Monthly Archives: December 2005

December 26, 2005

Coke Adopts “Shareholder Approval of Severance Arrangements” Policy

Late last week, it was reported that Coca-Cola has adopted a policy of obtaining shareholder approval for its severance arrangements with senior executives if the payout exceeds 2.99 times the sum of the executive’s annual base salary and bonus. The topic of excessive severance pay angers investors more than any other compensation issue – and the recent House bill would require shareholder approval of all severance arrangements for officers.

According to this WSJ article, “Coke spokesman Charlie Sutlive said the company’s board approved the policy in October. It was first publicized yesterday by the International Brotherhood of Teamsters General Fund, which, as a Coke shareholder, unsuccessfully proposed a similar policy at Coke’s annual meeting in April.

Coke’s board opposed the proposal at the time. However, the measure earned support of roughly 41% of shares cast, indicating strong interest among investors.

“We believe this new policy both responds to and is in the best interests of shareowners,” Mr. Sutlive said. He said the board and its compensation committee adopted the policy after noting “the sentiment of many shareowners,” including the Teamsters.

Mr. Sutlive said the new policy reflects the board’s practice of reviewing corporate-governance policies and improving them where warranted. In this case, he said, the board’s compensation committee recommended the policy as a way to add controls while continuing to allow the board to render “prudent judgments.”

The move by Coke comes amid some criticism of executive pay. Steven Hall, a New York-based compensation consultant, said measures such as the one Coke adopted could serve to limit severance deals going forward.

Coke was criticized for the $17.7 million separation package it awarded to former Chief Executive M. Douglas Ivester, who stepped aside in early 2000 after about two years in the job. Steven J. Heyer, who left as Coke’s No. 2 executive in 2004, received a severance package of at least $24 million after three years on the job.

Douglas Daft, who stepped down as Coke chairman and CEO in June 2004, received 200,000 restricted shares of Coke, valued at $8.8 million at the time.”

In Sunday’s NY Times, Gretchen Morgenstern wrote about this development in her column, including quotes from NASPP Chair Jesse Brill and Mike Kesner of Deloitte Consulting, who has spoken on this topic at our compensation conferences. Learn more about how to handle severance pay in our “Severance Arrangements” Practice Area on

December 23, 2005

Global M&A Volume in 2005 Climbed by 38% to $2.9 Trillion

As noted in this article from yesterday’s WSJ, this was a good year for deal lawyers! Below is an excerpt from the piece:

Global merger-and-acquisition volume has increased 38% to $2.9 trillion in 2005 from a year earlier, with Procter & Gamble Co.’s $60.8 billion acquisition of Gillette the largest deal of the year.

Announced M&A volume in the U.S. and Europe reached $1.1 trillion, the highest levels for both regions since 2000, according to a preliminary year-end tally from data tracker Dealogic. Asian-Pacific M&A volume hit a record $474.3 billion, up 46% from $324.5 billion in 2004.

Initial public offerings of stock around the world climbed 23% to $169.6 billion, Dealogic said. Europe, Africa and the Middle East was the most active region, with $66.8 billion in IPOs. The Asian-Pacific region excluding Japan edged out the U.S. with a record $42.4 billion in deals, including the year’s largest IPO, a $9.2 billion sale of stock in China’s state-owned China Construction Bank. The U.S. was third, with $37 billion in new stock sales.

U.S. M&A volume rose 30% from $886.2 billion in 2004. Telecom was the most active industry this year with total M&A volume of $185 billion, followed by health care at $119 billion.

United Kingdom companies were the biggest acquirers of U.S. companies, buying $26.3 billion worth in 2005, while Canada was the largest recipient of U.S. overseas investment at $20.5 billion.

But the volume of U.S. IPOs shrank 16% from $44.0 billion in 2004. The number of deals also fell, to 216, from 231.

In Europe, announced M&A volume was 49% higher than the $729.5 billion in 2004. As in the U.S., telecommunications was the most active sector, led by Madrid-based Telefónica SA’s $31.7 billion bid for mobile operator O2 of the U.K.

Activity in Eastern Europe nearly doubled to a record $117.4 billion. Russia and Turkey were the most active markets.

Overall equity-capital markets activity, which includes stock sales of already listed companies and convertible bond issues as well as IPOs, hit $222.0 billion, the most since 2000, when it reached a record $258.1 billion.

In Asia, China was the most targeted country outside Japan, with a record $63.4 billion in announced deals. Australia ranked second, with $47.7 billion, but was down 34% from 2004. Indian M&A more than tripled to a record $18.4 billion from 2004. China also accounted for nearly half of the region’s IPOs, excluding Japan. Some $18.8 billion in stock was sold, 88% more than a year ago.

Goldman Sachs Group Inc. led investment banks in estimated M&A revenue in 2005 at $1.4 billion, followed by Morgan Stanley at $1.1 billion, J.P. Morgan Chase & Co. at $1.1 billion and Citigroup Inc. at $1 billion, Dealogic said.

December 21, 2005

Tulane’s M&A Conference Will Continue!

Good news from Saturday’s WSJ: “It wasn’t a sure thing after the destruction and despair of Hurricane Katrina, but with a big dose of civic bonhomie, they’re going to make it happen: Bankers, lawyers, judges, proxy solicitors and others who make their living doing, dealing with or adjudicating mergers and acquisitions will meet in New Orleans in late March for the 18th Tulane University Corporate Law Institute.

The confabbing crew is committed to the city’s rebirth — and Tulane could use a show of support, too, as the school recently said it’s cutting 230 faculty jobs and paring $100 million from its annual budget. Slated to speak are Texas Pacific Group chief David Bonderman, a gaggle of Delaware corporate jurists, and some keen legal minds. Among the topics: conflicts between shareholders and directors, scrutiny of investment banking and the future of private equity.”

Tulane’s campus will open next month for business – the 18th Annual Corporate Law Institute is set for March 23-24th at the New Orleans Wyndham Canal Place Hotel. Good to hear that Hurricane Katrina didn’t kill this fine event!

December 19, 2005

Covering M&A

In this podcast, Vipal Monga, a senior writer for The Deal, describes what its like to write about M&A, including:

– What are the most popular sections of The Deal’s website and its magazine?
– What is a typical day like for you? how do you get story ideas?
– What has been your favorite article to write so far?
– How do The Deal’s reporters get the scoop on moves among dealmakers?

Best Price Proposing Release Posted

Today, the SEC posted the proposing release for the best price rule amendments.

December 14, 2005

SEC Proposes Amendments to the Best-Price Rule

Today, the SEC proposed amendments to the best-price rule, which requires that the consideration paid to any security holder in a tender offer is the highest consideration paid to any other security holder in the offer. As you may recall, these amendments were proposed due to a split among federal circuit courts as to whether the best-price rule applies to arrangements, usually compensatory in nature, entered into by a bidder in a tender offer and the employees or directors of the target company in contemplation of the acquisition.

As noted in this press release, the SEC voted to propose revisions that would reinforce the original premise of the tender offer best-price rule – ensuring that all shareholders who tender their securities in an offer are paid the same consideration. The proposed revisions also would allow bidders and target companies to proceed with a tender offer with greater certainty as to the manner in which the best-price rule will be applied to employment and severance arrangements.

The proposed amendments would revise the best-price rule as follows:

Clarify the application of the tender offer best-price rule – The issuer and third-party best-price rules would be revised to clarify that the best-price rule applies only with respect to the consideration paid for securities tendered in an issuer or third-party tender offer. The best-price rules also would be revised to make clear that there is not a time restriction on its application.

Exempt certain compensation, severance or employee benefit arrangements from the tender offer best-price rule – The third-party best-price rule would be revised to add a specific exemption from the rule for the negotiation, execution or amendment of an employment compensation, severance or other employee benefit arrangement, so long as the amount payable under the arrangement relates solely to past services performed, future services to be rendered or refrained from rendering and is not based on the number of shares the employee or director owns or tenders.

Provide a safe harbor for the exemption from the tender offer best-price rule for certain compensation, severance or employee benefit arrangements – The third-party best-price rule would be revised to include a safe harbor provision that would allow the independent compensation committee or a committee of the target’s or bidder’s board of directors – depending on whether the target or the bidder is the party to the arrangement – to approve an employment compensation, severance or other employee benefit arrangement and thereby have it deemed to be such an arrangement within the meaning of the exemption.

There is a 60-day comment period.

December 12, 2005

FERC Adopts New Utility Merger Rules

Last Thursday, the Federal Energy Regulatory Commission adopted new rules governing how the agency will conduct utility merger reviews. These new rules were required when PUHCA was repealed this summer – and they improve on the FERC’s initially proposed rules which were maligned because they would have applied to all utility holding companies, thereby expanding the reach of PUHCA’s costly regulations (such as book and records requirements).

Congress’ energy bill from August required the FERC to issue new rules by December 8th and stipulated that the rules take effect on February 8th, 2006. Congress’ law no longer bars outside investors – and it replaced the SEC as the primary regulatory gatekeeper in utility M&A.

The new rules grant the FERC access to the books and records of holding companies – but some entities will be able to rely on exemptions from having to turn over books and records. The FERC will grant other exemptions and waivers on a case-by-case basis. Those that are not exempted will have until January 1, 2007 to comply with FERC’s new record-retention requirements and accounting requirements. Here is a law firm memo on the new rules.

December 10, 2005

SEC Staff Getting Ready for a Tweaked Best-Price Rule

Last week, Corp Fin posted this no-action letter that grants relief to a fund that seeks to conduct an exchange tender offer. It’s not a letter that has widespread application, as it’s a very narrow fact pattern and of limited utility to most C-corps.

But it is good to see that the SEC Staff is granting some exemptions to the all-holders, best-price rule. Something that will no doubt increase after the SEC adopts rules on the subject.

December 7, 2005

EU Proposes to Remove Barriers to Mergers, Fights Anti-Takeover Provisions

From GMI’s News Updates: The EU’s European Commission is continuing its efforts to fight hurdles to takeovers of banks and insurance companies. On November 8, the commission presented a proposal to restrict the power of national insurance and securities regulators to block takeovers. The proposal aims to overcome what the commission calls one of the chief hurdles to cross-border deals: the power of national regulators. The EU’s own banking law of 1999 gives supervisors authority to block mergers in order to guard the safety and soundness of banks and the financial system. The new proposal would require a regulator to disclose specific justification for any such veto, and it would be expanded to include insurance companies and other market deals.

Italian regulators have recently prevented recent takeover attempts of two Italian banks, and the EU may sue Italy for seeking to shield banks from takeovers by Dutch and Spanish entities. During the past year, Banco Bilbao Vizcaya Argentaria SA of Spain and ABN Amro Holding NV of the Netherlands have tried to buy Italian banks but have met behind-the-scenes resistance from Bank of Italy with their domestic encouragement of counterbids.

Nonetheless, Amro recently won approval for its $9.9B bid to buy Banca Antonveneta SpA, but Banco Bilbao was outbid for Banca Nazionale del Lavoro SpA of Rome by Italian insurer Compagnia Assicuratrice Unipol SpA. The EU has pressed the Bank of Italy since February to answer for its resistance to the foreign banks’ bids. Lawyers are reviewing whether there are grounds to sue Italy in an EU court for going against rules on free movement of capital and freedom of business to establish anywhere within the 25-country EU.

Japan’s TSE Bans Golden Shares, Restricts Poison Pills

From GMI’s News Updates: In November, the Tokyo Stock Exchange (TSE) finalized plans to ban publicly traded firms from adopting veto-wielding golden shares. A corporate law taking effect next year will enable firms to more easily issue golden shares, but TSE sees them as undermining the principle of shareholder equality. The TSE also will not permit the issuance of golden shares by the unlisted subsidiaries of publicly traded holding companies.

However, this ban will not apply to companies where the government holds golden shares for policy reasons. Early in the month, Japan’s Ministry of Economy, Trade and Industry considered allowing the use of golden shares under certain conditions, taking a softer position than the TSE. Under METI’s plan, golden shares would need to be limited-term issues, with a provision that they could be voided through shareholder or board resolutions. However, the TSE decided to propose the ban in order to stem overzealous corporate takeover defenses. The New York Stock Exchange currently bans their issuance by firms that are already listed, while the European Union is considering plans to abolish golden shares entirely.

The TSE is also considering restrictions and disclosure requirements on shareholder rights plan poison pills and other takeover defense provisions. The TSE states that it will not permit anti-takeover frameworks where a poison pill becomes locked in when a potential acquirer replaces even a single board member of the target company. The TSE is expected to require a company to detail its triggering mechanisms and shareholder impact as well as the impact on shareholders.

December 5, 2005

Rule 14d-10 (Finally) in Play!

The SEC just announced that it will hold an open Commission meeting next Wednesday, December 14th at 10 am, to consider (among other things) proposed amendments to the “best-price rule” for issuer and third-party tender offers. According to the Sunshine Act notice, the proposals “would clarify that the best-price rule applies only with respect to the consideration offered and paid for securities tendered in a tender offer and should not apply to consideration offered and paid according to employment compensation, severance or other employee benefit arrangements entered into with employees or directors of the company that is the target of a third-party tender offer.”

The SEC Staff has wanted to bring this project to the Commission for quite some time to settle some inconsistencies in the courts – certain jurisdictions apply the best price rule too broadly to capture severance and compensation arrangements (as further explored in this John Penn interview on the evolution of the best price rule). The proposed changes are not expected to establish a bright line rule.

December 1, 2005

Conference Notes are Up!

We have created a new “Conference Notes” Practice Area, which now includes notes covering three panels from the recent PLI Securities Law Institute and from the ABA’s Negotiated Acquisitions Committee’s Fall Meeting.

Special Negotiating Committee Transcript is Up!

We have posted the transcript from our recent webcast: “The Latest on Special Negotiating Committees.”