Monthly Archives: April 2005

April 25, 2005

OM&A on the MOVE!

Without much fanfare or press, staffers are being moved “group-by-group” into the SEC’s new headquarters at Station Place — near Union Station on Capitol Hill. The big move was announced earlier this month in Capitol Hill’s Roll Call . I understand the new building will be accessible via underground tunnel from Union Station. The physical task of moving an entire governmental agency across town is estimated to take at least six weeks.

The first wave of personnel to move into Station Place came from the Division of Corporation Finance, including the Office of Mergers & Acquisitions, which moved in this past weekend. Without doubt the transition of employees, files and equipment is likely to cause some unavoidable delay in staff review time of filings as well as some increased difficulty in reaching examiners by telephone.

To assist you, here is OM&A’s new phone number: 202/551-3440. Note the “942” exchange has gone the way of the dinosaur!

April 19, 2005

Conclavic Dealmaking

The 115 Cardinals’ seclusion in the Sistine Chapel is a reminder to us all that the more things change, the more they remain the same. Namely, even in this age of conference calls, emails, webex meetings, and those prehistoric things called faxes, there’s simply no substitute for face-to-face meetings when there’s a complex deal to be made.

There’s only so much that phone calls and emails can do – and oftentimes, they are fertile media for miscommunication. I don’t know why but conference calls encourage people to posture and grandstand more than if they were performing in person. (Hint: people yelling into speaker phones). Maybe it’s the impersonal nature of just hearing a lot of voices babbling on and on. Emails also have a tendency to be misconstrued without the ability to see that slight gesture that signals that the speaker was just kidding and otherwise not intending to offend anyone.

On the other hand, face-to-face meetings give you the ability to observe body language. More importantly, meetings allow you to observe how the opposing counsel and her client interact. Even more important, face-to-face meetings allow you to build relationships with the other side’s lawyers and business people that are important to creating a collaborative atmosphere. Like that airline commercial said: You just can’t fax a handshake or a look in the eye.

True, conference calls and emails do make the dealmaking process more efficient but you just can’t beat getting all the people into the room and declaring that no one leaves until a deal is cut. Face-to-face meetings tend to force people to make decisions on the spot, obviously, favoring the creative, quick-thinking, and well-prepared types.

Phone calls and emails are not always the money savers that we think they are. Working with different time zones alone will extend turnaround times by days. For example, in a recent deal, we had 3-4 hour daily conference calls for 2 weeks straight but we soon realized that we had to go face-to-face. We accomplished more in a 2-day meeting than during the previous 2 weeks combined.

An in-house friend told me of one deal which was on-going for 18 months before she broke the log-jam by calling a conclave that resulted in a deal being made in less than 2 weeks.

My guess is that 2 weeks of full-time (and usually, overtime) work was more efficient and cost-effective than 18 months of sporadic brushfires. Let’s face it, we all juggle several deals at a time, so can you imagine the inefficiency of gearing up and down for a deal over the course of 18 months?

So, if your deal is stalling, take a lesson from the Cardinals and maybe you too will be seeing a puff of white smoke sooner rather than later.

April 5, 2005

On Whiners, Gadflies and Antitrust Window Shoppers.

Last week, the Wall Street Journal criticized FTC Chairman Deborah Majoras for simply “rubber stamping” Staff’s recommendation to challenge the Blockbuster / Hollywood Video proposed merger. WSJ complained that Majoras failed to recognize market realities, and in supporting Staff’s recommendation to challenge the merger, Majoras hurt business. The Journal, in my opinion, is way off the mark in its criticism of Chairman Majoras.

This is the second time in four years that Blockbuster has proposed to acquire Hollywood Video. Four years ago, the five-person Federal Trade Commission voted to block the merger because of its effects on competition, and the likely negative impact that the transaction would have on consumers. Although Blockbuster abandoned its bid before the Commission voted during this last go-round, it seemed apparent that Blockbuster was again going to face a 5-0 vote against its proposed merger. That’s 10 independent votes against the merger, each one made after careful studies of the market, competition and anticipated effects of the transaction. Blockbuster, it seems, is a clear two-time loser. I’m at a loss as to why the WSJ considers Majoras’ decision at all incorrect, or is at all surprised at the decision to challenge.

A lot of people—practitioners, business folks and commentators—enjoy criticizing the FTC and DOJ for their antitrust activities. Practitioners complain that Second Requests are too burdensome. Consumer advocate groups complain that the FTC does not spend sufficient time investigating potentially anticompetitive mergers. Industry analysts complain that too many transactions are blocked by the DOJ and FTC; at the same time, Congress complains that too many oil/petroleum mergers are approved. Some complain that the FTC investigates too thoroughly the conduct of certain industries (pharmaceuticals, in particular); others complain of blatantly anticompetitive conduct going unchecked in the industry.

In my years of practice, I have found that it is easy to find someone or some entity that is blaming the FTC or DOJ for just about every decision it makes—for either being too lax in its enforcement decisions or too permissive in allowing industry consolidation. A sure sign that an agency is doing its job, though, is the ability to withstand this criticism and not bend to constituent complaints (often more properly classified as ranting and raving). Here, the FTC and DOJ should not—and I would suspect will not—bow to such pressure.

Specifically with regard to the Blockbuster/Hollywood proposed hostile takeover, it is not that difficult to understand why the FTC had significant concerns with the transaction. The two parties are by far the largest video rental chains in the country, accounting for a great majority of in-store rentals (and in some geographic markets, accounting for the only rental chains at all). Where there is competition, it is not nearly as robust as that offered by the parties—the selections are smaller and the availability of first-run (i.e., “new”) titles is lacking. Blockbuster contended that other market forces—in particular video purchases (from the likes of Walgreens and BestBuy)—would constrain the post-merger entity from raising prices, but the unambiguous evidence demonstrates that first-run movies sell (at stores like Walgreens and BestBuy) for nearly three times the price as they are rented. Such a price differential demonstrates clearly that even if Blockbuster raised the prices of its new movie rentals by 50% that consumers would be unlikely to purchase such selections instead, given the significant price differentials. Finally, other forms of movie rentals, including on-line rentals (from the likes of Netflix), video-on-demand, and pay-per-view, were not sufficiently competitive to have the clout to counter any anticompetitive activity from the merged entity.

So in the end, it is likely that Chairman Majoras did not simply follow the lead of her staff. Instead, it is far more likely that she saw the evidence that the parties presented, evaluated it, and determined that the merger would harm consumers. That Blockbuster and WSJ are unhappy with the decision is not in doubt. Nor, however, is it particularly relevant.

April 5, 2005

Alan Beller Addresses Section 21(a)

Here is a guest blog from Broc Romanek: On Friday morning at the ABA Spring Meeting, SEC Corp Fin Director Alan Beller spent about 10 minutes discussing the Titan Report and – as Brian Brehney stated during our webcast a few weeks back – reiterated that he believed that the Report was “unremarkable” and only was a clear statement of existing law.

Alan stated that the principal issue to be drawn from Report was whether a reasonable investor could conclude, based on the total mix of information, that the representations in the merger agreement between two companies should be construed as a statement of fact. Alan emphasized that the Report does not say that the SEC believes that an investor is entitled to such a conclusion or that such representations and warranties are for the benefit of investors (although Alan pointed out that there were a few unreported court decisions which made that finding). But Alan noted that the Report categorically rejected the notion that investors can’t even consider the reps & warranties (thus rebuffing the theory that the merger agreement is simply relevant to the contracting parties).

Alan also pointed out that – as part of the SEC settlement – Titan was not found to have violated the FCPA or any other law. So clearly this is an atypical Section 21(a) report on that basis alone, as these types of reports normally require violations to serve as the premise of the report.

Alan warned the audience that it would be problematic if lawyers were to start advising clients to not include their merger agreements in their SEC filings in reaction to the Report.

As for the ability to include disclaimers to warn investors that the reps and warranties in such an agreement should not be taken as a statement of fact, Alan indicated that he did not object if a company believes that it is right to provide such advice to investors in a particular situation. But as noted later in the Negotiated Acquisitions Committee meeting, this approach ultimately might not sit well with the SEC Staff – as a disclaimer could trigger a request by the Staff to submit disclosure schedules as supplemental materials and ultimately include some of that information in the proxy statement. We continue to post law firm analysis of the Titan Report in our “Disclosure” Practice Area.