We have posted the transcript for our recent webcast: “Transaction Insurance as a M&A Strategic Tool.”
Monthly Archives: October 2015
Here’s an excerpt from this BNA article:
In-house legal departments are more frequently using outside counsel for mergers and acquisitions work, an Oct. 12 Association of Corporate Counsel survey suggests. The 2015 ACC Global Census, which polled 5,012 in-house counsel from 73 countries, found that the areas in which outside counsel consultation grew significantly since its 2011 report were M&A and employment/labor, both up 6 percent. Despite the increase, however, M&A is not one of the top areas in which the respondents said they frequently consult outside attorneys. M&A work, at 34 percent, trails litigation (67 percent), employment/labor (50 percent) and intellectual property (41 percent).
I’ll start this blog by noting that perhaps this article is misquoting Warren Buffett or taking it out of context. The tone of the article is that Warren believes Wall Street bankers & lawyers are pitching strategies to stave off activist investors out of self-interest – and that well-run companies who engage their shareholders need not necessarily worry about activists. Here’s one of the quotes from the article:
It’s in Wall Street’s interest to scare managements about activists,” Buffett said. “They’re not dying to have an activist knock on your door, but it doesn’t cause them to break out in tears either, because you take them on and they get all involved in your strategy. And it’s their job, to some extent, to make you worry even more than you probably should.
Although I agree that companies should strive to perform well and that shareholder engagement is vital – and that advisors are working out of self-interest (as most of us do) – I don’t agree that is all you need to do. I don’t think Warren believes that’s all you need to do either as the article ends with this thought:
The trend has gotten so much momentum that now even decently run companies are being targeted, Buffett said Tuesday, without citing examples.
Here’s five reasons why you need to prepare for activists these days – even if you are doing all the right things:
1. Activists have loads of money and they’re gonna target someone. So even if every company was doing their job properly, someone is gonna be targeted.
2. Industry cycles impact even the most well run companies. If your company happens to be in an industry that is having a down year, your stock will be going down along with your peers – regardless of how you perform within your sector.
3. Your long-time loyal investors might have a bad year themselves and need to liquidate part of their portfolio – regardless of how they feel about your company.
4. Stuff happens. Not matter how well you perform in general, sometimes you take a risk – that is a pretty good risk to take – that doesn’t turn out the way you expect. Every company needs to be taking risks. That is life. So you might have a 20-year streak of performing well and suddenly have a bad year – and be vulnerable to activists.
5. Management will eventually turn over. CEOs don’t live forever. And good CEOs prepare for the future. So even if a CEO is managing a company well throughout her entire career, she needs to prepare her company for the worst – which may come up when she turns the key over to her successor. It’s much better to be prepared in advance rather than stave off an activist in the midst of a battle.
A better question might be: “Is a board negligent and not fulfilling its fiduciary duties if it’s not preparing for activist intrusion – even if its corporate strategy is sound and the company has excellent shareholder engagement?”
Last week, the Delaware Supreme Court affirmed Vice Chancellor Glasscock’s bench ruling in Fire & Police Pension Fund, San Antonio v. Arris Group, which significantly reduces the incentives for plaintiff firms to file Healthways-type complaints – although $128K may still be a sufficient incentive for some of the lesser plaintiff firms. Here’s VC Glasscock’s original bench ruling from February awarding $128K in plaintiff attorney’s fees.
Following VC Laster’s decision in Healthways denying the motions to dismiss breach of fiduciary duty claims against the Healthways board – and the aiding & abetting breach of fiduciary duty claims against the bank acting as administrative agent for Healthways’ credit facility – a virtual cottage industry developed as plaintiff firms filed numerous Section 220 actions and Healthways-type complaints against the boards of companies whose credit agreements contained similar dead hand change-of-control default provisions and the associated banks acting as administrative agents. Now that the Delaware Supreme Court has spoken regarding the attorneys fees awarded in Arris, it may be easier to finally resolve many of the existing mooted Healthways-type claims as this decision should significantly lower the expectations for plaintiff firms to be awarded attorneys’ fees.
The Healthways decision remains of concern to many banks for the expansive definition of “knowing participation” relied upon by the court in denying the administrative agent’s motion to dismiss the aiding & abetting breach of fiduciary duty claims, as that broad definition of “knowing participation” likely makes it more difficult for financial advisors to get similar claims dismissed in the M&A context…
As noted in this press release, Staples has limited the severance benefits payments for its senior executives so they would not be paid more than 2.99 times the sum of their base salary plus target annual cash incentive award – unless a greater amount was approved by shareholders. The CEO also has elected to amend his severance agreement to align it with the terms of the new policy.
The move follows Staples’ latest shareholder meeting, where a majority of voters supported the non-binding anti-“golden parachute” proposal submitted by the New York State Common Retirement Fund and the International Brotherhood of Electrical Workers Pension Benefit Fund.
After I posted this blog, a member noted “In Staples’ 8-K – but not in press release – the company notes that this does not apply to office depot merger. Window-dressing.”
Here’s news from this Akin Gump blog:
As presented in this Thomson Reuters Mergers & Acquisition Review, worldwide mergers and acquisitions (M&A) activity was up by 32 percent compared to 2014. The deal value of $3.2 trillion, including the announcement of 47 deals with a value in excess of $10 billion, reflected the strongest nine months for worldwide M&A since 2007.
In the United States, M&A activity for U.S. targets of $1.5 trillion during the first nine months of 2015 reflected a 46% increase compared to 2014 and the strongest period for U.S. M&A since records began in 1980.
Here’s this blog by Davis Polk’s Ning Chiu:
ISS counts Tempur Sealy as among the 28 proxy contests during the first six months of 2015, the busiest period for contests since 2009, even though the dissidents waged a “vote no” campaign instead of nominating alternative director candidates. The overall dissident “win rate” calculated by ISS decreased from 67% for all of 2014 to 46% for the first six months of 2015, particularly where the targeted company had a market cap above $1 billion. The firm believes that these results were affected by the absence of notable “heavyweights” in contests owing in part to settlements.
At Tempur Sealy, according to news reports, H Partners missed the company’s advance notice deadline to nominate its own slate and chose instead to urge investors to withhold votes for three of the company’s nominees, including the CEO, the chairman of the board and the chairman of the nominating and corporate governance committee. Both outside directors were affiliated with private equity firms that had previously exited their positions.
In its contested solicitation materials with a separate proxy card, H Partners noted that it owns nearly 10% of the company’s stock and is a “long-term stockholder,” since it had held shares since 2012. H Partners pointed out that the company has majority voting and a resignation policy that requires directors who receive less “for” votes than “against” votes to tender their resignations. Since there was no proxy contest with more candidates than seats available, the company’s majority voting standard continued to apply.
The background in the solicitation materials outlined a series of meetings that had begun in 2013 with requests for a board seat that H Partners claimed were never seriously put forth before the company’s nominating and corporate governance committee, suggestions for executive compensation changes and books and records demands. All three of the targeted nominees ultimately did not receive majority support at the meeting and left the board. The CEO also resigned his position. One of the outcomes was the adoption of a board shareholder liaison committee, which states in its charter that the committee’s responsibility is to “promote and develop better and richer communications between stockholders and the board” but notes that the committee’s efforts are “intended to complement management’s efforts with stockholders” and “will be coordinated.”
We have posted the transcript for our webcast: “Evolution of M&A Executive Pay Arrangements.”
Tune in tomorrow for the webcast – “Transaction Insurance as a M&A Strategic Tool” – to hear Dechert’s Markus Bolsinger, Aon Transaction Solutions’s Matt Heinz, Pepper Hamilton’s Jim Epstein, Norton Rose Fulbright’s Scarlet McNellie and Haynes and Boone’s George Wang discuss all the “in’s & out’s” as insurance in M&A transactions has gained in popularity.
Here’s a note from Richards Layton & Finger:
In Corwin v. KKR Financial Holdings LLC, No. 629, 2014 (Del. Oct. 2, 2015), the Delaware Supreme Court affirmed the Court of Chancery’s grant of defendants’ motions to dismiss with prejudice a suit challenging the acquisition of KKR Financial Holdings LLC (“KFN”) by KKR & Co. L.P. (“KKR”). In December 2013, KKR and KFN executed a stock-for-stock merger agreement, which was subject to approval by a majority of KFN shares held by persons other than KKR and its affiliates. The merger was approved on April 30, 2014, by the requisite majority vote. Nine lawsuits challenging the merger were brought in the Court of Chancery and consolidated. The operative complaint alleged, among other claims, that the members of the KFN board breached their fiduciary duties by agreeing to the merger and that KKR breached its fiduciary duty as a controlling stockholder by causing KFN to enter into the merger agreement.
The Court of Chancery ruled that KKR, which owned less than 1% of KFN’s stock, was not a controlling stockholder. The Delaware Supreme Court affirmed on the ground that plaintiffs did not plead facts sufficient to support an inference that KKR could prevent the KFN board from “freely exercising its independent judgment in considering the proposed merger.” The Court of Chancery also ruled that the business judgment standard of review would apply to the merger “because it was approved by a majority of the shares held by disinterested stockholders of KFN in a vote that was fully informed.” The Delaware Supreme Court affirmed, clarifying that, under Delaware law, a fully informed, uncoerced vote of the disinterested stockholders invokes the business judgment rule standard of review, even if that vote is required by statute.