Monthly Archives: December 2010

December 16, 2010

Inside the Delaware Chancery Court

In his “Delaware Corporate and Commercial Litigation Blog,” Francis Pileggi recently blogged:

The twelve-year term of one member of the Delaware Court of Chancery expired last month. The Delaware Constitution allows for a jurist to continue in office not more than 60 days after his or her term expires. The State Senate is not scheduled to convene according to its regular schedule until after that 60-day period would have expired. Thus, the Delaware Governor called for a Special Session of the State Senate, to be held on December 14, to approve his re-appointment of the sitting vice chancellor involved, in order to avoid any interruption in service. The Delaware Grapevine provides an expert description of the process and the political “back story”.

For readers interested in the minutiae and nuances of the Delaware Court of Chancery and at least one of its members, the story linked above provides details that one is not likely to find (all in one place) in any other published source.

December 15, 2010

2010 Canadian Private Target M&A Deal Points Study

Jim Griffin of Fulbright & Jaworski just alerted me to the release of the ABA Business Law Section’s 2010 Canadian Private Target M&A Deal Points Study, which covers share and asset acquisitions completed during 2007, 2008 and 2009 of private targets in Canada. The differences highlighted in this study – compared with their results for its US study – include a lower frequency of deals with earnouts and post-closing purchase price adjustments, some classic representations, materiality qualifiers and terms regarding indemnification, such as pro-sandbagging (a/k/a “benefit-of-the-bargain”) clauses.

December 13, 2010

How Accurate was the PwC Transaction Services 2010 M&A Forecast?

Last week, PricewaterhouseCoopers Transaction Services outlook for the coming year. How did the PwC survey fare this past year – according to their press release:

Strategic Deals and ‘mergers of productivity’ will drive activity in 2010.
Correct. In 2010, companies focused on synergies to enhance productivity and cost-savings. For 2011, PwC contends that a different focus on ‘productivity’ will be a theme as companies look to bolster revenue growth, versus focus on synergies.

We expect to see more IPOs coming to market from private equity.
Correct. Private equity (financial sponsor) backed offerings led the IPO market recovery in 2010, with a total of 115 offerings raising $15.9 billion in the first nine months of 2010, according to PwC’s IPO Watch. “The climate for private equity-backed IPOs in 2010 was robust and we expect this trend to continue,” said PwC’s Hartnett, “however the IPO market is not the only avenue for PE to realize investments, with sales to strategics and dividends also becoming attractive alternatives.”

Financing will be the dominant challenge contributing to the instability of middle market deals.
Partially correct. Debt markets improved in the second half of 2010 as seen in the return of the bank loan market and revival of leveraged finance.

Divestitures will be a factor in fueling deals.
Correct. Divestitures, e.g. carve-outs, were a factor in driving activity, principally in the middle market, as both seller’s valuations and buyer’s access to financing improved. This trend was highlighted by an increase in total divestiture value to $264 billion for year to date November 2010, compared with $241 billion for calendar year 2009, and an increase in divestiture deal value as a percentage of total M&A from 33 percent to 39 percent, an overall increase of 6 percent.

Consumer products, Technology, Energy, Financial Services, Automotive, Healthcare, and Entertainment & Media industry sectors will present opportunities for consolidation.
Partially correct. Financial Services and Healthcare M&A activity was not as strong as expected with a sizeable decrease in both deal value and volume, year on year. Automotive deal activity remained relatively flat in 2010, as companies continued to strengthen their balance sheets before re-entering the deal market.

*The accuracy of the PwC Transaction Services previous forecast does not guarantee future accuracy.

December 9, 2010

Shareholder Say on “Golden Parachute Compensation”

Here is something that Mike Melbinger recently blogged on his’s “Melbinger’s Compensation Blog“:

Public companies all over America are deciding whether to follow the disclosure requirements of the new, proposed rules on “Golden Parachute Compensation,” in order to take advantage of the exemption in the proposed rules from future disclosure and approval in a merger proxy. During the numerous compensation committee and board meetings on Shareholder Say on Pay that I have attended in the last month, I have had the opportunity to gain some useful insight on this issue.

Remember that Dodd-Frank would require a company to disclose, in any proxy in which shareholders are asked to approve an acquisition, merger, consolidation, etc., and seek shareholder approval of any “golden parachute compensation.”* However, Dodd-Frank would not require this approval if shareholders already had approved the company’s golden parachute payments and agreements as part of a regular Shareholder Say on Pay vote. To take advantage of this exception, the company must follow the disclosure requirements of new, proposed rules, including the new “Golden Parachute Compensation” table, rather than the more general, current requirements.

Our first reaction – and that of many others – to the Dodd-Frank exception that would not require separate approval of golden parachute compensation in a merger proxy if shareholders already had approved the company’s golden parachute payments and agreements as part of a regular Shareholder Say on Pay vote, was that it was very useful and most clients should take advantage of it. However, upon further reflection (and the experience of all those compensation committee meetings), we no longer see this exception as a no-brainer.

Here is why.

ISS recently announced that, in cases where the company incorporates the golden parachute vote into its SSOP vote, ISS will evaluate the “say on pay” proposal in accordance with its usual guidelines, “which may give higher weight to that component of the overall evaluation.”

Companies with an excise tax gross-up provision and/or a 3 times multiplier might be better off waiting for a merger proxy to make this disclosure and seek shareholder approval, rather than risking ISS (or other shareholder) disapproval of its entire compensation package. Clearly, for some companies, the benefit of having these arrangements approved in advance may not be worth the additional attention and risk that they may not be approved.

Making disclosure and seeking approval in a merger proxy seems less risky because the request for shareholder approval would be non-binding in any event, and a vote to disapprove would not affect the merger transaction in any way. Additionally, as pointed out in a recent Morrow & Co. update, the announcement of a merger often results in a change in the target company’s shareholder profile, with institutions selling shares and arbitrageurs and hedge funds buying. Thus, the merger proxy voting shareholder profile may be one that has a greater interest in seeing the transaction consummated and is less concerned about matters of compensation

The minimal risk of postponing this disclosure and request for approval until a merger proxy would seem to be that, in very close cases, shareholders might vote against the merger itself if they believe the parachute payments are excessive. Of course, ISS may come to demand this type of full disclosure over time, but they haven’t yet.

*Also remember that the new definition of “golden parachute compensation” means any type of compensation that relates to a change in control transaction, in any amount. For this purpose, at least, “golden parachute compensation” no longer refers to payments in excess of three times a covered executive’s base annual compensation.

December 8, 2010

The Latest Venture Capital Developments

In this podcast, Jonathan Axelrad and Anthony McCusker of Goodwin Procter discuss the latest developments impacting the venture capital community:

– What is the climate for venture capital these days?
– What types of companies are VC investors targeting?
– Are companies being funded outside the US?

December 6, 2010

November-December Issue: Deal Lawyers Print Newsletter

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

– The 2011 Outlook for Deals & Governance: Back to the Future
– “Clear and Simple”: SEC Proposes Say-on-Golden Parachute and Enhanced Disclosure Rules
– Delaware Supreme Court Upholds Net Operating Loss Poison Pill
– Top-Up Options: Looking Better and Better
– M&A Due Dilgence: The Effect of Restatements

If you’re not yet a subscriber, try a “Rest of ’10 for Free” no-risk trial to get a non-blurred version of this issue on a complimentary basis.

December 1, 2010

The SEC Staff on M&A

We have posted the transcript of our popular webcast: “The SEC Staff on M&A.”