Monthly Archives: September 2009

September 30, 2009

The Coming Hostile Deals

In this podcast, Lois Herzeca of Gibson Dunn & Crutcher discusses the expected rise in hostile activity and how to be prepared, including:

– Why is hostile deal activity expected to increase over the next year?
– What interesting examples have occurred recently?
– What should companies be doing strategically to best position themselves?
– What should companies be doing in terms of structural defenses and what should they avoid?
– How should companies address their key investors and shareholder base?

September 29, 2009

DOJ/FTC to Review U.S. Horizontal Merger Guidelines

From Jones Day: Last week, the U.S. Department of Justice and the Federal Trade Commission announced that they would seek public comment and hold joint public workshops to explore possible updates to the Horizontal Merger Guidelines, which outline the antitrust agencies’ merger enforcement policies. The Guidelines, which were last significantly revised in 1992, play a critical role in shaping analysis and outcomes in merger decision both at the agencies and in the courts. A review of the Guidelines was anticipated, particularly given the Obama’s administration’s stated goal of adopting a more aggressive approach to antitrust enforcement, including merger reviews.

In announcing the project, Assistant Attorney General Christine A. Varney stated:

“In light of legal and economic developments that have occurred since the last major revision of the guidelines, it is an appropriate time for the antitrust agencies to conduct a review of the guidelines to determine whether any revisions should be made to better protect American consumers and businesses from anticompetitive mergers. . . . Having guidelines that offer more clarity and better reflect agency practice provides for enhanced transparency and gives businesses greater certainty when making merger decisions, resulting in a more competitive marketplace that benefits consumers.”

In a speech last week, FTC Chairman Jon Leibowitz identified some of the specific topics that will be considered:

“[T]he agencies’ use of direct evidence of anticompetitive effects as an indication that the merger may harm consumers, whether we should clarify how the agencies use the hypothetical monopolist test to define markets, whether we should update the description of how the agencies use concentration statistics like HHIs to understand the impact of a merger on the market, and whether we should add remedies to the guidelines as the EU has done.”

The project will be led on the FTC side by Rich Feinstein, FTC Director of the Bureau of Competition; Joe Farrell, Director of the Bureau of Economics; and Howard Shelanski, Deputy Director for Antitrust in the Bureau of Economics. The Antitrust Division representatives are Deputy Assistant Attorneys General Molly Boast, Carl Shapiro, and Phil Weiser.

The first workshop, which will be open to the public, will be held in Washington, D.C., on December 3, 2009, followed by workshops in Chicago, New York City and San Francisco. A final workshop also will be held in Washington, D.C.

September 28, 2009

Disney-Marvel Merger Negotiations: From the Opening Scene to the Closing Credits

In the “Private Equity Law Review” Blog today, Geoffrey Parnass has some fun with the Form S-4 filed regarding Walt Disney’s pending merger with Marvel Entertainment. Check it out!

September 23, 2009

How to Sell a Division: Nuts & Bolts

Join us tomorrow for the webcast – “How to Sell a Division: Nuts & Bolts” – to learn more about one of the most popular methods to change a company’s focus – and raise much-needed cash: selling a division. Join these experts:

– Bill Jonason, Partner, Dorsey & Whitney
– Doug Leary, Partner, Sutherland
– Marty Nussbaum, Partner, Dechert
– Cal Smith, Partner, Troutman Sanders
– Jennifer Vergilli, Partner, Calfee, Halter & Griswold

September 22, 2009

Corp Fin’s New Schedule 13D and 13G Interps

Last week, Corp Fin issued a new batch of Compliance & Disclosure Intrepretations – this batch relates to Sections 13(d) and 13(g), and related Schedules 13D and 13G. Here is a memo analyzing changes in the Staff’s positons as compared to the old Telephone Interps.

We just announced a new webcast – “Ask the Experts: Schedule 13D and Schedule 13G Issues” – for December 8th, where you’ll get to ask questions of former Senior SEC Staffers about one of the trickiest areas around…an area that becomes more important as shareholder activism continues to grow.

September 21, 2009

September-October Issue: Deal Lawyers Print Newsletter

This September-October issue of the Deal Lawyers print newsletter was just sent to the printer and includes articles on:

– Convertible Debt Exchange Offers: Considerations for Distressed Issuers
– Mitigating Value and Dilution Risks in Stock-for-Stock Mergers
– Caveat Everybody: Changes in Control as Assignments of Contract Rights
– Substituting Tort for Contract: Tortious Interference Claims Against M&A Affiliates

If you’re not yet a subscriber, try a “free for rest of ’09” no-risk trial to get a non-blurred version of this issue on a complimentary basis.

September 18, 2009

Impact of New York’s New “Powers of Attorney” Law on M&A

Joel Greenberg of Kaye Scholer brings us the following analysis of New York’s new power of attorney law on deals:

September 1, 2009 was the effective date for a series of amendments to the New York General Obligations Law that impose requirements for powers of attorney executed within New York State by individuals. Powers of attorney executed by persons other than individuals or by individuals (including New York domiciliaries) in a jurisdiction other than New York in accordance with the laws of that jurisdiction are not subject to these requirements.

On its face, the legislation appears to apply to powers of attorney embodied in other documents often used for M&A and other commercial transactions, such as shareholder representative provisions in acquisition agreements, shareholder lockup agreements and security agreements.

The operative provision provides in relevant part:

Section 5-1501B. Creation of a valid power of attorney; when effective.

1. To be valid, a statutory short form power of attorney, or a non-statutory power of attorney, executed in this state by an individual, must:

(a) Be typed or printed using letters which are legible or of clear type no less than twelve point in size, or, if in writing, a reasonable equivalent thereof.
(b) Be signed and dated by a principal with capacity, with the signature of the principal duly acknowledged in the manner prescribed for the acknowledgement of a conveyance of real property.
(c) Be signed and dated by any agent acting on behalf of the principal with the signature of the agent duly acknowledged in the manner prescribed for the acknowledgement of a conveyance of real property…
(d) Contain the exact wording of the:
(1) “Caution to the Principal” in paragraph (a) of subdivision one of section 5-1513 of this title ; and
(2) “Important Information for the Agent” in paragraph (n) of subdivision one of section 5-1513 of this title.

The legislation is not limited to New York domiciliaries or to documents governed by New York law; it purports to apply whenever a power of attorney is executed within New York State by an individual. In situations where some of the parties are individuals and there is a possibility that there may be documents executed within New York State, one solution may be to excise the provisions constituting a power of attorney from the principal deal documents and to include them in a separate document that conforms to the requirements of the legislation.

This approach would permit the more formal process of execution required by the legislation (i.e., acknowledgment before a notary public) to be accomplished before the remaining deal documents are complete and should have the additional benefit of confining any issues as to validity based on alleged non-compliance to the power of attorney.

This does not purport to be a complete summary of the legislation or to address all of the issues that it raises. The legislation is new and there is little or no secondary guidance to its potential application.

This does not purport to be a complete summary of the legislation or to address all of the issues that it raises. The legislation is new and there is little or no secondary guidance to its potential application.

On Blog today, I blogged about the impact of this new NY law on the federal securities laws.

September 15, 2009

Enforcement of Foreign Judgments in the British Virgin Islands

Some members are telling me that the British Virgin Islands is growing fast as a place where entities are incorporated to facilitate deals and joint ventures. Other members note that BVI is to this decade what the Cayman Islands were to the last one – a sort of semi-shady tax haven that sells itself very hard as a jurisdiction of incorporation. Below is a poll for your input on this issue.

Regardless of your feelings on this topic, it is important to know what steps can be taken once you have successfully obtained a judgment against a BVI company in a foreign jurisdiction. One question often asked is whether the BVI Court has a general procedure for recognising foreign judgments other than where a bilateral treaty exists (the BVI legal system is based on English Law and therefore many of the statutes and applicable common law principals are similar). In our “International” Practice Area, we have posted memos to help you answer this question.

Online Surveys & Market Research

September 14, 2009

“Pull-Up” vs. “Pay-to-Play”?

The venture capital industry is going through some evolutionary changes, as noted in today’s Blog entitled “VC = Venture Cataclysm?” Keep up with how much VC is evolving by tuning into this webcast on tomorrow – “Venture Capital: Facing a Changing World” – featuring Jonathan Axelrad of Goodwin Procter, Steve Bochner of Wilson Sonsini and Gordy Davidson of Fenwick & West.

Recently, Rezwan Pavri of Wilson Sonsini helped me answer the following question in our “Q&A Forum”:

Question: In a venture capital/private equity financing, what is a “pull up” provision? Fenwick’s most recent survey refers to “pull up” provisions as opposed to pay-to-play provisions.

Answer: A “pull-up” is a variation on the basic pay-to-play structure that provides incentives to existing investors to continue funding a company by allowing investors to pull forward existing shares of the company’s capital stock into a new series of preferred stock with superior rights to existing preferred stock. This structure often encourages investors in junior series of preferred stock to invest in the current financing round because it provides them with an opportunity to move at least some of their junior preferred stock into a senior series of preferred stock (and thereby get out from under a stack of preferred stock with senior liquidation preferences).

“Pull-up” features can often be combined with other provisions found in a traditional pay-to-play structure in order to achieve a recapitalization of a company. “Pull-ups” are often accomplished through contractual exchange rights that are baked into the stock purchase agreement for the current financing round.

September 10, 2009

FTC and Antitrust: No Special Treatment for Small Companies

Awhile back, we blogged about the abandonment of the Endocare Inc./Galil merger and the potential for antitrust scrutiny of transactions even if they are not subject to Hart-Scott-Rodino pre-merger review. This recent Davis Polk memo, discussing the two opposing statements made by the FTC Chairman and Commissioners on the Endocare/Galil merger, notes that the FTC’s actions indicate that it will not make concessions from its rules for small companies.

On June 8, 2009, the FTC issued two statements expressing opposing views as to Endocare, Inc.’s announcement that its proposed merger with Galil Medical, Ltd. had been terminated “as a result of” the FTC’s ongoing investigation. The proposed merger between the medical device companies, both of which develop prostate and renal cancer therapies, was too small to be reportable under the Hart-Scott-Rodino Act.

The FTC investigation began in late 2008, more than six months prior to the company’s announcement. According to the statement of Commissioner J. Thomas Rosch,the parties had produced several boxes of hard-copy documents, but declined to produce additional documents requested on the grounds that the burden would be too great on the small companies’ “severely limited resources.” In a harsh rebuke of the FTC, Commissioner Rosch argued that the case “represents a ‘poster child’ for how protracted investigation of a transaction or practice can result in the Commission failing to determine in a timely fashion whether there is a ‘reason to believe’ that a transaction or practice will violate the antitrust laws and the public interest.” He blamed the lengthy investigation on the Commission’s own failure to apply remedies available to it to enforce the subpoena, and emphasized the public policy reasons weighing in favor of the merger, including the “very small and diminishing share of the market” for the particular type of therapy the proposed merger was intended to develop.

In a joint statement, FTC Chairman Jon Leibowitz, Commissioner Pamela Jones Harbour, and Commissioner William E. Kovacic expressed their sharp disagreement with Commissioner Rosch’s portrayal of the investigation and downplayed these policy arguments, emphasizing that a small company’s claim of limited resources will not serve as an exemption from full compliance with a second request: “No special rule or Section 7 principle . . . exempts two small companies with small scientific/engineering staffs and limited resources from meaningful antitrust review, even when the companies claim that their proposed transaction will enable them to conduct additional research and development relating to a socially significant product.” The Commissioners instead blamed the lengthy investigation on the parties’ failure to provide a complete record or to negotiate the scope of the subpoena, and noted that “even the parties’ self-selected documents were insufficient to substantiate the parties’ purported efficiencies claims.”