Here’s an excerpt from a piece by Finsbury’s Chuck Nathan entitled “Observations on Short-Termism and Long-Terminsm”:
The fourth fallacy in the short-term—long-term debate is that, given every company’s finite resources, choosing a corporate strategy that can be implemented in a relatively short-time period (often a type of so-called “financial engineering”, such as a major stock buyback, a divestiture or spin-off of a business or a sale of the entire company) almost certainly prejudices, if it does not preclude, longer-term more beneficial strategies (such as greater investment in R&D, upgrading productivity of plants and equipment or acquisitions). This formulation of the debate associates activist investors with short-term strategies at the cost to the company and its other shareholders of greater long-term value creation.
But this formulation of the debate simply does not make sense. Activist funds are in business to maximize value creation for their investors (and for their principals who get rich on their carry and their investment in their own funds). Why would any rational activist investor consciously forgo the higher net present value of a long-term company business initiative in favor of the investor’s lower short-term value creating idea? Activist fund managers don’t get paid for ego trips; they get paid for maximizing returns. The same, of course, is true for all actively managed institutional investors. Even index and other quantitative investors should opt for the highest net present value creator if they have the capability of understanding and evaluating the competing proposals. In theory, only short sellers should oppose the highest net present value added program regardless of its duration.
Here’s an excerpt from this King & Spalding memo (also see this blog):
On Thursday, September 17, 2015, in In re Riverbed Technology, Inc. Stockholders Litigation, the Delaware Chancery approved a disclosure-only settlement related to the go-private deal for Riverbed Technology, Inc. Although the court approved the settlement, it expressed serious reservations about the broad releases provided to Riverbed’s directors in exchange for enhanced disclosures that provided little value for shareholders. In re Riverbed is yet another in a line of Delaware cases that have expressed dissatisfaction with the current trend of merger litigation resulting in disclosure-only settlements.
This September-October issue of the Deal Lawyers print newsletter has been posted – & also sent to the printers – and includes articles on:
– Retention Payment Program: Decision Tree
– Earn-Out Covenants
– Spin-Offs & Executive Compensation: Keys to Success
– D&O Insurance: Maximizing Returns In the Face of M&A Lawsuits
– Providing Effective, Practical Counsel Regarding Acquisition Surprises
Remember that – as a “thank you” to those that subscribe to both DealLawyers.com & our Deal Lawyers print newsletter – we are making all issues of the Deal Lawyers print newsletter available online for the first time. There is a big blue tab called “Back Issues” near the top of DealLawyers.com – 2nd from the end of the row of tabs. This tab leads to all of our issues, including the most recent one.
And a bonus is that even if only one person in your firm is a subscriber to the Deal Lawyers print newsletter, anyone who has access to DealLawyers.com will be able to gain access to the Deal Lawyers print newsletter. For example, if your firm has a firmwide license to DealLawyers.com – and only one person subscribes to the print newsletter – everybody in your firm will be able to access the online issues of the print newsletter. That is real value. Here are FAQs about the Deal Lawyers print newsletter including how to access the issues online. Try a “Free for Rest of ’15” no risk trial now!
Tune in tomorrow for the webcast – “Evolution of M&A Executive Pay Arrangements” – to hear Morgan Lewis’ Jeanie Cogill, Sullivan & Cromwell’s Matt Friestedt, Cravath’s Eric Hilfers and Wachtell Lipton’s Andrea Wahlquist cover the latest about executive compensation arrangements in deals.
In our “Appraisal Rights” Practice Area, we’re posting memos about the recent Delaware Chancery Court opinion in Dole Food. Here’s an excerpt from Kevin LaCroix’s blog about the case:
It turns out that there were some very company specific reasons why Dole in general and Carter in particular were querulous about Delaware’s courts. On August 27, 2015, in a massive 108-page post-trial opinion, Vice Chancellor Travis Laster, held that Dole’s CEO David Murdock, and Carter, whom Laster described as Murdock’s “right-hand man,” breached their fiduciary duties in connection with the November 2013 transaction in which an entity Murdock controlled acquired the 60% of Dole’s shares that Murdock did not already own. Laster’s opinion found that in connection with the process that led to the transaction, Murdock and Carter engaged in “fraud,” that prevented Dole’s shareholder from receiving a fairer price in the transaction. Laster held Murdock and Carter jointly and severally liable for damages of $148.1 million, plus pre- and post-judgment interest.
Laster’s opinion is long but it makes for some very interesting reading. The 91 year-old Murdock does not come off well in Laster’s opinion, at all. Laster describes Murdock as “an old-school, my-way-or-the-highway controller, fixated on his authority and the power and privileges that went with it.” In footnote 6 of the opinion, Laster writes about Murdock that “by dint of his prodigious wealth and power, he has grown accustomed to deference and fallen into the habit of characterizing events however he wants. That habit serves a witness poorly when he faces a skilled cross-examiner who has contrary documents and testimony at his disposal.”