Monthly Archives: July 2010

July 29, 2010

Apparent Confusion over Proposed Bank Investment

Richard Kim and Lawrence Makow of Wachtell Lipton recently wrote the following in this memo:

Recent media accounts have cited a bank in formation – Aris Bank – as taking advantage of a “loophole” in the Dodd-Frank Act signed into law last week. Contrary to these reports, the transaction is part of a familiar theme in which a private equity firm proposes to make a noncontrolling investment in a bank as part of a capital raise with other passive investors who invest side-by-side. What is new under Dodd-Frank is a modestly enhanced ability of both national and state-chartered banks alike to branch “de novo” into new states notwithstanding state laws to the contrary. Like many other banks, Aris Bank would reportedly take advantage of this enhanced ability to cross state lines via de novo branching.

Over the past year, there have been numerous capital raises, led by one or more noncontrolling investors, by both existing banks and start-up banks – particularly “shelf charter” banks set up to participate in FDIC auctions. The new financial reform legislation does not materially impair or expand the ability of investors to make these types of investments in banks. In fact, as regulatory capital demands increase as a result of Dodd-Frank and existing industry trends, many more are likely to follow.

Under the Dodd-Frank Act, a bank may now establish a branch in a new state to the same extent as banks chartered by that state. Despite the fact that a number of states, such as New York, permitted de novo branching by out-of-state banks prior to the new Act and federal savings banks have long had the ability to branch de novo into all 50 states, for many banks de novo branching has not been a preferred method for entry into new states. These banks have instead preferred to enter new markets via acquisition in order to reach critical mass more quickly. Banks wishing to expand into new geography in other states will still need to make the fundamental business calculation about whether it is more cost effective to do so by acquisition or de novo branching.

July 26, 2010

Maryland Court Rejects Stockholder Challenge to Sale of Terra Industries

Below is a copy of this memo written by Stephen DiPrima and Garrett Moritz of Wachtell Lipton:

Recently, in a thorough and well-reasoned opinion, the Maryland Circuit Court confirmed that directors of Maryland corporations who act in good faith and on an informed basis in connection with a sale-of-control transaction do not have personal liability exposure. The court threw out a stockholder suit alleging that Terra’s directors had breached their fiduciary duties in connection with Terra’s agreement to merge with CF Industries Holdings, Inc. In re Terra Industries, Inc. Shareholder Litigation, No. 24-C-10-001302 (July 14, 2010).

Beginning in early 2009, Terra rejected a series of hostile bids made by CF. In early 2010, CF purported to abandon its pursuit of the company. Shortly thereafter, Terra entered into a merger agreement with another company, Yara, at a price above CF’s highest bid. The Yara agreement included a $123 million termination fee. When CF returned with a substantial topping bid, Terra accepted CF’s offer and terminated the Yara deal, and CF paid the $123 million to Yara. Stockholder plaintiffs brought purported class action lawsuits alleging that Terra’s directors should not have agreed to the Yara deal without first attempting to negotiate with CF. The plaintiffs sought damages at or above the value of the termination fee.

Maryland, like Delaware, recognizes a direct cause of action for failure to use good faith efforts to maximize stockholder value in the sale-of-control context. In rejecting plaintiffs’ claims, the Terra court held that the directors had acted diligently in responding to CF’s offer, that they had not breached any fiduciary duties, and that the result achieved by Terra’s board precluded plaintiffs’ claims. The court found, moreover, that plaintiffs’ contention that Terra’s board could have gotten CF to bid more without entering into a deal with Yara was based on “magical thinking.”

In reaching this result, the Terra court followed principles developed in the Delaware courts on a number of important issues, including:

– that judicial scrutiny in the sale-of-control context is not a license for courts to second guess reasonable tactical choices that directors have made in good faith;
– that directors can fulfill their duties in this context by entering into a merger agreement with a single bidder, establishing a “floor” for the transaction, and then testing the transaction with a post-agreement market check; and
– that termination fees are a regular term in sale-of-control transactions, and that plaintiffs’ attack on the 3% termination fee in this case was “totally baseless.”

Terra should stand as an important precedent protecting directors of Maryland corporations who act in good faith and on an informed basis from litigation brought by the plaintiffs bar in the sale-of-control context.

July 22, 2010

Confronting Corporate Amnesia

This article about the need to preserve institutional knowledge – particularly for integration and post-acquisition disputes – fits in well with today’s webcast…

July 21, 2010

Overcoming the Challenges: Integration Issues & Merger of Equal Issues

Tune in tomorrow for the webcast – “Overcoming the Challenges: Integration Issues & Merger of Equal Issues” – to hear Wally Bardenwerper of Towers Watson, Chris Cain of Foley & Lardner, Stephen Glover of Gibson Dunn and Jessica Kosmowski of Deloitte Consulting discuss how to overcome the challenges of deal integration as well as factors you should consider when negotiating a merger of equals to ease the transition afterwards. Please print off these course materials in advance.

July 20, 2010

Delaware Applies Entire Fairness Analysis To Corporate Transactions With Controlling Shareholder

Here is news drawn from this Milbank alert, drafted by Robert Reder:

In Gentile v. Rossette, the Delaware Court of Chancery recently reaffirmed the duty of a board of directors to establish the “entire fairness” of both the process and price of a transaction likely to benefit a controlling shareholder. Vice Chancellor Noble’s opinion demonstrates that the board of directors of even a relatively small corporation in financially dire straits, when approving a transaction between the company and a controlling shareholder, will find its actions subject to strict judicial scrutiny. On the other hand, the decision also points out that a director who approves a transaction found not to be entirely fair will not be held personally liable for damages, at least so long as the director acts “loyally and in good faith” and the corporation’s charter contains appropriate exculpatory language for duty of care violations.

The decision is a reminder that a board of directors must not shy away from its inherent duty to carefully structure and analyze transactions that have the likelihood of benefiting a controlling shareholder. Even with their companies facing financial calamity, directors must diligently consider both price and process, and obtain expert and independent financial and legal advice, when approving seemingly crucial transactions with a controlling shareholder. Nevertheless, directors of Delaware corporations can take comfort from the fact that, if the appropriate exculpatory provisions are available in their corporations’ certificates of incorporation, they will not be held monetarily liable for approving transactions that fail an entire fairness analysis so long as they act “loyally and in good faith.”

July 16, 2010

Critical FCPA Diligence in Deals Today

We have posted the transcript for the recent webcast: “Critical FCPA Diligence in Deals Today.”

July 12, 2010

A Half-Dozen M&A Questions for Comp Committees

Recently, Corporate Board Member posted this useful article about what questions compensation committees should be asking about executive pay in the M&A context.

July 7, 2010

The Cutest Merger Announcement Ever!

In the midst of this “M&A Law Prof Blog” repeated below is a link to the “cutest” merger announcement – via video – ever made:

Not the most conventional of press releases, but this has got to be the best merger announcement ever. Woot! announces its acquisition by Amazon. Typically, for a public-private deal the merger agreement requires that the seller make no public announcements with respect to the transaction. All announcements should come from the acquirer. But, if the seller is going to be this fun and creative, why not!

We thought there must be easier ways of making it big
without working like dogs and sweating like pigs
…and then “boom!” we got acquired by Amazon!
So no more rolling in late with our pajamas on.

…”You can labor all day til you’re tired and old or
you can wait for Amazon to call and when they do you say ‘$old!’ ”


Update: For its part, Amazon didn’t make any public announcement re the transaction, but Woot!’s CEO released this “serious” comment on the company’s website describing the transaction. It includes this jewel of a line in the FAQs:

Q: Is Snapster [the CEO] leaving?
A: Are you kidding? He’s out the door about ten seconds after that check clears – that is to say, Snapster will continue as CEO, just like before, and the rest of our staff’s not going anywhere either.