Monthly Archives: April 2010

April 30, 2010

New Q&As: FDIC’s Policy Statement for Failed Bank Acquisitions

Here is news culled from this Davis Polk memo:

Last Friday, the FDIC issued new Q&As that clarify certain aspects of its Statement of Policy on Failed Bank Acquisitions, but leave the contours of the Policy Statement largely intact.

While there are still ambiguities in the Policy Statement, it is fair to say that the FDIC is signaling a practical way forward for private investors to enter the queue for failed institutions. The April Q&As provide clarity about the so-called “one-third test,” requirements for offshore investors, information requirements applicable to non-Policy Statement investors and the application of the Policy Statement to recapitalization transactions. It will remain extremely important for private investors to engage the FDIC staff, as every transaction will inevitably require some degree of judgment and discretion on the part of the FDIC on a variety of supervisory issues, including the Policy Statement.

April 27, 2010

How to Handle Mini-Tender Offers

In this podcast, Bob Kuhns of Dorsey & Whitney explains how to handle mini-tender offers conducted by others, including:

– What is a “mini tender offer”?
– What do parties conducting mini tender offers file with the SEC?
– How can companies become aware that a mini tender is happening with their stock?
– What can companies do to combat mini tenders?

April 26, 2010

Smaller Company M&A: The Latest Developments

Tune in tomorrow for the webcast – “Smaller Company M&A: The Latest Developments” – to hear Diane Holt Frankle of DLA Piper, Mark Filippell of Western Reserve Partners, John Jenkins of Calfee, Halter & Griswold and Bob Kuhns of Dorsey & Whitney discuss all you need to know about doing private and public deals when smaller companies are either the acquirer or the acquiree.

April 22, 2010

Notes from Tulane’s 2010 M&A Institute

Last week, Tulane held its annual M&A conference. I didn’t make it out there but here are notes from some folks that did:

DealBook’s Tulane 2010 Page

Delaware Corporate & Commercial Litigation Blog

Reuter’s Tulane M&A Conference Live Blog

April 21, 2010

Federal Agencies Propose New Antitrust Merger Guidelines

Yesterday, the Federal Trade Commission released proposed new federal merger guidelines. The guidelines outline how the FTC and the Department of Justice review horizontal mergers, or mergers between actual or potential competitors, under the federal antitrust laws. The FTC will accept comments until May 20th.

Here is some analysis, courtesy of David Foster and Dan Wellington of Fulbright & Jaworski:

Without radically altering the analytical framework of the old guidelines, the new guidelines offer practical insight into how the enforcement agencies evaluate mergers. For example, in a new section called “Evidence of Adverse Competitive Effects,” the agencies note the importance of documents obtained from the merging parties (particularly documents “created in the normal course” rather than “as advocacy materials in merger review”) and of the views of customers affected by the merger.

In defining product and geographic markets, the guidelines suggest that the agencies will typically ask whether the post-merger firm could impose a price increase of as much as 10% before losing profits to competitors. The new guidelines stress flexibility, saying that merger review is a “fact-specific process” and that the agencies “apply a range of analytical tools.”

The new guidelines also update the agencies’ discussion of market concentration, which they generally measure by use of the Herfindahl-Hirschman Index (HHI). The HHI is the sum of the squares of each firm’s market share, meaning that a market divided equally among four sellers would have an HHI of 2,500 (25²+25²+25²+25²). The guidelines state that the agencies will consider markets “unconcentrated” if, after the merger, they have an HHI below 1,500 (an increase from a threshold of 1,000 in the old guidelines).

The new guidelines do not deem markets “highly concentrated” until they reach an HHI of 2,500 (formerly 1,800). A merger producing an increase of more than 200 points in the HHI and a post-merger HHI exceeding 2,500 will create a “presumption” of anticompetitive effect.

The proposed guidelines also add new sections on “powerful buyers,” whose presence in the market might offset competitive concerns; mergers between competing buyers, which can also harm competition; and partial acquisitions, such as the purchase of minority positions, which can have anticompetitive effects in some circumstances.

April 20, 2010

Seller’s Key Issues in 2010: Still a Tough Seller’s Market

We have posted the transcript from the recent webcast: “Seller’s Key Issues in 2010: Still a Tough Seller’s Market.”

April 15, 2010

Joint Ventures in India

In this podcast, Steven Goldberg of Baker Hostetler discusses Scripps Networks Interactive joint venture with New Delhi Television, including:

– Can you briefly describe the background of the deal?
– Did any unique issues arise in connection with this joint venture?
– What pointers do you have for companies when approaching a joint venture?

April 13, 2010

Ownership’s Powerful and Pervasive Effects on M&A

The following was posted by Professor John Coates of Harvard Law School in Harvard’s “Corporate Governance Blog” (based on Prof. Coates’ working paper, “The Powerful and Pervasive Effects of Ownership on M&A“):

Mergers and acquisition (M&A) practices vary – indeed, practitioner lore is that every deal is unique. But M&A deals have much in common. M&A contracts, techniques, and outcomes vary systematically. While practitioners exploit such patterns, few have been reported, analyzed, or considered in academic research, and not all practitioners fully reflect these patterns in their practices. In a recent working paper, available here, I show that ownership dispersion is a first-order determinant of M&A practices. Firms with dispersed ownership are more salient, and tend to be larger, but dispersion varies significantly even at large US businesses, and affects M&A deal size, duration, techniques, contract terms, and outcomes.

Privately held firms are an important part of the US economy, as is private target M&A. Most US business corporations had 100 or fewer owners, and those firms generated 20+% of corporate receipts in 2006. Of businesses with more than $250 million in assets, only 18% were C corporations with 500+ shareholders. Even at public companies, dispersion varies significantly. A few have millions of record owners, and 500+ have 15,000+ shareholders. But 500+ “public” companies have fewer than 50 record shareholders, and over a third have fewer than 300 record holders. These companies are the reverse of firms that have “gone dark” – they could deregister with the SEC, but instead voluntarily choose to “remain lit” and file regular reports.

M&A practices thus can and do diverge based on variation in ownership. Dispersion creates transaction costs and heterogeneous beliefs and preferences that have straightforward effects on M&A deal size, techniques, and some contract terms. But dispersion also has less intuitive, indirect, and important effects as mediated through laws that among other things compensate for agency costs and collective action problems. Each key body of law for M&A – contract law, corporate law, securities law, and antitrust law – is shaped in practice by ownership of target firms.

These effects are tested with comprehensive M&A data from 2007 and 2008, and a new detailed hand-coded matched sample of 120 recent public and private target M&A contracts. Among other things, simple comparisons and regression analyses show:

– Size, frequency and volume. Public target bids are ten times larger than private target bids, but much less common. The overall result – aggregate deal volume – is roughly the same order for the two kinds of targets.

– Cross-border and diversifying bids. Public target bids much more commonly are diversifying (i.e., bidder and target in different industries) and cross borders, even among similarly sized bids.

– Bid duration and completion. Private target bids typically involve simultaneous signing/closings, which are rare (but do sometimes occur) in public target bids. Public target bids with deferred closings take twice as long to close, even above Hart-Scott-Rodino thresholds and controlling for bid size. Partly as a result, announced public target bids are withdrawn 10+ times more often.

– Deal structure. Public target bids are almost always either one-step mergers or multi-step bids that include a tender offer. Private target bids are most commonly negotiated stock purchases, but also commonly are one-step mergers or asset purchases.

– Bid consideration. While both types of bids use a variety of types of consideration overall, bidders for private targets much more commonly offer mixed consideration and debt consideration (i.e., seller financing).

– Risk-and profit-sharing contracts. Private target bid contracts much more commonly use earn-outs, indemnification, price adjustments, escrows, and holdbacks, all of which are rare (but are sometimes used) in public target bids.

– Fiduciary outs and deal protection. Public target bid contracts much more frequently address the target board’s fiduciary duties, including through fiduciary outs, and much more frequently include deal protection clauses – but private target bids do sometimes include these provisions. When included, termination fees are actually higher in private target bids (as a percentage of the bid size, and controlling for bid size).

– Dispute resolution and remedies. Private target contracts more frequently choose arbitration, both for price adjustment clauses and for the contract as a whole, whereas public target contracts more frequently choose Delaware courts and more frequently provide for specific performance.

Appreciation of how pervasive and powerful the effects of ownership are on M&A should improve contracting and has implications for investment bankers, boards, courts, and researchers in choosing comparable transactions for valuation, benchmarking, doctrinal analogies, drafting models, teaching M&A in business and law schools, and econometric modeling of M&A.

April 6, 2010

Governance Risk Assessments in M&A

In this podcast, Paul Hodgson of The Corporate Library discusses his recent report on “How Governance Could Have Saved $100 Billion: AOL and Time Warner” which demonstrates how incorporating an assessment of corporate governance risk into due diligence prior to a merger or acquisition could save billions of dollars in shareholder value, including:

– Why was this study undertaken?
– What were the major findings?
– Based on the findings, what do you think companies should consider before entering into a deal?