Monthly Archives: April 2008

April 29, 2008

“Witches Brew”: SEC Accuses Trader of Rumormongering on Deal

As noted in this NY Times article on Friday (and this Wilson Sonsini memo), the SEC settled a case with a former securities who allegedly spread false rumors to profit from a pending buyout of Alliance Data Systems by the Blackstone Group (the deal tanked later due to other reasons). The SEC said this was its first “rumormongering” case.

According to the NY Times article, the trader allegedly “fabricated a rumor that Alliance Data’s takeover was being renegotiated to $70 a share from $81.75 a share. The trader said that Alliance Data’s board was meeting to discuss the revised proposal. At the time, Alliance Data’s board members were on a plane and could not be reached for comment.” Trading in Alliance Data’s stock was suspended due to heavy volume caused by the rumor, which the trader had sent via instant messages to 31 other traders and other market participants. He was short selling the stock at the time.

Reading the SEC’s complaint, it’s not clear if the trader knew that the board was on a plane and unavailable – my guess is that he didn’t know (and thus was unlucky because if they had been reached and quashed the rumor more quickly, the damages would have been reduced and perhaps this case wouldn’t have been brought or the penalty would be been less than the $130,000 he ended up paying.

In the SEC’s press release, SEC Chairman Cox noted ““The commission will vigorously investigate and prosecute those who manipulate markets with this witch’s brew of damaging rumors and short sales.” It will be interesting to see if the SEC’s Enforcement Division will be bringing more of these cases, particularly due to the heightened interest in hedge funds and their failures to adopt adequate insider trading compliance programs (see Dave Lynn’s recent blog on the SEC’s Section 21(a) Report involving the investigation of the Retirement Systems of Alabama).

April 28, 2008

JPMorgan Chase/Bear Stearns: Splicing the Delaware Issues

Tune in tomorrow for our webcast – “JPMorgan Chase/Bear Stearns: Splicing the Delaware Issues” – during which Professors Elson, Cunningham and Davidoff will analyze the novel Delaware issues presented by the Bear Stearns transaction, including addressing:

– What significant anti-takeover provisions are in the amended merger agreement?
– How does the provision work that calls for the parties to work in good faith to restructure the deal if Bear Stearn’s shareholders turn it down?
– What is the JPMorgan Chase guarantee – and how does it work? How about the NYC building option and the Section 203 provision?
– How valid are the attacks against the fairness opinions delivered in the deal?
– Why was there a discussion of a 39.5% share exchange and what would be the Delaware law on it?
– How about the abandoned, uncapped 19.9% option – was that valid under Delaware law?

To warm up for the program, check out Professor Davidoff’s analysis of the Form S-4 filed for the deal (which the SEC declared effective on Friday) as well as this WSJ article indicating that post-deal details will be announced soon.

Claims Against Clear Channel Are Dismissed in New York Lawsuit

As reported on Friday by the NY Times’ DealBook:

A New York judge dismissed counterclaims against Clear Channel Communications on Friday in a lawsuit over the funding of a $20 billion buyout of the radio station operator, Reuters reported. (Here is the complaint.)

The private equity buyers, THL Partners and Bain Capital, sued the banks in New York and Texas, seeking to force them to fund the deal. Clear Channel joined them in the Texas suit, but was not a plaintiff in the New York case. The banks had filed several counterclaims against both Clear Channel and the buyout firms.

The judge dismissed the counterclaims against Clear Channel, but said the counterclaims against the buyout firms would continue. The buyout firms must answer those counterclaims within 10 days, the judge said in the ruling. A copy of the ruling was obtained by Reuters.

“We are grateful that Justice Freedman sent our case back to Texas where it belongs,” Clear Channel said in a statement. Clear Channel had agreed to be acquired at the height of the private equity boom last year. The credit markets has changed significantly since then, causing the cost of financing leveraged-loan debt to surge.

The banks were to provide more than $22 billion financing and earn more than $400 million in fees, but they balked when the debt markets deteriorated and asked for the terms of the deal to be changed, according to a copy of one of the suits. “The banks can have their lawyers churn out as many motions and briefs as they want, but ultimately this case boils down to a simple question of right and wrong, and they will face a jury in Texas to decide that question,” Clear Channel said.

The banks, which include Citigroup, Morgan Stanley, Credit Suisse Group , Royal Bank of Scotland Group, Deutsche Bank and Wachovia, said in a statement: “We are happy that the court has ordered that the banks counterclaims against the sponsors should proceed in New York.”

April 24, 2008

CFIUS Proposes New Regulations on Foreign Investments

On Monday, the Department of the Treasury’s Committee on Foreign Investment in the United States (“CFIUS”) issued proposed regulations governing national security reviews of foreign investments in US companies. The proposed regulations – issued to implement amendments adopted by the Foreign Investment and National Security Act of 2007 – are the most significant changes to the CFIUS rules since their adoption in ’91. Some say they do not go as far as had been feared in tightening review of foreign acquisitions, but that they do expand the scope and nature of such reviews in limited but important ways. We have posted memos analyzing the proposed changes in our “Sovereign Wealth/National Security Considerations” Practice Area.

April 17, 2008

Corp Fin’s New M&A Chief: Michele Anderson

Congrats to Michele Anderson, who was promoted to Corp Fin’s new Chief of the Office of Mergers & Acquisitions. Most recently, Michele served as a Legal Branch Chief in the Office of Telecommunications – but she spent time in OM&A a few years back. She replaces Brian Breheny, who was promoted to Deputy Director a few months ago.


I just put the finishing touches on our new newsletter – “” – which is a quarterly online publication. This newsletter is free, as well as all the issues for the rest of ’08. You simply sign-up online to be notified when the next issue is available (you also need to sign-up to be e-mailed an ID and password in order to access future issues).

Why this new newsletter? As you can see from the article titles in the Spring ’08 issue listed below, I felt there was a dearth of practical guidance on the cutting-edge – as well as the “bread ‘n butter” – issues confronted by those involved in investor relations, shareholder services and corporate governance today. Take a look and let me know what you think:

– The E-Proxy Experience: Practice Pointers and Pitfalls to Avoid
– The Coming Online IR Campaigns: The Future of Director Elections
– The Regulation FD Corner
– Ten Steps to a Clawback Provision with “Teeth”
– Notables: All the Latest

Washington Mutual: Case In Point

The jaw-dropping results from the Washington Mutual annual meeting this week are timely in that they bolster my argument that companies need to learn how to “campaign” during the proxy season cycle. These arguments – and specific recommendations about how to campaign – are in my piece entitled “The Coming Online IR Campaigns: The Future of Director Elections” (sign-up to obtain your free copy).

So what happened at the WaMu meeting? Here is what has been reported so far:

– One director resigned, Mary Pugh, who was the Chair of the company’s Finance Committee.

– Some reports state that all director nominees received majority support (eg. see this article); others are reporting that three nominees failed to reach a majority. Change to Win’s press release states that one director had 51.2% withheld, another had 50.9% withheld and Ms. Pugh had 61.9% withheld.

– Change to Win called on the WaMu board to immediately release full election results and demand the resignation of any directors who failed to win majority shareholder votes. WaMu then issued this press release that contains preliminary results – notice the paragraph at the bottom that leads one to believe that the difference in the three challenged nominees getting majority support was the presence of broker non-votes.

– With a vote of 51%, shareholders supported a precatory proposal to appoint an independent director as chair.

– In February, WaMu revised its incentive program in a way so that mortgage-related credit losses and foreclosure costs could have been cast aside when awarding management’s performance bonuses. Shareholders were not pleased – and WaMu’s CEO announced at the annual meeting that the board would soon revise the pay program to hold management more accountable for credit-related losses.

The campaign against WaMu has been intense during the past month, fueled by plenty of online tactics. For example, Change to Win launched this blog that targeted the company. Yes, the future is now. Read the Spring ’08 issue of today to learn how to protect yourself. ]

April 16, 2008

Delaware Court of Chancery Permits Insurgent To Nominate Short Slate

On Monday, the Delaware Court of Chancery ruled on another advance by-law case (here is a blog about the other case). Here is some analysis from Travis Laster: If the recent JANA Partners v. CNET decision (currently on expedited appeal) wasn’t enough to make corporations review and update their advanced notice bylaws, the attached opinion should do the trick. In Levitt Corp. v. Office Depot, Inc.,, Vice Chancellor Noble holds that (i) a bylaw requiring advanced notice of “business” to be proposed at an annual meeting extends to director elections and director nominations, but that (ii) the advanced notice bylaw was not applicable because the corporation had given notice that the election of directors would be an item of business at the meeting. In light of the second holding, the Court concluded that the stockholder did not have to give advance notice of its intent to run a short slate. As with CNET, this is a decision that will likely prompt an appeal.

On March 14, 2008, Office Depot sent out its notice of annual meeting. Item 1 on the list of items of business was “To elect twelve (12) members of the Board of Directors for the term described in this Proxy Statement.” The proxy statement contained standard Rule 14(a) disclosures regarding how votes would be tabulated in an uncontested versus a contested election. On March 17, 2008, Levitt filed its own proxy statement seeking to nominate two candidates for director.

Office Depot had a relatively standard advanced notice bylaw which provided that “business” could be brought before the annual meeting if (i) specified in the notice, (ii) otherwise properly brought before the meeting by the board, or (iii) proposed by a stockholder in compliance with advanced notice requirements. The time period for advanced notice was “not less than 120 calendar days before the date of the Company’s proxy statement released to shareholders in connection with the previous year’s annual meeting.” The bylaw required the stockholder proposing business to provide standard information, including basic stockholder information and a brief description of the business to be conducted.

Levitt did not try to comply with the advance notice bylaw. Office Depot rejected Levitt’s nominations for failure to comply.

In granting judgment on the pleadings for Levitt, Vice Chancellor Noble first held that the scope of “business” under the Office Depot advanced notice bylaw extended to director nominations by stockholders. The Court construed the plain meaning of the term “business” broadly to include all “affairs” or “matters” that could be considered at an annual meeting. This included director elections. (11-12). The Court also relied on Section 211(b) of the DGCL, which provides for an annual meeting to elect directors “and other business.” As a matter of plain language, the Court held that this section indicated that electing directors was “business.” (13)

This holding makes sense as a matter of contractual interpretation, but it conflicts with widespread corporate practice. Many corporations have separate advance notice bylaw requirements, one for “nominations” and another for “business.” The information requested for the former is typically different than the latter. The advance notice windows are also often different, with the former including additional windows for issues such as an increase in the size of the board. The Levitt decision could render the bylaws of companies with dual structures ambiguous, as nominations now arguably will be covered by two competing sections. It would be prudent to clarify when “business” means “all business, including nominations of candidates for and the election of directors” versus “all business other than nominations of candidates for and the election of directors.” Interestingly, the opinion indicates that Office Depot previously had a dual structure, but eliminated its “nomination” bylaw. The Court declined to give significance to the amendment.

Based on this first holding, one would think that the Office Depot advanced notice bylaw would apply to Levitt’s nominations. But the Court then went in a different direction. The Court instead agreed with Levitt that because Office Depot had sent out a notice of meeting saying that the business of the meeting would include the election of directors, that item of business was properly before the meeting under the advanced notice bylaw and the stockholder did not have to separately give advance notice. (15-16). The Court rejected the argument that the notice of meeting contemplated only a vote on the corporation’s nominees for directors, finding that it was not supported by the text of the notice (which referred generally to “elections of directors”). In support of its interpretation that the notice also contemplated a contested election, the Court cited the standard Rule 14(a) language on contested elections that appeared in the Office Depot proxy statement.

As in JANA, the Levitt decision effectively left the corporation without any advance notice protection whatsoever for director nominations. This, of course, is an odd result for a company that nominally has an advance notice structure in place. In support of this outcome, the Court observed that “neither Subchapter VII of the [DGCL] nor any provision of Office Depot’s Bylaws discusses or imposes limitations on the nomination process.” The Court did not explain how it reached this conclusion given its prior holding that the term “business” in Office Depot’s advanced notice bylaw included director elections and nominations.

In light of the Levitt decision, corporations should make sure that their bylaws explicitly discuss “nominations.” Corporations also may wish to consider changing the historic and ubiquitous language that appears in notices of annual meetings and identifies the first item of business as “election of directors.” One alternative to avoid the Levitt problem would be to say “election of the Board of Directors’ nominees.” Because all candidates are voted on as a single item of business, however, the better route is likely to be to maintain the historic language in the notice of meeting and instead make sure that the bylaws have a specific advance notice structure for stockholder nominations.

We have posted a copy of the Levitt opinion – and memos analyzing it – in our “Advance By-Laws” Practice Area.

April 14, 2008

’08 Shaping Up as Boom Year for Proxy Battles

This recent Chicago Tribune article quotes Pat McGurn of RiskMetrics noting that the number of dissident shareholder demands tracked so far this year are the highest ever. The article notes that more than 200 “contested solicitations” — shareholder resolutions not approved by management — have been filed this year.

There are a variety of reasons for this – one being the worsening economy -and one being the topic of our May 7th webcast: “2008: The Year of the Hedge Fund Activist.”

JPMorgan Chase/Bear Stearns: A”Done Deal”?

Last week, JPMorgan Chase filed an amended Schedule 13D to note that their open market purchases of Bear Stearns had passed 11% – and combined with the 95 million shares it swapped for earlier, it has over 46% of Bear Stearns outstanding now – nearly enough to ensure majority shareholder approval is locked-up. Here’s some analysis from DealBook about whether this arrangement honors Omnicare, which will be a topic during our April 29th webcast: “JPMorgan Chase/Bear Stearns: Splicing the Delaware Issues.”

Closing Time: When the Founder is Ready to Sell

Tomorrow, catch our webcast – “Closing Time: When the Founder is Ready to Sell” – to hear about the special issues that come into play when the founders of a privately-held company want to sell out to a private equity firm or a professional roll-up operator. Join these experts:

– Brad Finkelstein, Partner, Wilson Sonsoni Goodrich & Rosati LLP
– Don Harrison, Senior Counsel, Google
– Armand Della Monica, Partner, Kirkland & Ellis LLP
– Geoffrey Parnass, Partner, Parnass Law
– Sam Valenzisi, Vice President, Lincoln International LLC

April 11, 2008

Delaware Chancery Court Doesn’t Meddle in Bear Stearns Deal (In Favor of New York Proceeding)

From Travis Laster: On Wednesday, Vice Chancellor Parsons of the Delaware Court of Chancery stayed an action filed in Delaware to enjoin the Bear Stearns-JPMorgan Chase merger, deferring to a parallel action in New York. Here is VC Parsons’ opinion.

The following quote says it all: “I have decided in the exercise of my discretion and for reasons of comity and the orderly and efficient administration of justice, not to entertain a second preliminary injunction motion on an expedited basis and thereby risk creating uncertainty in a delicate matter of great national importance.” There are references throughout the opinion to the involvement of the Federal Reserve and the Treasury Department in the deal.

The opinion does not shed any meaningful light on how the Court would view the exceptional lock-ups that are part of the deal package. The opinion does say that “the claims asserted in the Complaint only require the application of well-settled principles of Delaware law to evaluate the deal protections in the merger and the alleged breaches of fiduciary duty” (14). The Court then described the factual situation as sui generis (16). The Court concluded that the involvement of the federal players rendered the situation rare and unlikely to repeat – and therefore not one in which Delaware had a paramount interest.

On April 29th, join us for the webcast – “JPMorgan Chase/Bear Stearns: Splicing the Delaware Issues” – as Professors Elson, Davidoff and Cunningham analyze a host of novel provisions in the JPMorgan Chase/Bear Stearns merger agreement (as well as this – and any other – court opinion).

April 7, 2008

Delaware Chancery Court Denies Preliminary Injunction Based on Inadequate Disclosure in Merger Proxy Regarding Financial Analyses (and Other Matters)

From Kevin Miller of Alston & Bird: In this decision by Vice Chancellor Lamb, the Delaware Chancery Court denied a motion for preliminary injunction in an oral ruling delivered shortly after the completion of oral argument on the motion. He concluded his ruling by stating that the fact that information is included in materials provided to a board of directors does not mean it is per se material and required to be disclosed.

When considering a motion for a preliminary injunction the court must decide: 1. whether the moving party has shown a reasonable probability of success on the merits; 2. whether the moving party will be irreparably harmed by the denial of relief; 3. whether granting the relief will result in even greater harm to the nonmoving party; and 4. whether granting the preliminary relief will be in the public interest.

In his ruling, VC Lamb first addressed point #3 and noted that “the circumstance presented in this transaction and the circumstances that exist in the markets today that we’ve all been living through for the last several months suggest that the opportunity to take this premium offer is a valuable one. I refer to the fact that this transaction has been known for some time. The company was shopped before it reached its agreement with Oracle. There is an opportunity in the merger agreement for the company to accept a better proposal if one comes along, but none has. The transaction is a third-party, arms-length negotiated transaction. The board of directors are, with the exception of [a large shareholder and one of the founders], independent and highly distinguished individuals. The board was advised by highly reputable bankers and lawyers. And so the transaction on the table and which the shareholders are expected to vote on next week is the only available transaction at this time.”

VC Lamb further noted that “It is also a transaction that is priced at a significant premium. . . . To that let me add, as I observed at the beginning, the disruptions in the market place that exist that make it more risky certainly for the court to undertake to interfere with the completion of a transaction in the time frame that is set forth by the parties and agreed to in the deal, that those risks give me – – would give any judge even greater pause before moving to restrain a transaction unless very substantial grounds existed that required such action.”

Having set the bar extremely high for granting a preliminary injunction by focusing on the potential harm to BEA’s shareholders, VC Lamb proceeds to explain why the plaintiffs’ disclosure claims were inadequate to justify a preliminary injunction.

Among other things, the plaintiffs claimed that the merger proxy contained material omissions or misleading statements relating to the financial analyses performed by its financial advisor and its fee.

Claim: The fact that BEA’s financial advisor did not perform a DCF analysis

Court’s Analysis: “The proxy material discloses accurately the analyses that Goldman Sachs did rely upon, and there is no reason whatsoever to believe that there’s any materiality to some possible disclosure about why Goldman didn’t use a DCF analysis”

The court noted that while Goldman had performed certain preliminary DCF analyses with respect to BEA prior to Oracle’s bid, such analyses were based on two year management projections extrapolated for a further three years (note: it was not clear to the Court who performed the extrapolation); BEA does not as a matter of practice prepare five-year projections because they don’t believe that any projections beyond two years are reliable; none of Goldman’s analysis done after the Oracle bid contained a DCF analysis; and “from that, when you put it together, you would have to conclude that the five-year numbers that were used in these preliminary DCF analyses consisted of unreliable information.”

The Court concluded that: “There is nothing in the law that suggests that it’s necessary for the proxy material to explain why in its final — and, indeed, in the work that it did after the Oracle bid emerged and in its final work, Goldman didn’t use a DCF model.”

Claim: The absence of disclosure regarding certain synergies analyses performed by BEA’s financial advisor

Court’s Analysis: According to the Court: “The record is clear that the company had no information from, and has no information from Oracle, and Goldman had no such information from Oracle about the actual synergies that Oracle expects to achieve in this transaction. Instead, the information that Goldman compiled for the presentation to the board of directors apparently consisted of publicly-available information about other transactions”

The testimony elicited by the Court in the hearing on the motion indicated that the analyses performed by Goldman related to the amount of synergies buyers had achieved in similar deals and the amount of synergies Oracle would need to achieve to avoid the transaction being dilutive to Oracle shareholders at various purchase prices.

The Court concluded that “the information available is certainly not considered in any way to be a reliable indication of the synergies that would actually be achieved in this transaction”

Claim: The absence of disclosure regarding certain sensitivity analyses performed by BEA’s financial advisor relating to present value of BEA’s potential future stock price

Court’s Analysis: The merger proxy disclosed a range of values indicated by Goldman’s present value of future stock price analysis using both a base case and street estimates, but failed to disclose either a low or high sensitivity analysis also performed by Goldman and included in the materials discussed with BEA’s board.

The Court concluded that: “the record reflects that while that analysis appears in a presentation that Goldman made to the board of directors, Goldman did not regard, and management did not regard, the high case or the low case to be reliable. It is also the case that Goldman did not rely on either of them in forming its valuation opinion. I don’t understand why it would have been material to disclose that information, as it is considered to be unreliable and could well mislead shareholders rather than inform them.”

Claim: The absence of disclosure regarding the actual amount of the financial advisor’s fee that was contingent upon consummation of the proposed merger.

Court’s Analysis: The Court noted that the proxy statement discloses the total fee and discloses that the fee is at least in part contingent but doesn’t disclose which part of the fee was contingent and which was not. “This might be a good claim if some very large part of the fee was in fact contingent. . . at least as I understand things, of the $33 million that Goldman will be paid, only $8 million is contingent. And given that it’s only 8 out of 33, I can’t see it’s materially misleading to have merely stated that a part of the fee was contingent without saying how much.”

The Court concluded by stating that:

“To double back to where I began on this issue of materiality, the fact that something is included in materials that are presented to a board of directors does not, ipso facto, make that something material. Otherwise every book that’s given to the board and every presentation made to the board would have to be part of the proxy material that follows the board’s approval of a transaction. That certainly is not the law. What the law is, is that a plaintiff has to show why the omission of information in the disclosure material amounts to a material omission. That is, why a reasonable shareholder reading the material would find it important in deciding how to vote to know this particular omitted fact.”

The New Business Combination Accounting

We recently posted the transcript from the webcast: “The New Business Combination Accounting.”

April 4, 2008

News from the Tulane Institute

The annual Tulane University Corporate Law Institute is always a big M&A Conference. I’m not there myself this year, but the NY Times’ DealBook is carrying regular coverage of the proceedings. Great stuff! And here are “10 Questions” that Prof. Steven Davidoff hopes are addressed at the Institute.

Below are some more traditional news reports about its happenings:

1. “Strine Warns Companies: Don’t Document Your Idiocy” – from Friday’s WSJ Deal Journal

Delaware is an unlikely center of the deal-making world. When M&A gets ugly, sellers and buyers often head to Delaware to fight over the terms of their contract. What should companies do?

First, the Delaware Developments Panel at the Tulane University Corporate Law Institute encouraged companies to write down everything about their presale negotiations: who said what, and when, and to whom, and the various issues that were discussed. Human memory being what it is, this will be helpful come deposition time. It is the kind of advice you might expect from a group of uberlawyers, just as you would expect them to tell companies to keep their special committees in the loop on absolutely everything. Special committees typically are formed to create an objective way to evaluate merger offers.

But on the six-man panel is the consistently quotable Delaware Vice Chancellor Leo E. Strine Jr.–clad, we note, in unthreatening earth tones and the only one not wearing a tie. He warned people not to get carried away with taking precise notes. In fact, he questioned whether it is always helpful when a case gets to Delaware court. For one thing, people often recount conversations inaccurately and put assumptions into the mouths of the speakers. For another, he says, it is possible people will shoot themselves in the foot without knowing it. “If they are idiots and you’re documenting their idiocy, that’s not really helpful,” Strine said.

The panel also discussed stock options. Backdating, you might be interested to know, is still bad. Spring-loading options (when companies wait to issue the stock grants before good news, thus boosting the price)? Also bad. When in Delaware, Just Say No!

2. “The Fine Art of Deal-Making Gathers Dust” – from Wednesday’s NY Times

The market for mergers and acquisitions is in the doldrums. And according to many deal professionals, that won’t change anytime soon. About $861 billion worth of deals worldwide were struck in the quarter that ended Monday, according to data from Dealogic. Representing a 22 percent plunge from the same time a year ago, it presages a slow year for mergers practitioners — and some bankers are writing off 2008 completely.

“I’m taking the rest of the year off,” one senior banker said with a chuckle. “Call me in 2009.” The low volume is a strong reminder of the new world for mergers and acquisitions, one battered by the stormy credit markets that have spread from subprime mortgages to all parts of the economy.

It is also a sharp reversal from the two-year boom that ended last summer, one that saw increasingly bigger deals by private equity firms. For the first quarter of 2008, 34 percent of announced deals were valued between $100 million and $1 billion, with nearly all of that from corporate buyers, according to Dealogic.

All this is contributing to a pessimism shared by most of Wall Street’s top deal-makers, according to a new poll by the Brunswick Group, a corporate communications firm. The biggest question among them is how long the bad times will last, in a period when the markets are gyrating daily.

“It’s very hard to make deals when no one can value their stock,” said James C. Woolery, a partner at Cravath Swaine & Moore, the law firm. “People are still feeling for the bottom.”

The full results of Brunswick’s poll are to be released on Thursday at the annual mergers and acquisitions conference at Tulane University’s law school, considered the pre-eminent gathering of practitioners in the industry. Among the attendees are Joseph R. Perella of Perella Weinberg Partners, a boutique investment bank, and Martin Lipton of the law firm Wachtell, Lipton, Rosen & Katz.

According to the poll, which surveyed 30 of the scheduled speakers at the Tulane conference, 52 percent of the respondents believe that the market for deal-making is at least a year to 18 months from returning, although they said they still thought the economy remained sound.

Another 42 percent were more pessimistic, predicting a recession. For this group, the mergers practice will not return to its dizzying 2007 highs for at least five years.

Some optimists remain, however: 7 percent of respondents said that the current malaise was “a short-term blip.”

“The market is obviously volatile, but the smart strategic buyers are definitely looking,” said Boon Sim, head of Credit Suisse’s mergers and acquisitions practice in the Americas. “They are dipping their toes into the pool.”

Mr. Sim said he expected deal-making to return by the middle of next year. But, he said, “I may be more optimistic than most.”

A vast majority — 87 percent — of respondents agree that private equity firms will remain mostly sidelined in this new phase of deal-making. The cheap debt that powered the last boom disappeared quickly last summer, depriving buyout firms of their main source of financing.

According to Dealogic, the volume of leveraged buyouts for the first quarter dropped 65 percent to $63.7 billion from the same time a year ago. Just 15 private equity deals worth more than $1 billion were announced, compared with 37 in the first quarter last year.

About 71 percent of the advisers that were polled said they were more reluctant to counsel public companies to sell themselves to buyout firms. Among the biggest deal stories of the year are the hostile bids by Microsoft for Yahoo and Electronic Arts for Take-Two Interactive, a game maker. (That is leaving aside the fire sale of Bear Stearns to JPMorgan Chase.)

Not all advisers believe private equity firms will stand around with their hands in their pockets. As the prices of companies fall, spurred partly by the disappearance of the bidding wars of 2006 and 2007, private equity firms may reap bigger returns on smaller deals, said Douglas L. Braunstein, the head of JPMorgan’s investment banking in the Americas.

But the shakiness of private equity firms’ financing also reveals another concern among deal-makers. Sixty-two percent of the respondents to the Brunswick poll said that reverse termination fees, payments that buyers can use to walk away from deals, will be tightened or amended over the next year.

April 2, 2008

Bear Stearns Deal Under Scrutiny

With the 212-page Blueprint Paulson Report adding fuel to the fire over how the government should handle the credit crunch, more and more critics are emerging over the Federal Reserve’s role in the JPMorgan Chase/Bear Stearns deal. Yesterday’s WSJ opinion column is just one.

Fed Chair Ben Bernanke started two days of testimony today on Capitol Hill, with today’s appearance before the Joint Economic Committee of Congress and tomorrow before the Senate Banking Committee. Here is his prepared testimony – and here is a DealBook article on his testimony. And here is information about the assets that backed the Fed’s $29 billion loan that supported the deal. Much more to come on the Fed’s role I’m sure…

Upcoming Webcast: “JPMorgan Chase/Bear Stearns: Splicing the Delaware Issues”

On April 29th, join us for the webcast – “JPMorgan Chase/Bear Stearns: Splicing the Delaware Issues” – as Professors Elson, Davidoff and Cunningham analyze a host of novel provisions in the JPMorgan Chase/Bear Stearns merger agreement (and any Delaware court opinion that may be rendered within the next few weeks).