Monthly Archives: December 2009

December 21, 2009

House Passes “Tax Extenders Act of 2009”

A few weeks ago, I blogged about the introduction of the the “Tax Extenders Act of 2009” in the House. On December 9th, the House passed this Act, which would tax as ordinary compensation income carried interest earned from investment partnerships or LLCs. This provision is similar to legislation passed by the House in 2007 and 2008 – but rejected by the Senate. Learn more in this Kirkland & Ellis memo.

December 17, 2009

Relative Fairness Opinions and the ACS/Xerox Merger

Here are some further thoughts from Kevin Miller of Alston & Bird on fairness opinions (some prior thoughts are here):

There continues be confusion regarding whether Evercore rendered a relative fairness opinion in the ACS/Xerox transaction. Recent articles in a few publications continue to suggest that it did. I don’t think so.

While the Evercore opinion does state that Evercore took into account the additional merger consideration to be received by the holders of the Company Class B Common Stock in the Merger in evaluating whether the Merger Consideration received by the holders of Company Class A Common Stock was fair, from a financial point of view, to the holders of the shares of Company Class A Common Stock (other than those holders who also hold shares of the Class B Common Stock), I think the Evercore opinion includes an express disclaimer of relative fairness:

“We have not been asked to pass upon, and express no opinion with respect to, any matter other than the fairness to the holders of the Company Class A Common Stock, from a financial point of view, of the Merger Consideration. We do not express any view on, and our opinion does not address, the fairness of the proposed transaction to, or any consideration received in connection therewith by, the holders of any other securities [i.e, holders of Class B Common Stock], creditors or other constituencies of the Company, nor as to the fairness of the amount or nature of any compensation to be paid or payable to any of the officers, directors or employees of the Company, or any class of such persons, whether relative to the Merger Consideration [received by the holders of Class A Common Stock] or otherwise.” (emphasis added)

See the top of page 3 of Annex D of the draft Joint Proxy/Prospectus relating to the Merger.

The Evercore language that it “took into account” the additional Class B consideration is sometimes included in opinions relating to top hat/double dummy transactions – i.e., where a new holdco is formed and the two combining entities merge with separate merger subs formed by new holdco. In those transactions, in order to properly evaluate the exchange ratio in the merger between Company A and Merger Sub A, you need to “take into account” the exchange ratio in the merger of Company B with Merger Sub B because without giving effect to the second merger, you can’t calculate the percentage of new holdco that will be owned by the former shareholders of Company A – or other merger consequences – e.g., pro forma earnings per share for accretion dilution and other analyses.

Similarly, in ACS, you can’t calculate what percentage of Xerox will be owned by the former holders of ACS Class A Common Stock or other merger consequences without taking account orgiving effect to the additional consideration being paid to the holders of Class B Common Stock.

Given the disclaimer of relative fairness, I think it would be a stretch to interpret the “giving effect to language” in the Evercore opinion as implying that the opinion was intended to address relative fairness.

Nevertheless, I believe Evercore did provide the ACS committee with data and financial analyses with which the ACS committee could evaluate the financial implications of the additional Class B consideration in accordance with the Delaware Supreme Court’s holding in Levco (see pages 99-100 of the draft joint proxy/prospectus). I just don’t think they addressed relative fairness in their opinion.

December 15, 2009

RiskMetrics’ New Policy Updates: Poison Pills Not Welcome

From Francis Byrd of The Altman Group:

Not that they have ever truly been welcome with RiskMetrics, but the pressure has been ratcheted up on companies that have shareholder rights plans (commonly called poison pills). Under its new policy updates that were recently released, RMG will issue a withhold or against recommendation against ALL board nominees (except new nominees) if a company adopts a poison pill without shareholder approval. Starting in 2010 RMG will analyze companies with a classified board every year, and an annually elected board once every three years, and they will issue a withhold or against recommendation from all Board members if a company maintains a non-shareholder approved pill.

In prior years, RMG would only issue a negative recommendation at the shareholders meeting immediately following adoption or renewal of the pill. The new policy is not retroactive, and only applies to companies adopting or renewing pills after November 19, 2009. However, please note that RMG states in future years it may apply the new policy retroactively.

RMG is also making a distinction between long-term pills (a term of more than 12 months) and short-term pills (a term of less than 12 months). Companies that adopt short-term pills have a little more leeway with RMG as they will consider other factors before issuing a negative recommendation. These other factors include the date of the pill adoption relative to the next shareholder meeting, the rationale for adoption or renewal, the company’s governance practices, and the company’s track record of accountability to their shareholders.

This update is no doubt a negative development for companies with poison pills. Companies have always had to consider the RMG implications for adopting or renewing a pill. However, now companies have to consider the fact that RMG will be issuing a withhold or against recommendation every three years or every one year depending on the Board structure. Among other things companies will need to consider is the level of influence of RMG among their shareholders, how a negative recommendation may impact the vote (e.g. plurality versus majority voting), and whether or not to adopt a shareholder friendly pill.

December 14, 2009

E-Proxy & Proxy Contests

Continuing the proxy solicitor podcast series, in this podcast, Scott Winter of Innisfree provides some insight into how e-proxy intersects with proxy contests, including:

– Can you provide an overview of how notice & access works in a proxy contest?
– How common is notice & access in a proxy contest?
– Will the proposed amendments to the notice and access rules increase use of notice & access by dissidents?
– Should companies or dissidents utilize notice & access in a proxy contest?

December 9, 2009

House Moving Quickly on “Tax Carried Interests as Ordinary Income” Bill

Here is an excerpt from a Gibson Dunn memo:

The Tax Extenders Act would tax income and gains associated with “carried interests” as ordinary income and would expand reporting obligations and penalties to curb foreign tax evasion and fraud. Although these proposals have been proposed previously in separate bills, they are being incorporated into the Tax Extenders Act as a means of financing the $31 billion price tag for extending expiring tax provisions through 2010.

Analysts note that the bill is expected to pass the House easily, but its future in the Senate is unclear. While it is likely that the Senate Finance Committee will take up an extenders bill, it may not do so until next year – after the Senate finishes its work on health care legislation – and it may well include a different set of offsets. It is possible that Congress could delay resolution of the bill, because most of the provisions can be extended retroactively in 2010.

December 8, 2009

Superfluous Merger Agreement Recitals

Here are some thoughts from Ken Adams, originally posted in his “Adams Drafting” Blog:

Methinks that the recitals in the average big-time-M&A merger agreement are bloated. By way of example, below are the recitals from the August 31st merger agreement for Disney’s acquisition of Marvel. I’ve noted some big-picture comments in bracketed italics; I’ll spare you my many micro-level objections.


WHEREAS, the parties intend that, subject to the terms and conditions hereinafter set forth [“subject to” phrase occurs several times, but flawed logic–the intent precedes the contract, not the other way round], Merger Sub shall merge with and into the Company (the “Merger”) [appropriate topic for recitals], on the terms and subject to the conditions of this Agreement and in accordance with the General Corporation Law of the State of Delaware (“DGCL”);

WHEREAS, the parties intend that the Merger shall be immediately followed by a merger of the Surviving Corporation (as defined below) with and into Merger LLC (the ” Upstream Merger “) [appropriate topic for recitals], on the terms and subject to the conditions of this Agreement and in accordance with the Delaware Limited Liability Company Act (the ” LLC Act “);

WHEREAS, the parties intend that the Merger be mutually interdependent with and a condition precedent to the Upstream Merger and that the Upstream Merger shall, through the binding commitment evidenced by Section 5.18 , be effected immediately following the Effective Time (as defined below), on the terms and subject to the conditions of this Agreement and in accordance with the LLC Act, without further approval, authorization or direction from or by any of the parties hereto [too much information for recitals, and anyway covered in the body of the contract];

WHEREAS, the Boards of Directors of Parent and the Company each have determined that a business combination between Parent and the Company is advisable and in the best interests of their respective companies and stockholders and accordingly have agreed to effect the Merger provided for herein upon the terms and subject to the conditions set forth herein [standard feature of merger-agreement recitals, but is unnecessary, given that authorization is addressed in board consents and in representations in the merger agreement; if this is in effect PR intended for shareholders, that function is better served by the proxy statement];

WHEREAS, simultaneously with the execution and delivery of this Agreement and as a condition and inducement to Parent’s and Merger Sub’s willingness to enter into this Agreement, Parent is entering into a voting agreement with the Company and certain stockholders of the Company (the “Voting Agreement”) [if this is a condition to entry into the merger agreement, I’d expect to see that stated in the body of the contract; simpler just to say in the recitals that the parties have entered into the voting agreement]; and

WHEREAS, it is intended that the Merger and the Upstream Merger, considered together as a single integrated transaction for United States federal income Tax purposes along with the other transactions effected pursuant to this Agreement, shall qualify as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the ” Code “) [omit, as (1) covered in the body of the contract, in obligations relating to tax treatment, and (2) is misleading, as I gather that it’s settled law that intent of the parties doesn’t control the tax consequences of their actions; instead, when referring to the merger for first time say that it’s structured as a regoranization].

NOW, THEREFORE, in consideration of the representations, warranties, covenants and agreements contained herein and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, and subject to the conditions set forth herein, the parties hereto agree as follows [as always, a joke]:

Recently, the ABA Journal named Ken as one of their fifty “Legal Rebels.” The ABA’s profile of Ken includes a video in which he spend four minutes critiquing two bits of the merger agreement in Oracle’s proposed acquisition of Sun Microsystems.

December 7, 2009

Ask the Experts: Schedule 13D and Schedule 13G Issues

With investors becoming more active – with many pursuing the same agenda – the issues implicating Schedule 13D and 13G have become more common and more complex. Join us tomorrow for the webcast – “Ask the Experts: Schedule 13D and Schedule 13G Issues” – and hear from:

Dennis Garris, Partner, Alston & Bird LLP and former Chief, SEC’s Office of Mergers & Acquisitions
Jim Moloney, Partner, Gibson Dunn & Crutcher LLP and former Special Counsel, SEC’s Office of Mergers & Acquisitions
Chuck Nathan, Partner, Latham & Watkins LLP
David Sirignano, Partner, Morgan Lewis & Bockius LLP and former Chief, SEC’s Office of Mergers & Acquisitions

They will be answering this list of questions

Act Now: Renew your membership for 2010 as all memberships expire at the end of this month. Or try a no-risk trial for 2010 and catch this webcast for free.

December 3, 2009

Survey: Divestiture Market Poised for Increased Activity

Recently, a PricewaterhouseCoopers survey of top U.S. executives found that 69% expect divestiture activity to increase in 2010, with 56% foreseeing domestic corporate buyers as primary players. At the same time, the survey results show that the divestiture process is growing more complex, creating strong headwinds for potential sellers. Of the respondents who have completed transactions in the past 12 months:

– 72% said the divestiture process has taken longer to complete
– Of those, 51% said they had taken at least 20% longer to conclude and an additional 21% said completions had taken at least 10-20% longer than in prior years.

Here are other findings:

– Buyer requirements for more due diligence information were the primary reason cited by 75% of the respondents for the prolonged timeframe.

– 43% reported that potential buyers are asking for some additional information and access, and an additional 32% said buyers were requiring extensive additional information.

– When those who reported divestiture activity in the past 12 months were asked to rate the importance of having audited financial statements available for a divestiture target, 49% said it had become more important now than in previous markets and 27% referred to it as “critical.”

– In general, companies appear to struggle with the divestiture process. When asked to compare their organizations’ acquisition and divestiture processes, 46% of all participants said their acquisitions process was better-defined. In addition, 39% said they had no formal pre-divestiture review process that was performed consistently.

– When asked to identify the most complex part of a divestiture, especially a carve-out, 25% selected finding a buyer, followed by executing the separation of the business (23% ), and producing carve-out financial statements and re-casting historical results (21%).

– Valuations remain a moving target and a significant factor contributing to the stagnant M&A market: 90% placed the value expectation gap between buyers and sellers in 2009 at between zero and four turns of EBITDA. Interestingly, half of the respondents (50%) identified corporate domestic buyers as the predicted source of higher valuations in the coming year.

December 2, 2009

New EU Commissioner Designated for Competition Policy

This news comes from Bernard Amory and Filippo Amato of Jones Day:

Last week, the President of the European Commission, José Manuel Barroso, unveiled the designated team of 26 new Commissioners who, if confirmed by the European Parliament, will serve for the next five years term, until October 2014. Joaquín Almunia, 61 – a Spanish socialist and currently EU Commissioner for economic and monetary affairs – has been designated to be EU Commissioner for Competition Policy and a Vice-President of the Commission.

Mr. Almunia will replace the current EU Competition Commissioner Neelie Kroes, who has been designated to be Commissioner for the “Digital Agenda,” with a portfolio covering telecoms and information and communication technology policies. Working closely with the new commissioner will be Alexander Italianer, who was named as Philip Lowe’s replacement as director general of the Commission’s Directorate General for Competition. Italianer is a Dutch economist and former deputy head of President Barroso’s cabinet.

Mr. Almunia began his career as chief economist for a Spanish trade union and entered the Spanish Parliament in 1979. He studied law and economics in Spain, completed follow-up work in Paris, and studied in the U.S. at the Kennedy School of Government at Harvard University. Mr. Almunia held two ministerial posts in Spain, between 1982 and 1986 as Minister for employment and social security, and between 1986 and 1991 as Minister for public administration. Before joining the Commission in 2004, he was leader of the Spanish socialist party between 1997 and 2000 and candidate for Prime Minister in Spain in 2000.

Commission’s officials who have worked closely with Mr. Almunia say he is a competent and reflective person, who “likes to get into the details of his dossiers” and carefully listens and evaluates pros and cons before making any important decision. Several persons inside the Commission have stated that, due to his solid economic and legal background, he will be able rapidly to familiarize himself with the competition portfolio and gain the confidence of the services that report to him.

In his new job, Mr. Almunia will have to address numerous ongoing matters inherited from his predecessor in the areas of cartels, abuses of dominant position, private enforcement, distribution agreements, mergers and acquisitions, and state aids.

Cartels and abuses of dominance

Commissioner Kroes’ time in office will be remembered for a spiral of ever-higher fines for cartel conduct and abuse of dominant position. In February 2008, Ms. Kroes imposed a €899 million penalty on Microsoft for non-compliance with its obligations under the Commission’s 2004 abuse of dominance decision against the company. Also in 2008, she imposed the highest-ever cartel fine (€896 million) against a single company, Saint Gobain. In May 2009, she levied a record €1.06 billion fine on Intel for abuse of a dominant position by allegedly shutting out rival AMD. Commission officials knew that, when presented with two alternative fines, Ms. Kroes invariably would choose the higher. As Competition Commissioner since 2004, Ms. Kroes has levied more than €9,000,000,000 in cartel penalties against companies from around the world.

A fine is the Commission’s only instrument to punish violations and deter antitrust infringements (criminal and personal sanctions not being available under EU competition law). However, Kroes’ tough approach has attracted some criticism towards the end of her mandate. Certain members of the European Parliament have openly stated that high fines are inappropriate in the current economic environment, because they endanger the viability of companies and may have negative effects on the growth and jobs agenda. Another recurrent criticism is that companies do not really get a fair trial in EU antitrust cases, because the Commission alone investigates, prosecutes, and decides cases and fines.

Due to these criticisms, and to his political and trade-unionist background, some commentators believe that Mr. Almunia might be more sensitive than his predecessor to social and job-related concerns in making cartel and abuse of dominant position enforcement decisions.

Private enforcement

Another challenge Mr. Almunia will have to face is in the area of private enforcement. In October 2009, the consideration of Commissioner Kroes’ proposed directive on “collective redress” or “private damages actions” was postponed by President Barroso due to pressure from European Parliament members who considered the new regime excessively burdensome on business without sufficient counterbalancing benefits for consumers. It will have to be seen whether Mr. Almunia will push for the adoption of a similar directive or will make substantial amendments to overcome the European Parliament’s concerns.

Vertical restraints

The current EU regulation establishing “safe harbors” from the application of EU competition law for certain categories of vertical agreements is due to expire in May 2010. Consequently, the adoption of a new regulation in this area will be one of Mr. Almunia’s most delicate and important tasks as new EU Commissioner for competition.

In July 2009, the Commission announced its intention to revise the EU competition rules applicable to vertical restraints and launched a public consultation on a proposed new regulation and a new set of guidelines on vertical restraints. The Commission’s proposed amendments in the area of internet sales have generated a heated debate between online commercial platforms and luxury goods producers. For example, online sellers oppose any safe harbor for restrictions on internet sales (such as suppliers requiring distributors to have a brick-and-mortar shop before engaging in online distribution), and producers advocate greater freedom to set standards for online sales of their luxury branded products.

One of Mr. Almunia’s most difficult task in this area will be to strike the right balance between these opposing interests without losing sight of the ultimate goal of competition policy, the interest of consumers.


Former Competition Commissioner Mario Monti will be remembered not only for his decisions to prohibit mergers in high profile cases, such as the proposed merger between U.S. companies General Electric and Honeywell, but also for the number of merger decisions that were annulled by the European courts during his term (such as Schneider/Legrand and Tetra Laval/Sidel). Following this relatively negative record, Ms. Kroes’ approach to mergers has been particularly cautious. Indeed, during her five years term, Ms. Kroes has blocked (so far) only two out of some 60 proposed mergers that raised serious enough concerns to be taken to “phase two” investigations.

As a result of the economic crisis, consolidations are expected to occur over the coming years in various sectors, and “failing firm” and “efficiency” defenses may play an increasingly important role in merger review proceedings.

State aids

During the financial crisis, President Barroso set up a steering group composed of himself, Commissioner Almunia, Commissioner Kroes, and Commissioner McCreevy. Commission sources report that Mr. Almunia played an important role in making sure that EU state aids rules in the banking sector would be applied as flexibly as possible to maintain the EU’s financial stability. It can therefore be expected that he will also pursue this approach in his new capacity.

President Barroso has also announced that the new Competition Commissioner will be responsible for the assessment of state aids in the transport and energy sector, which are currently within the respective portfolios of the Commissioner for Energy and the Commissioner for Transports.

Next steps

The new Commission must be approved by the European Parliament before it takes office. Commissioners-designate will appear in individual hearings before Parliamentary committees from 11-19 January 2010. On this occasion, Mr. Almunia’s agenda as EU Commissioner for competition may become more clear. The vote of consent on the new Commission as a whole is foreseen to take place on 26 January 2010. On the basis of the vote of consent, the Commission shall be appointed by the European Council. Then it will start working.

December 1, 2009

Understanding Bankerspeak

– by John Jenkins, Calfee Halter & Griswold

English may be the first language of business, but when it comes to M&A, you won’t get very far without a thorough grounding in the unique English dialect known as “Bankerspeak.”

Bankerspeak owes its existence in large part to the most productive jargon generation machine ever invented: the American business school. (Whatever else they’ve accomplished, business schools have been teaching future MBA’s to “proactively leverage synergies” for more than a century!) But Bankerspeak also couldn’t exist without significant contributions from marketing consultants, who’ve helped professionals learn to frost their b-school jargon with a heavy coating of smarminess.

Now, before the bankers in the audience get all huffy, let me concede the obvious point that lawyers take second place to no profession when it comes to generating incomprehensible gibberish. But, our crimes against the English language tend to be in written form, while the bankers’ offenses are almost always verbal.

The biggest reason for the difference between the professions on this point is the extraordinary efforts that law schools make to transform literate liberal arts graduates into the “legal literati.” If, like most lawyers, you were a liberal arts major, then chances are you were a pretty decent writer when you went to law school. Come to think of it, if you were a liberal arts major, chances are that the ability to write an English sentence was about the only skill you had, which is why you ended up in law school in the first place.

But I digress.

Anyway, if you saw someone get off a bus and cross the street prior to your first legal writing class, you would probably have written the following description of what you saw: “I saw a woman get off the bus and cross the street.” After you took legal writing and joined the legal literati, that description probably looked more like this: “I observed a female (the “Person”) egress the multi-passenger vehicle (sometimes hereinafter referred to as the “Bus”) and traverse the thoroughfare.”

The other reason that Bankerspeak tends to be a spoken dialect is that most bankers wouldn’t be caught dead actually drafting something that didn’t consist almost exclusively of numbers. This is actually okay, because most lawyers can’t do math well enough to balance a checkbook.

At any rate, Bankerspeak is pretty ubiquitous in the transactional world, and those who aren’t fluent in it are at a real disadvantage. So, as a public service, here’s a handy guide to interpreting some commonly used Bankerspeak phrases:

– Bankerspeak: It’s a turnaround scenario, but we’re very high on management.
– English: The business looks like the 21st Century answer to Penn Central, but the CEO plays golf with one of our Managing Directors.

– Bankerspeak:This deal is very time sensitive.
– English: I leave for the Caribbean in two weeks.

– Bankerspeak: We understand your concern, and we’ll leave that as an open issue for now.
– English: No.

– Bankerspeak: At this point, how visible are the assumptions behind your projections?
– English: Seriously, do you have any idea what you’re talking about?

– Bankerspeak: We need you to give some thought to our position on this issue
– English: Think of me as the Voice of God.

– Bankerspeak: The market is a little choppy right now. We may want to wait until things settle down.
– English: Your deal is dead.

– Bankerspeak: We view this as potentially a positive from a marketing standpoint.
– English: Your deal is dead, but we haven’t figured out how to break the news to you yet.

– Bankerspeak: There’s a lot of hair on this deal.
– English: I’m impressed. You must have really worked overtime to screw the company up this badly.

– Bankerspeak: We need to give some thought to the optics of this.
– English: My God, this looks horrible! Your business ethics would make Bernie Madoff blush.

I don’t care what William Shatner says — Bankerspeak is the real “language of the deal!”