Check out the Six Flags’ Preliminary Consent Revocation Statement filed yesterday -goodbye gloves and let’s get ready to rumble! These are fighting words in that SEC filing:
“Despite Red Zone’s claim that it no longer had an interest in a continued investment in the Company, as disclosed in Red Zone’s consent solicitation materials, Red Zone continued to consider various alternatives with respect to its investment, including seeking Board representation and/or a potential business combination between the Company and itself or certain of its affiliates.
Although not disclosed by Red Zone in any amendment to its Schedule 13D filed with the SEC, on June 7th, Red Zone engaged UBS Securities to act as its financial advisor with respect to its consideration of various financial strategies involving refinancings, recapitalizations or a business combination involving the Company. At no time after Mr. Snyder’s January 14, 2005 letter did Mr. Snyder approach the Board or management to discuss further any proposals for improving the Company’s performance or engaging in any extraordinary transactions involving the Company.” It’s gonna be a wild ride . . . .
Last September, I blogged that about how Dan Snyder, the Washington Redskins owner, hired Dennis Block to help file a Schedule 13D regarding an ownership stake in Six Flags (as well as Bill Gates). Then, Snyder amended the 13D August 10th to indicate that the Danster had exceeded the 10% ownership threshold – and it was even more obvious that something was up.
Now, Snyder has launched what amounts to a hostile takeover for Six Flags, citing tired and unimaginative management. Snyder is offering to pay $140 million to bring his stake in the amusement park chain to a controlling 34.9%. Lot of local news on this story – such as this Washington Post article – and I would say “I told you so” except I forgot to buy some of the stock last year!
Sidenote: Here is an interesting article about “Mr. Six,” the anonymous bald geezer from the popular Six Flags’ ads.
Since the Securities Act Reforms were adopted in July, I’ve gotten several questions on if/how the new rules apply to business combinations (for the most part, the Reforms do not affect business combintions). The following bullets address the top concerns I have noted:
– The new “access equals delivery” model for prospectus delivery does not extend to business combinations. The SEC thought that “[b]usiness combination transactions and exchange offers also differ from other types of offerings registered under the Securities Act because the proxy rules and tender offer rules in conjunction with state law impose informational and delivery requirements in those transactions. The information contained in the final prospectus, therefore, will be delivered regardless of the Securities Act’s requirements.”
– WKSIs will not be able to use the automatic shelf registration procedure to register an offering of securities in connection with a business combination.
– The Securities Act Reforms do not affect the way business combination communications are regulated (Rules 165/166 and the related 425). In the release, the Commission clarified the interplay between new Rule 433 and the rules applicable in business combination transactions where there is a capital formation transaction occurring at the same time as a business combination transaction, whether or not related: “Rule 165 … is not available for a communication whose primary purpose or effect relates to a capital formation transaction. The rules we are adopting today applicable to registered capital formation transactions generally will apply to registered capital formation transactions even if they have some connection to or are proximate in time to a business combination transaction. As a result, if an issuer undertakes a registered capital formation transaction that is related to, or takes place at around the same time as, a business combination transaction, then the issuer can, if the conditions to the applicable rules are satisfied, rely on the rules we adopt today that apply to the registered capital formation transaction and Rules 165 and 166 for the business combination transaction. This is true whether the two transactions are connected … or independent of each other. If a communication relates to both a capital formation and business combination transaction, then the communication may be subject to both Rules 425 and 433. We have revised the filing condition of Rule 433 to provide that the filing condition of the Rule will be satisfied if a filing is made pursuant to Rule 425 and the Rule 425 filing includes the Rule 433 legend and indicates on the cover page the registration statement number for the capital formation transaction and that it also is being filed pursuant to Rule 433.”
– Shell companies that are related to a business combination are excluded from the restrictions otherwise applicable to shell companies.
Some of the younger lawyers out there might wonder if you could get a job in-house that would allow you to do M&A. In this podcast, George Villasana, Senior Counsel – Corporate Law of AutoNation, describes what its like to do M&A in-house, including:
– What types of M&A activities he undertakes?
– What is daily life like?
– How he found his job?
– How being in-house compares to being in a firm?
– How being in-house compares to working at the SEC?
From MergerMarkets, here is a 60-page survey of North American deals done in the first half of 2005. Morrison & Foerster, Merrill Corporation and Global M&A assisted in putting together this comprehensive survey.
The PCAOB recently adopted Auditing Standard No. 4, “Reporting on Whether a Previously Reported Material Weakness Continues to Exist.” The new standard is intended to provide a mechanism by which auditors could express an opinion on the status of a material weakness as of an interim date, rather than waiting for the next year-end audit report.
Although the auditor’s evaluation would be similar to the auditor’s annual evaluation of internal control over financial reporting under Auditing Standard No. 2, the engagement under AS No. 4 is designed to be significantly narrower in scope, as the auditor’s testing is limited to the controls specifically identified by management as addressing the material weakness.
Materiality, in the context of an engagement under AS No. 4, is assessed as of the date management asserts that the material weakness no longer exists. The result is that in certain cases, a material weakness may no longer exist due to a change in the size of the financial statement accounts, rather than as a result of changes in the design or operation of controls. For example, this could occur as a result of an acquisition. AS No. 4 states that in many of these cases, the company will have undergone significant changes, with associated changes in internal control over financial reporting, so that the auditor would need to perform a full audit of internal control over financial reporting in order to have a sufficient basis for assessing materiality, understanding the company’s overall internal control over financial reporting post-acquisition and rendering an opinion about whether a previously reported material weakness continues to exist.
Thus, if a company that has a material weakness engages in an acquisition of sufficient size to impact the materiality analysis, it is unlikely that the company will be able to avail itself of the interim auditor assurance available under AS No. 4 and, instead, would have to wait to for the year-end audit.
AS No.4 will be submitted to the SEC, which will publish the standard for public comment, and will be effective as of the date of SEC approval.