oct. 2, 2015), the Delaware Supreme Court affirmed the Court of Chancery’s grant of defendants’ motions to dismiss with prejudice a suit challenging the acquisition of KKR Financial Holdings LLC (“KFN”) by KKR & Co. L.P. (“KKR”). In December 2013, KKR and KFN executed a stock-for-stock merger agreement, which was subject to approval by a majority of KFN shares held by persons other than KKR and its affiliates. The merger was approved on April 30, 2014, by the requisite majority vote. Nine lawsuits challenging the merger were brought in the Court of Chancery and consolidated. The operative complaint alleged, among other claims, that the members of the KFN board breached their fiduciary duties by agreeing to the merger and that KKR breached its fiduciary duty as a controlling stockholder by causing KFN to enter into the merger agreement.
The Court of Chancery ruled that KKR, which owned less than 1% of KFN’s stock, was not a controlling stockholder. The Delaware Supreme Court affirmed on the ground that plaintiffs did not plead facts sufficient to support an inference that KKR could prevent the KFN board from “freely exercising its independent judgment in considering the proposed merger.” The Court of Chancery also ruled that the business judgment standard of review would apply to the merger “because it was approved by a majority of the shares held by disinterested stockholders of KFN in a vote that was fully informed.” The Delaware Supreme Court affirmed, clarifying that, under Delaware law, a fully informed, uncoerced vote of the disinterested stockholders invokes the business judgment rule standard of review, even if that vote is required by statute.
Yesterday, the Delaware Supreme Court posted video of that day’s oral argument for the appeal of RBC v. Jervis. This is the case seeking to reverse Rural/Metro. Its not a new thing to have oral argument archive available online – but I think it’s typically not available so fast…
Here’s an excerpt from a piece by Finsbury’s Chuck Nathan entitled “Observations on Short-Termism and Long-Terminsm”:
The fourth fallacy in the short-term—long-term debate is that, given every company’s finite resources, choosing a corporate strategy that can be implemented in a relatively short-time period (often a type of so-called “financial engineering”, such as a major stock buyback, a divestiture or spin-off of a business or a sale of the entire company) almost certainly prejudices, if it does not preclude, longer-term more beneficial strategies (such as greater investment in R&D, upgrading productivity of plants and equipment or acquisitions). This formulation of the debate associates activist investors with short-term strategies at the cost to the company and its other shareholders of greater long-term value creation.
But this formulation of the debate simply does not make sense. Activist funds are in business to maximize value creation for their investors (and for their principals who get rich on their carry and their investment in their own funds). Why would any rational activist investor consciously forgo the higher net present value of a long-term company business initiative in favor of the investor’s lower short-term value creating idea? Activist fund managers don’t get paid for ego trips; they get paid for maximizing returns. The same, of course, is true for all actively managed institutional investors. Even index and other quantitative investors should opt for the highest net present value creator if they have the capability of understanding and evaluating the competing proposals. In theory, only short sellers should oppose the highest net present value added program regardless of its duration.
On Thursday, September 17, 2015, in In re Riverbed Technology, Inc. Stockholders Litigation, the Delaware Chancery approved a disclosure-only settlement related to the go-private deal for Riverbed Technology, Inc. Although the court approved the settlement, it expressed serious reservations about the broad releases provided to Riverbed’s directors in exchange for enhanced disclosures that provided little value for shareholders. In re Riverbed is yet another in a line of Delaware cases that have expressed dissatisfaction with the current trend of merger litigation resulting in disclosure-only settlements.
This September-October issue of the Deal Lawyers print newsletter has been posted – & also sent to the printers – and includes articles on:
– Retention Payment Program: Decision Tree
– Earn-Out Covenants
– Spin-Offs & Executive Compensation: Keys to Success
– D&O Insurance: Maximizing Returns In the Face of M&A Lawsuits
– Providing Effective, Practical Counsel Regarding Acquisition Surprises
Remember that – as a “thank you” to those that subscribe to both DealLawyers.com & 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 DealLawyers.com – 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 DealLawyers.com will be able to gain access to the Deal Lawyers print newsletter. For example, if your firm has a firmwide license to DealLawyers.com – 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. Try a “Free for Rest of ’15” no risk trial now!
Tune in tomorrow for the webcast – “Evolution of M&A Executive Pay Arrangements” – to hear Morgan Lewis’ Jeanie Cogill, Sullivan & Cromwell’s Matt Friestedt, Cravath’s Eric Hilfers and Wachtell Lipton’s Andrea Wahlquist cover the latest about executive compensation arrangements in deals.
It turns out that there were some very company specific reasons why Dole in general and Carter in particular were querulous about Delaware’s courts. On August 27, 2015, in a massive 108-page post-trial opinion, Vice Chancellor Travis Laster, held that Dole’s CEO David Murdock, and Carter, whom Laster described as Murdock’s “right-hand man,” breached their fiduciary duties in connection with the November 2013 transaction in which an entity Murdock controlled acquired the 60% of Dole’s shares that Murdock did not already own. Laster’s opinion found that in connection with the process that led to the transaction, Murdock and Carter engaged in “fraud,” that prevented Dole’s shareholder from receiving a fairer price in the transaction. Laster held Murdock and Carter jointly and severally liable for damages of $148.1 million, plus pre- and post-judgment interest.
Laster’s opinion is long but it makes for some very interesting reading. The 91 year-old Murdock does not come off well in Laster’s opinion, at all. Laster describes Murdock as “an old-school, my-way-or-the-highway controller, fixated on his authority and the power and privileges that went with it.” In footnote 6 of the opinion, Laster writes about Murdock that “by dint of his prodigious wealth and power, he has grown accustomed to deference and fallen into the habit of characterizing events however he wants. That habit serves a witness poorly when he faces a skilled cross-examiner who has contrary documents and testimony at his disposal.”
Here’s the intro from this Cooley memo:
While acquisitions of up to 10% of the voting interest in a target that are made “solely for the purpose of investment” are in many circumstances exempt from Hart-Scott-Rodino (HSR) reporting requirements, even when the value of the investment exceeds the $76.3 million HSR “size of transaction” threshold, federal antitrust authorities have long interpreted that “exemption” to be a narrow one.1
The Department of Justice this week sued three affiliated hedge funds and their New York-based management company for acquiring shares in Yahoo! in 2011, in excess of the then applicable HSR threshold, and simultaneously agreed to settle the action, prohibiting future violations, without obtaining any civil penalty. The suit sends a clear message to investors that taking actions other than voting shares likely takes an investment out of the exemption.
The Complaint, which was filed on behalf of a divided Federal Trade Commission, targets actions taken by Third Point LLC in connection with its acquisition of voting securities in Yahoo!. By late August 2011, three Third Point funds each had Yahoo! holdings exceeding the then applicable $66 million size-of-transaction threshold. On September 16, 2011, the three funds each filed a notification and report form under the HSR Act for the voting securities purchased, and the waiting period of those filings expired on October 17, 2011. Notwithstanding this filing, the DOJ alleged that the funds were in violation of the HSR Act from the point in August when they had each acquired shares putting their holdings above $66 million until the expiration of the waiting period in October 2011, given that they engaged in “various actions inconsistent with [qualifying for] an investment-only purpose” exemption.
Here’s an excerpt from this interesting blog from a while back by “The Activist Investor”:
For one of the most-discussed investors these days, we know surprisingly little about Carl Icahn’s activist investing. Numerous magazine and journal articles profile or mention him. But, unlike Warren Buffett or Peter Lynch, we could find only one book, from over twenty years ago, that covers his investment thinking.
Fortunately, we have abundant data about his activist projects. We studied these projects a bit, to see what lessons other activist investors could learn. We found some surprises.
Carl Icahn has a distinct approach. With a couple of notable exceptions, he avoids mega-cap companies, even though he has the assets and profile to tackle just about any company. He achieves his goals, and superior returns, though publicity, his outsized reputation, and financial clout. He follows-through on his threats less frequently, with few proxy contests. That threat alone means he usually settles with a company, accepting some BoD seats or the promise of a restructuring.
And then there’s this more recent blog entitled “Corporate Governance, The Icahn Way” by The Activist Investor…