Monthly Archives: December 2011

December 19, 2011

SEC Chair Discusses the Coming Beneficial Ownership Rules Overhaul

In this speech last week, SEC Chair Mary Schapiro gave us a few broad parameters of what the agency’s overhaul of the beneficial ownership reporting rules might look like (the speech also addresses proxy plumbing, proxy access, say-on-pay, etc.). Here is what she said on that topic:

Next year, we plan to begin a broad review of our beneficial ownership reporting rules. We think it’s important to modernize our rules, and we are considering whether they should be changed in light of modern investment strategies and innovative financial products.
Issues that we will consider include:

– Whether the 10-day initial filing requirement for Schedule 13D filings should be shortened;
– Whether beneficial ownership reporting should be changed with respect to the use of cash-settled equity swaps and other types of derivative instruments;
– How the presentation of information on Schedules 13D and 13G can be improved.

The Dodd-Frank Act has provided the Commission with new statutory authority to shorten the 10-day filing deadline for 13D, as well as to regulate beneficial ownership reporting based on the use of security-based swaps. And, earlier this year, the SEC received a petition for rulemaking recommending amendments to Regulation 13D-G.

The petition asks the SEC to broaden the definition of beneficial ownership to include interests held by persons who use derivative instruments. The petition also specifically requests that the time period within which initial beneficial ownership reports must be filed be shortened to one calendar day because technological advances have rendered the 10-day window obsolete.

Many feel that the 10-day window:

– Results in secret accumulation of securities;
– Results in material information being reported to the marketplace in an untimely fashion; and
– Allows 13D filers to trade ahead of market-moving information and maximize profit, perhaps at the expense of uninformed security holders and derivative counterparties.

In response, some argue that:

– Tightening the timeframe may reduce the rate of returns to large shareholders, and thereby result in decreased investments and monitoring of and engagement with management;
– There is no evidence that changes in trading technologies and practices have led to significant increases in pre-disclosure accumulations of large ownership stakes; and that
– State law developments, such as the validity of poison pills, staggered boards and control share statutes, have tilted the regulatory balance in issuers’ favor.

Our first step will likely be a concept release given the controversy surrounding some of the issues.

December 15, 2011

Delaware Approves $2.4 Million Fee Award Over Modified Deal Protections

Here’s news from Steven Haas of Hunton & Williams:

On Friday, the Delaware Court of Chancery approved a $2.4 million fee award arising out of the M&A litigation in In re Compellent Technologies Shareholder Litigation. The fee award was based on a settlement agreement in which the merger agreement was amended to “relax” numerous deal protections, including the no-shop provisions, information rights, and termination fee. The settlement also required the target to delay its stockholder meeting and rescind a rights plan that had been adopted specifically in connection with the announcement of the merger.

The court concluded that, by “shift[ing] the agreement’s protective array from the aggressive end of the spectrum towards the middle,” the settlement had conferred a “benefit” by increasing the likelihood of a topping bid, even though none materialized. The court also made clear that it was not reviewing the deal protections under enhanced scrutiny or analyzing whether the target’s board of directors might have breached its fiduciary duties in approving the deal protections. Rather, those issues had been mooted by the settlement and the court’s only job was to award attorneys’ fees based on the “benefit” conferred.

December 12, 2011

Spin-Offs: A New Approach to Corporate Growth

in this “Mergercast,” J. Neely of Booz & Co. talks about a new approach to corporate growth that looks likely to remain a strong trend in 2012. Here is a teaser about the program:

“A number of industries have gone through substantial portfolio realignment in 2011, grouping together similar business lines by spinning off those that don’t align with them closely. This has been especially useful for very large corporations as they re-evaluate their strengths, enabling them to put more focus behind lines of business that have the strongest synergy,” Neely says.

He adds, “One prominent example is Kraft, for whom the costs of managing an extremely diverse set of businesses proved greater than the benefits of running them together. However, spinning off two separate entities focusing, respectively, on grocery products and snacks foods, allowed their distinct capabilities systems to be leveraged individually, which was beneficial for driving the growth of each new organization.”

Neely also looks at Sara Lee, Fortune Brands, McGraw Hill and Hewlett Packard, as well as the strong likelihood that the spinoff trend will continue into 2012.

December 8, 2011

Study: Transaction and Monitoring Fees in Private Equity Deals

Recently, Dechert and Preqin combined to put out this study that analyzes transaction and monitoring fees in private equity deals. The study found that there has been a notable increase in the mean and median percentage transaction fees across all private equity deal sizes since the recovery began, comparing the 2009-2010 period to the 2005-2008 period. Average monitoring fees have also increased during this period, although these vary more depending on deal size.

December 7, 2011

Delaware: Post-Closing Indemnity Claims by a Former Parent

From John Grossbauer of Potter Anderson: This recent Clubcorp opinion from the Delaware Court of Chancery deals with post-closing indemnity claims by a former parent company of Pinehurst LLC under an indemnification agreement relating to the purchase of Pinehurst, which was spun out of Clubcorp in connection with the acquisition of Clubcorp by a company called Fillmore.

The Court declined to grant permission for successors by merger to the Clubcorp entities bringing the indemnification claims, finding that the anti-assignment provision in the indemnity covenant, which prohibited assignments by operation of law, and the successors and assigns provision were ambiguous on the issue when read together.

The Court also denied summary judgment on the substantive claims at issue, declining to find prejudice in a failure to notify Pinehurst of certain indemnity claims within the time provided in the contract, and finding disputed factual issues prevented summary judgment on whether the tax and insurance claims at issue were covered by the relevant clauses of the indemnification agreement.

December 5, 2011

3rd Quarter Study: Private Equity and M&A Deals

Recently, Schulte Roth & Zabel issued this study that focuses on the key deal terms for over 30 significant transactions since Jan. 1, 2010 involving private equity buyers and public company targets, and addresses the following:

– What is “market” practice for the key deal terms (updated for 3rd Quarter transactions)?
– How has market practice developed from 2010 to 2011 year-to-date?
– Additional insight on “go-shop” provisions, including frequency of use in deals involving auctions

December 1, 2011

An Ode to Former Delaware Chancellor William Chandler

Recently, the “Conglomerate Blog” – a blog populated with contributions from a number of professors – paid tribute to the career of Bill Chandler on the Delaware bench, where he served as Chancellor of the Delaware Chancery Court for 14 years, after serving as Vice-Chancellor for 8 years. If you scroll through this list of blog entries, you can read 10 different items about his contributions. My favorite is this one by Matt Bodie about the Disney case. Pretty cool…