Monthly Archives: March 2014

March 28, 2014

New Item for Diligence Review Process: OFAC’s Foreign Sanctions Evaders List

In this Akin Gump blog, we learn that OFAC published notice that it was listing 11 named parties as “Foreign Sanctions Evaders,” underscoring the need for entities to add the FSE List to the collection of other restricted-party lists that must be covered and reviewed in diligence activities and other compliance screening. We’ll see if Russian entities start winding up on some of these restricted lists…

March 27, 2014

Strine Rejects Disclosure-Only Settlement of M&A Lawsuit

Below is an excerpt from this Hunton & Williams memo:

In one of his last bench rulings before becoming chief justice of the Delaware Supreme Court, Chancellor Leo E. Strine, Jr. recently refused to approve a “disclosure-only” settlement related to a merger in In re Medicis (See In re Medicis Pharm. Corp. S’holders Litig., Consol. C.A. No. 7857-CS, trans. ruling (Del. Ch. Feb. 26, 2014)). It is unusual for Delaware courts to reject settlements of M&A litigation, most of which are based on supplemental disclosures and do not involve an increase to the merger consideration or other changes to the terms of the merger agreement.

In Medicis, however, Chancellor Strine refused to approve the settlement because he believed the supplemental disclosures did not support the release of claims being given by the stockholder class. While this means that the plaintiff could proceed with the litigation, Chancellor Strine’s comments indicated that the plaintiff’s claims had little chance of success. This result is potentially frustrating to defendants, which frequently enter into disclosure-only settlements to avoid the nuisance costs associated with handling these lawsuits post-closing. But it may also signal increased judicial scrutiny over the proliferation of lawsuits challenging M&A transactions from the newest member of the Delaware Supreme Court.

March 26, 2014

Transcript: “M&A Litigation: The View from Both Sides”

We have posted the transcript for the recent webcast: “M&A Litigation: The View from Both Sides.”

March 25, 2014

US Supreme Court Declines to Revive Delaware Arbitration Program

Here’s news from this WSJ article:

The U.S. Supreme Court refused to revive a Delaware arbitration program in which sitting judges would handle corporate disputes confidentially. Lower-court decisions held that the state-sponsored program was unconstitutional on First Amendment grounds because its arbitration proceedings weren’t open to the public. In a brief order Monday, the high court without comment declined to review those decisions.

The Supreme Court’s order was a blow to Delaware officials who saw the arbitration program, adopted in 2009, as a way to further the state’s business-friendly reputation. Many companies have chosen to incorporate in Delaware because of its favorable corporate and legal climate. Businesses like arbitration because it often is faster and less expensive than fighting in court—and because it takes place behind closed doors.

The Delaware program had added advantages. It was run through the state’s Court of Chancery, whose judges are known for their expertise in corporate disputes. That meant sitting judges could preside over the proceedings instead of private arbitrators, so long as a corporate litigants were willing to pay a $12,000 filing fee and $6,000 a day in arbitration costs.

Business groups supporting Delaware’s program said confidentiality was a time-honored and common-sense aspect of arbitration that allowed companies to protect trade secrets and sensitive financial information. Critics said corporations shouldn’t be able to pay for the services of a judge in secret. The Delaware Coalition for Open Government, a public-interest group, sued to challenge the program, saying that the public should have access to the arbitrations because they essentially were civil-court proceedings, conducted in a state courthouse with state resources. Dow Jones & Co., the publisher of The Wall Street Journal, was among several media organizations that signed a brief supporting the challenge to the program in the lower courts.

Ruling against Delaware last year, the Third U.S. Circuit Court of Appeals said allowing access to the proceedings would give stockholders and the public a better understanding of how the state resolves business disputes. Openness also would discourage companies from misrepresenting their activities to the public, the appeals court said. After that ruling, the Chancery Court asked the Supreme Court to hear the case. The Delaware court said the public enjoys a constitutional right of access only for proceedings in which there is a long history of openness. “That history is completely absent here,” the Chancery Court said in a brief. The state court said invalidating its program could make Delaware a less attractive home for corporations.

“We believe that our nation and Delaware have lost an important opportunity to provide cost-effective options to resolve business-to-business disputes to remain competitive with other countries around the world,” said Andrew Pincus, a Mayer Brown LLP lawyer representing the Chancery Court. He said the state “will continue to look for ways to achieve the objectives of the program.” David Finger, a lawyer for the Delaware Coalition for Open Government, said invalidating Delaware’s program “prevents an erosion of the concept of what is a court in our society.” “If the Supreme Court took this case, it could have set back almost 40 years of legal advances in obtaining access to court proceedings,” Mr. Finger said.

March 24, 2014

Analysis: ebay’s Annual Shareholders Meeting Website

In the wake of its battle with Carl Icahn, ebay has built a special site devoted to its campaign leading up to its annual meeting. In this 2-minute video, I analyze the design & usability of this new site (although I don’t analyze ebay’s IR web page itself – which oddly doesn’t seem to link to this annual meeting site. Neither does ebay’s blog.):

March 21, 2014

Delaware’s New Chancellor: Andy Bouchard

Yesterday, as noted in this article, the Delaware Governor tapped Andy Bouchard to serve as the Chancellor of the Court of Chancery, succeeding Leo Strine in that position. Andy is the managing partner of Bouchard, Margules & Friedlander, a firm he and former Vice Chancellor Stephen Lamb founded in 1996 as a litigation boutique after serving a decade at Skadden. Here’s a BusinessWeek article. Andy will be the 21st Chancellor once confirmed by the Senate…

March 20, 2014

Transcript: “The SEC Staff on M&A”

We have posted the transcript for the recent webcast: “The SEC Staff on M&A.”

March 19, 2014

March-April Issue: Deal Lawyers Print Newsletter

This March-April Issue of the Deal Lawyers print newsletter was just sent to the printer:

– A History Lesson: The SEC’s Office of Mergers & Acquisitions
– A Look Back: Regulation M-A & The “Five-Business” Day Rule
– Still Risky Business: Unlicensed M&A Advisors After the Six Lawyers Letter
– The Board’s Evolving Role in Shareholder Communications
– When You’re Selling the Company, Are You Selling the Attorney-Client Privilege Too?
– “Dual Track” Structure Remains Useful to Strategic Acquirors: Even After DGCL Section 251(h)

If you’re not yet a subscriber, try a 2014 no-risk trial to get a non-blurred version of this issue on a complimentary basis.

March 18, 2014

SEC Brings Action for Disclosure Violations During Hostile Bid Defense

As noted in this Hunton & Williams memo, the SEC recently brought an enforcement action against Lions Gate Entertainment, charging it with failing to make full and accurate disclose as part of its efforts to repel a hostile takeover bid. As Lions Gate paid a substantial $7.5 million penalty in settlement, the case serves as a reminder that the SEC polices the disclosure practices of those instituting defensive measures when activist investors and hostile bidders emerge.

March 17, 2014

Delaware Supreme Court Affirms In re MFW

Here’s news from Richards Layton:

In Kahn v. M&F Worldwide Corp., No. 334, 2013 (Del. Mar. 14, 2014), the Delaware Supreme Court affirmed the Court of Chancery’s decision in In re MFW Shareholders Litigation, 67 A.3d 496 (Del. Ch. 2013) (here’s a summary and the Chancery opinion), which granted summary judgment in favor of a board accused of breaching its fiduciary duties by approving a buyout by a 43.4% controlling stockholder, where the controller committed in its initial proposal not to move forward with a transaction unless approved by a special committee, and further committed that any transaction would be subject to a non-waivable condition requiring the approval of the holders of a majority of the shares not owned by the controller and its affiliates. Stockholder plaintiffs initially sought to enjoin the proposed transaction, but withdrew their preliminary injunction application and instead sought post-closing damage relief. After extensive discovery, the defendants sought summary judgment.

The Court of Chancery held that the transaction could be reviewed under the business judgment standard, rather than entire fairness, and granted the defendants’ motion. On appeal, the Supreme Court affirmed the Court of Chancery’s decision and adopted its formulation of the standard, holding that the business judgment standard of review will be applied in controller buyouts if and only if: (i) the controller conditions the procession of the transaction on the approval of both a special committee and a majority of the minority stockholders, (ii) the special committee is independent, (iii) the special committee is empowered to freely select its own advisors and to say no definitively, (iv) the special committee meets its duty of care in negotiating a fair price, (v) the minority vote is informed, and (vi) there is no coercion of the minority.

The Court further held, however, that if “after discovery triable issues of fact remain about whether either or both of the dual procedural protections were established, or if established were effective, the case will proceed to a trial in which the court will conduct an entire fairness review.” The Court also noted that the complaint in the action would have survived a motion to dismiss based on allegations attacking the fairness of the price, which called into question the adequacy of the special committee’s negotiations, thereby necessitating discovery on all of the prerequisites to the application of the business judgment rule.