DealLawyers.com Blog

Monthly Archives: November 2016

November 9, 2016

Proxy Fights: Study on Impact of Universal Ballot

Davis Polk’s Ning Chiu recently blogged about a Harvard study that provides empirical data on the impact of universal proxies on proxy contests:

A paper by the Harvard Law School Program on Corporate Governance offers the first empirical analysis of proxy contests and the potential impact of universal proxies, and concludes that a universal proxy rule is unlikely to strongly favor either companies or dissidents.  In fact, it would have slightly favored management nominees if it had been used at the proxy contests reviewed in the paper.

The use of separate proxy cards by contestants limits shareholders’ ability to select the candidates of their choice. As a result, the study concludes that 22% of proxy contests at large U.S. companies between 2008 & 2015 may have had “distorted outcomes” – meaning that another candidate may have been elected if universal proxies were used:

Of the 17 contests examined, the study shows that 14 involved distorted choices between sides, and that eight favored dissidents.  This means, using the study’s assumptions, that a universal proxy rule would have instead favored management nominees in those cases.  The imbalance is slight, however, which leads the study to conclude that universal proxies are unlikely to overwhelmingly benefit one side or the other. In 11 of the 17 contests, there may have been a distorted choice within sides, and a number of those seem to involve either the CEO or the chairman.

One limitation of the study is that it did not cover small cap companies – which is where most of the action is when it comes to proxy fights.

John Jenkins

November 8, 2016

M&A Outlook: More of the Same in 2017

According to Dykema’s “12th Annual M&A Outlook Survey,” most dealmakers think M&A activity will tread water during the upcoming year. Survey respondents believe that the global M&A market is leveling off in 2016, & nearly half said they expect the market would see no significant change in the coming year.

Here are some other highlights:

– Just 28% of respondents identified their outlook on the U.S. economy as positive, down from 48% in 2015.  But, as with the general M&A outlook, most respondents moved to a neutral outlook – up to 54% compared with 37% last year.

– 49% of respondents said availability of capital was most responsible for fueling current M&A activity, essentially the same percentage as in 2015. 25% credited favorable interest rates, a 7 percentage point increase from 2015, despite the Fed’s December 2015 rate increase.

– Respondents said U.S. financial buyers had the most influence on U.S. deal valuation over the past 12 months – the first time strategic buyers weren’t seen as the most influential since the 2008 survey.

– 68% of respondents expect an increase in M&A activity from privately owned businesses, down from 72%t last year. The 4% difference mirrors the drop in the percentage of respondents predicting M&A growth this year.

– 70% of respondents said they expect an acquisition involving their company or one of their portfolio companies in the next 12 months, up from 67% in 2015. 48% percent expect a sale, compared with 42% last year.

– Aging business owners seeking to sell were again seen as the top driver for growth in M&A activity from privately owned businesses.

November 7, 2016

M&A Privacy: Transfer of Personal Data & Post-Closing Issues

I recently blogged about Cleary’s thoughts on pre-closing privacy issues.  Now, Cleary’s followed up with this blog addressing risks associated with sharing & transferring personal data to a buyer, and the buyer’s post-closing use of that data.  Here’s an excerpt discussing the risks of sharing personal data between signing & closing:

M&A lawyers are not always aware of the risks associated with disclosure of personal data between signing and closing.  In particular, M&A agreements often contain a clause providing for access to books and records between signing and closing, enabling the purchaser to request certain types of data it reasonably needs, including for purposes of integration planning.

But it is a mistake to assume that because a deal is signed, personal data relating to the target business may be shared freely between the purchaser and the seller.  While some M&A agreements state that the seller need not provide access to information prior to closing if providing such access would be in violation of applicable law, such a carve out is not necessarily applied in practice and, in any case, understanding whether a particular disclosure is in violation of privacy laws may be difficult.

John Jenkins

November 4, 2016

Tips for Working Capital Adjustments

This Thompson Hine memo offers suggestions for making working capital adjustment provisions in purchase agreements less ambiguous & reducing the potential for post-closing disputes.  Here’s the intro:

While most purchase agreement provisions will not be read after the closing of an M&A transaction, there is one provision that is sure to be revisited: the working capital adjustment. The purpose of a working capital adjustment is to ensure that the target company has an agreed upon level of working capital at closing and to discourage the sellers from manipulating working capital prior to closing.

The memo provides advice on definitional provisions, effective use of pre-closing estimates, dispute resolution & working capital escrows.

John Jenkins

November 3, 2016

November-December Issue: Deal Lawyers Print Newsletter

This November-December issue of the Deal Lawyers print newsletter was just posted – & also sent to the printers – and includes articles on:

– Disclaimers & Limits on Claims Outside of the Contract
– Due Diligence: Patient Protection & Affordable Care Act Considerations
– FCC Licenses: The Forgotten Stepchildren of M&A
– Reverse Break-Up Fees: Move Along, Nothing to See Here
– The Takeaways: Two Chancery Decisions on Informed, Uncoerced Stockholder Approval

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. 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.

John Jenkins

November 2, 2016

“Best Efforts” v. “Commercially Reasonable Efforts”

This Sheppard Mullin blog looks at how courts have interpreted the distinction between “best efforts” & “commercially reasonable efforts” clauses.  Unfortunately, while deal lawyers often spill a lot of blood fighting over the precise terminology, it turns out that courts don’t necessarily look at these clauses in the same way that they do.  Here’s an excerpt:

A survey of case law in Delaware and New York—two of the most popularly contracted-for jurisdictions in M&A transactions—demonstrates that little is clear when it comes to effort clause analysis. There are not generally bright-line or uniform requirements, and when parties do not define efforts terms, there is little certainty in how courts will interpret parties’ obligations.

In the absence of contractual provisions that serve as guidelines for measuring compliance with contracted-for efforts clauses, time spent fighting over “best” v. “commercially reasonable” efforts terminology is likely time wasted.

John Jenkins

November 1, 2016

Part-Time M&A at BigLaw? Fuggedaboutit!

At least that’s the view of this “Business Law Prof blog“:

I’ve witnessed some M&A attorneys try to go part-time, and I have never seen it go very well or last very long. M&A attorneys are the quarterbacks of the deal, so even if you are only assigned to one deal – you have to be involved in all aspects of the deal and have to be on call 24/7 when that deal is moving quickly. And a deal often lasts for months. And there isn’t much piecemeal work that you can just pop in and do without staying intimately involved.

So in which practice area does part-time work best? You probably guessed already – the tax group:

The advantages of the tax group were a high billing rate (some of the very highest in the firm) and a lot of piecemeal, often not urgent, work. Sure, we “urgently” needed tax comments on most of our deals, and when clients are paying BigLaw rates, they almost always want a prompt response. But in my limited experience, the tax lawyers controlled their timelines more so than any of the other attorneys I worked with. There were few enough excellent tax attorneys that if they said – I will get to that tomorrow or next week – you often did not have much recourse.

John Jenkins