From Morrison & Foerster: Last week, the Federal Trade Commission, the agency charged with administering the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the “HSR Act”) and its filing requirements, approved the new annual HSR Act notification thresholds. The new thresholds, which are expected to be published in the Federal Register by late January 2007 and will become effective 30 days later, are as follows:
– The “size of transaction” threshold will increase from $56.7 million to $59.8 million. No HSR Act notification will be required if the value of voting securities and assets held as a result of the transaction is below this threshold.
– The “size of parties” thresholds of $113.4 million in annual sales and $11.3 million in total assets will increase to $119.6 million and $12.0 million, respectively. For transactions valued at more than $59.8 million, no HSR Act notification will be required if the ultimate parent entities of one or both parties to the transaction do not satisfy the applicable “size of parties” thresholds.
– Transactions valued at more than $239.2 million (previously $226.8 million) will be reportable regardless of the size of the parties, unless an HSR Act exemption applies.
The new HSR Act thresholds also apply to certain other thresholds and exemptions.
The new thresholds do not affect the HSR Act filing fees, but the applicable filing fee will be based on the new thresholds, as follows: $45,000 for transactions valued at less than $119.6 million; $125,000 for transactions valued from $119.6 million up to $597.9 million; and $280,000 for transactions valued at $597.9 million or more.
The HSR Act notification thresholds are adjusted annually to reflect changes in the U.S. gross national product. The new thresholds will remain in effect until the next annual adjustment, expected in the first quarter of 2008.
Mergers and acquisitions worldwide have jumped 30% in 2006 to hit a all time record $3.7 trillion, surpassing the 2000 high of $3.4 trillion, according to data released by Thomson Financial, including:
– The US was the most targeted country for acquisitions, representing over 40% of global M&A activity.
– US M&A volume rose 24% to $1.474 trillion in the year.
– M&A deals in Europe have jumped 33% to reached $1.36 trillion in the year to date, topping the previous record of $1.2 trillion in 1999.
– The UK is the most targeted European country for acquisitions, with $339 billion of cross-border and domestic transactions.
– There were a 157 worldwide hostile acquisitions, with a cumulative value of $498 billion, up 87% from 2005.
– Goldman Sachs was the top global mergers and acquisitions (M&A) advisor of 2006, advising on deals worth over $1 trillion. Citigroup came in second place with over $900 billion of transaction value.
– In Europe, Morgan Stanley claimed the top spot with over $482 billion of M&A advisory fees.
– In terms of total M&A fee income, Goldman Sachs dominated the global, US and European rankings, earning an estimated $2.1 billion, up from $1.7 billion in 2005 in advisory fees.
– Prominent deals during the year included the $16.5 billion takeover of Mellon Financial Corp by Bank of New York Co Inc, and the $8 billion acquisition of YouTube by Google Inc.
In response to so many requests for a practical M&A print newsletter about deal practices, we have created a new newsletter: Deal Lawyers. Just like its sister publication, The Corporate Counsel, Deal Lawyers is tailored for the busy dealmaker, bi-monthly issues that do not overload you with useless information – rather, this newsletter will provide precisely the type of information that you desire: practical and right-to-the-point. As in all our publications, this newsletter will include analysis of timeless “bread and butter” issues that you confront time and again.
To illustrate how Deal Lawyers will provide the same rewarding experience as reading The Corporate Counsel, we have posted the Jan-Feb issue of Deal Lawyers for you to check out at no charge. Feel free to share it with your deal-minded brethren. This issue includes pieces on:
– What the New “Best Price” Rule Means for You
– The New “Best Price” Rule: Financing Issues and Answers
– The New – and Tricky – SEC “Change-in-Control” Disclosures
– What Private Equity Firms Want in a Lender
– The “Sample Language” Corner: Acquiring the California Corporation
Try a no-risk trial today; we have special introductory rates and a further discount for those of you that already subscribe to The Corporate Counsel.
The Evolving ‘Best Price’ Rule
We have posted the transcript of our webcast: “The Evolving ‘Best Price’ Rule.”
Part of the dance to obtain no-action relief for an international deal is ascertaining whether Corp Fin’s OMA has already processed a deal in that country before. For example, in this relatively recent no-action letter from Corp Fin, nothing too exciting emerges as its a basic 14e-5 (prompt payment = 14 days not 3 days; two offers – one in the U.S. and one offshore, etc.) relief granted in connection with Nasdaq’s tender offer for the London Stock Exchange Group. Many deals have been done in the UK, making this request seem easier than most on its face.
What is somewhat novel in this no-action letter is that they received relief for the Dresdner Kleinwort Securities Limited, the broker and its affiliates, so that they could continue a grocery list of market making and other hedging activities in the securities during the offer. This is the same relief that UBS received in connection with their role as advisor to Gas Natural in connection with its bid for Endesa a year ago. At the time, the Staff was not granting such relief and had not done so for many years. Counsel had to work hard (almost 5 months) to get the relief back then. In this instance, it appears counsel requested and received the same relief that was negotiated for in the Gas Natural/Endesa transaction much faster.
I always love this stuff. On Saturday, the WSJ ran this article about the battle to obtain top ranking for Thomson Financial’s all-important league tables regarding deal advisors (and here’s an article from today’s WSJ about the top deals of ’06):
“Citigroup lost a bid Tuesday to win credit for arranging a $30 billion deal in Norway that might have vaulted it to the top of one closely watched list of busiest advisers on European merger-and-acquisition deals. After days of wrangling, Thomson Financial declined to give the banking titan “league table” credit for writing a fairness opinion – a relatively minor role in the merger process – that endorsed Norsk Hydro’s planned $30 billion sale of energy assets to Statoil.
Citigroup was appointed by Norsk Hydro on Dec. 18, the same day the deal was announced. Thomson, whose league tables are cited by investment banks to validate their deal prowess, requires banks to prove they were hired before deals are announced to be granted credit. A Citigroup spokeswoman declined to comment.
Dealogic, a rival to Thomson Financial, on Thursday gave Citigroup credit for the Norsk Hydro assignment. It and Thomson rank the banking titan second behind Goldman Sachs Group Inc. as the top global adviser on mergers.
Citigroup lobbied hard for the Norsk Hydro credit, people close to the company said, because it would have given it dominance in the European league tables. According to Dealogic, the deal vaults Citigroup one notch up in the European rankings to third place. But in Thomson’s rankings, the Norwegian deal would have let Citigroup leapfrog Morgan Stanley to first place as adviser on European deals. Morgan Stanley is credited in the Thomson table with $482 billion of deals, a hair’s breadth ahead of Citigroup’s $473 billion.”
Backdated Options: Consent a Tender Offer? Need to Consider the SEC Staff
As we recently wrote about in the November-December issue of The Corporate Executive, increasing the strike price – or even fixing the exercise date – ordinarily cannot be effected without the consent/agreement of option holders (except, possibly, where there is a strong plan provision allowing the board/administering committee to unilaterally amend outstanding options), even to increase the exercise price, as deemed necessary or advisable to comply with applicable (e.g., tax) laws.
In an apparent effort to offset the foregone compensation, some companies are offering additional new options, restricted stock, or even cash bonuses in exchange for the consent. Under these circumstances, companies, in effect, are offering to buy existing stock options in exchange for materially amended options, etc. and/or cash. The Staff generally takes the position that option holders are presented with an economic investment decision, and not “merely a compensation decision,” if they are asked to consent to an increase in the exercise price of options – or even just adjust the exercise date.
The company’s presentation of the investment decision to the option holder implicates the SEC’s issuer tender offer Rule 13e-4 and requires the company to file a Schedule TO in advance of the offer being presented to the option holders. (Companies contemplating financial restatement may face another problem as tender offers for employee stock options filed on Schedule TO generally must be accompanied by current financial statements.)
It appears some companies might liberally interpret Corp Fin’s limited class 2001 exemptive order on repriced options as authorizing them to “fix” backdated options for (1) previous employees and (2) defer any cash consideration and/or substitute non-cash consideration into a subsequent year in order to avoid the ill tax consequences presented by §409A. These companies should think again because the exemptive order doesn’t say a thing about extending the offer to former employees or relief from “prompt payment.” Nor should these companies necessarily rely on the Clorox’s issuer tender offer that was recently conducted.
Availability of the SEC’s 2001 Exemptive Order
Back in 2001, the SEC adopted a limited class exemptive order to address issues implicated by exchange offers for repriced options. Reliance on the SEC’s exemptive order was conditioned on, among other things:
– the issuer being eligible to use Form S-8;
– the options subject to the exchange offer being issued under an employee benefit plan as defined in Rule 405 under the Securities Act; and
– any substitute securities offered in exchange for existing options being issued under such an employee benefit plan.
The availability of Form S-8 when issuing an option to a former employee of the issuer is based on that employee receiving the option while employed by the issuer and then exercising the option on S-8 after leaving. If the Form S-8 is not available (e.g. because the person is no longer an employee when a replacement option is issued), issuers will need to rely on another exception from the ’33 Act or register the issuance of the new options.
An issue also exists in construing the Rule 405 definition of employee benefit plan, which “means any written purchase, savings, option, bonus, appreciation, profit sharing, thrift, incentive, pension or similar plan or written compensation contract solely for employees, directors, general partners, trustees (where the registrant is a business trust), officers, or consultants […]” If former employees are being issued new options but do not fall into one of the other enumerated categories, new options issued to former employees will not be options issued under an employee benefit plan. Note that when Microsoft employees transferred their options to JP Morgan in late 2003, Microsoft amended its plan to remove the transferred options so that Microsoft would not rupture the 405 definition based on the “solely” requirement.
Prompt Payment Issues
When the exemptive order was issued in 2001, the scope of the order’s relief was limited to Rule 13e-4(f)(8)(i) and (ii), the all-holders and best-price provisions. The repricing offers that gave rise to this exemptive order, however, were generally structured to award substitute options on a deferred 6-month and one day payment schedule if certain conditions were met. This payment schedule was driven by the accounting policies in existence at that time. This payment schedule was also technically in conflict with the prompt payment rules. Based on the accounting requirements, however, the Corp Fin Staff generally did not raise objections to the payment schedule.
§Section 409A appears to require that any cash amounts paid in connection with an option repricing be paid in the year after the option repricing (i.e. offers completed in 2007 would require payment in 2008). If true, this payment schedule could contravene the SEC’s prompt payment rules. In the absence of any Staff relief, therefore, issuer tender offers conducted in accordance with IRS §409A are required to comply with the SEC’s prompt payment rules. Although issuers may have legitimate compensation concerns as to why they may wish to defer payment of tender offer consideration for an extended period, issuers should first consult with the Staff before tender offer payments are deferred.
Today is a National Holiday: SEC is Closed
Remember that today’s national day of mourning for former President Gerald Ford means that the SEC is closed and that any filings otherwise required to be made today will be due instead on January 3rd – as the SEC will treat today just like yesterday (ie. New Year’s Day) for 8-K purposes (ie. not a business day). EDGAR is closed too. And remember this old blog regarding counting days for tender offer purposes…