It’s the rare deal that doesn’t have at least some tense moments during the negotiation process. This Nixon Peabody blog has some tips from a psychologist on how to keep your deal on-track when the going gets tough. Here’s an excerpt that makes the point that soft words turn away wrath:
Most of us have an internal alarm that goes off when it feels like someone is imposing their will on us. We instinctively react by digging into our point of view, pushing back with an equal amount of force or checking out of the conversation altogether. This is far from ideal when the hope is to reach a shared agreement.
Softening your message slightly can help to re-engage the other person in the dialogue. You don’t have to change to a weak argument or abandon your perspective. However, by using statements like, “In my opinion…,” “It appears….,” or “I’m wondering if….”, you demonstrate that you are open for a dialogue and willing to hear another person’s perspective. Make sure to present things as your point of view, not as a universal fact.
The blog makes the related point that it’s important to keep in mind the difference between coercion and negotiation when it comes to your approach. It also recommends starting the conversation with areas on which the parties agree, and stresses the importance of paying attention to the “mood in the room” during negotiations.
In its 2014 MFW decision, the Delaware Supreme Court set a path to business judgment rule review for controller squeeze-outs. Last week, Vice Chancellor Slights’ decision in In re Martha Stewart Living Omnimedia S’holders Litig. applied MFW to the sale of a company to a 3rd party that was alleged to involve a controller conflict. Here’s an excerpt from this Wachtell memo summarizing the decision:
While MFW provided a clear path for controllers pursuing “squeeze out” transactions, its more general application to controller conflicts has not been addressed until now. The Court of Chancery has just issued an opinion holding that the presence of the three cleansing mechanisms identified in MFW will provide business judgment protection to controllers in contexts outside of squeeze-outs. In re Martha Stewart Living Omnimedia, Inc. Shareholders Lit., C.A. No. 11202-VCS (Del. Ch. Aug. 18, 2017) (“MSLO”).
In the MSLO case, stockholder plaintiffs contended that Delaware law required the application of the stringent entire fairness standard to employment and intellectual property rights agreements that the third-party buyer of MSLO negotiated with Martha Stewart, who controlled MSLO. The plaintiffs alleged that these personal arrangements “diverted” merger consideration to the controller from the public, even though Ms. Stewart received the same stated price per share as the public stockholders.
Ms. Stewart had agreed to structure a sale process for MSLO that included the three MFW features. Accordingly, the Court held that claims that she had breached any duties to stockholders were unfounded, and that the stockholder claims should be dismissed under the business judgment rule. Describing the fact pattern as a “one-sided conflict transaction” because the buyer was unaffiliated, the Court applied the reasoning of MFW, thereby rewarding Ms. Stewart’s disavowal of her control power with dismissal of the stockholder challenge.
The MSLO case is consistent with prior decisions holding that the business judgment rule could apply to disparate consideration claims arising out of a transaction in which a controller “rolled over” its equity stake. However, MSLO addressed head-on the issue of whether MFW’s procedural protections had to apply from the outset of a proposed transaction in order to achieve that result.
Vice Chancellor Slights held that compliance with MFW’s procedural protections was required from the outset of a transaction, but he distinguished between controller squeeze-outs – which involve a “two-sided conflict” – and the one-sided conflicts potentially involved in disparate consideration claims arising in connection with 3rd party sales. In a 3rd party sale initiated by an unaffiliated buyer, Slights said that the “outset” of the transaction occurs when the controller & the potential buyer begin negotiations for disparate treatment – not when the initial approach by the buyer is made.
Privacy and cybersecurity issues are looming ever larger in M&A transactions. Buyers need to assess these risks carefully during due diligence because they can be significant and materially affect a buyer’s valuation of a seller’s business. Moreover, issues that are discovered after an M&A transaction is completed could expose companies to substantial liabilities.
This Hunton & Williams video contains the first of a two-part roundtable discuss the special consideration that should be given to privacy and cybersecurity risks in corporate transactions.
The level of deal flow between the US & the UK makes it the world’s largest bilateral deal corridor – and this Deloitte study on US-UK cross-border M&A activity during the first half of 2017 provides a number of insights into current market conditions. Here are some of the key themes:
– US dealmaking into the United Kingdom has fallen by almost 15% in the first half of 2017, with several dealmakers pointing to the Brexit effect.
– UK dealmaking into the United States has risen by almost 10% in the first half of 2017, with UK investors keen to secure revenue growth in the United States.
– Confidence over M&A volumes is high in the United States, but more guarded in the United Kingdom.
– Technology sector deals continue to provide most of the volume in the corridor, with companies attempting to capture opportunities in big data and growth in cloud-based services.
– California, New York, and London remain primary locations for transatlantic dealmakers, but US buyer interest in the UK regions outside London is growing.
When I taught law school, I’d always spend some time discussing the “winner’s curse” – the idea that because of competition among bidders for deals, most mergers didn’t create much value for the buyer’s shareholders. This disparity in outcomes between buyers & sellers has held true for a long time, and the existence of a winner’s curse in M&A has become conventional wisdom.
Now it turns out that we may need to rethink that conventional wisdom. This recent blog from Prof. Ann Lipton flags a new study that suggests that in recent years, the winner’s curse seems to have disappeared – at least at the high end of the food chain. Here’s the abstract:
M&A deals create more value for acquiring firm shareholders post-2009 than ever before. Public acquisitions fuel positive and statistically significant abnormal returns for acquirers while stock-for-stock deals no longer destroy value. Mega deals, priced at least $500 mil, typically associated with more pronounced agency problems, investor scrutiny and media attention, seem to be driving the documented upturn.
Acquiring shareholders now gain $62 mil around the announcement of such deals; a $325 mil gain improvement compared to 1990–2009. The corresponding synergistic gains have also catapulted to more than $542 mil pointing to overall value creation from M&As on a large scale. Our results are robust to different measures and controls and appear to be linked with profound improvements in the quality of corporate governance among acquiring firms in the aftermath of the 2008 financial crisis.
The authors attribute this gain to improved corporate governance, but Prof. Lipton speculates that there may be more to it than that:
Whatever value target shareholders receive is necessarily a function of the governing law – including, as the Delaware Supreme Court says, Revlon, Unocal, and the entire fairness doctrine. But with new cases like Corwin and Kahn, those are rapidly going the way of the dodo. (See, e.g., J. Travis Laster, Changing Attitudes: The Stark Results Of Thirty Years Of Evolution In Delaware M&A Litigation; Steven Davidoff Solomon & Randall Thomas, The Rise and Fall of Delaware’s Takeover Standards). It may once have been true that acquirers overpaid for targets, but it’s dangerous to change the legal landscape and expect the market to remain the same.
This Orrick blog is the first in a series addressing antitrust issues in joint ventures. Since joint ventures frequently involve collaborations between competitors or potential competitors, antitrust concerns can be significant. Here’s an excerpt outlining the major antitrust questions that need to be addressed in the joint venture context:
– Does the JV constitute a “naked” agreement among competitors which is per se unlawful, does it not present an antitrust issue because there is only a single, integrated entity performing the JV functions, or does it involve restraints within the scope of a legitimate collaboration that are virtually per se lawful?
– Does the JV impose so-called ancillary restraints on the venture itself or its members, and if so, what standard of review applies to such restraints?
– Assuming the JV is properly structured to avoid an unlawful conspiracy charge, is it “too big” to be acceptable? What guidance applies to the size or market footprint of a JV?
– Will operation of the JV involve sharing of information between or among competitors, and if so, what practical steps should be taken to manage and limit information sharing between and among the JV and JV members?
Tune in tomorrow for the webcast – “Structuring, Negotiating & Litigating Public Deals: Has the Pendulum Moved?” – to hear Richards Layton’s Ray DiCamillo, Greenberg Traurig’s Cliff Neimeth and Richards Layton’s John Zeberkiewicz analyze how recent Delaware case law and statutory changes are influencing the way that M&A deals are structured, negotiated and litigated.
In this recent blog, Weil Gotshal’s Glenn West vents his frustration about the way practitioners continue to approach MAC clauses despite the lessons of several decades of Delaware case law. Instead of thinking through the implications of these cases when drafting MAC clauses, lawyers routinely defer to market practice – which often means these clauses don’t accomplish what the parties intend. Here’s an excerpt:
Many of the standard terms of M&A agreements began their existence with a brain—the brain of a smart lawyer who perceived an issue that needed to be addressed and drafted a clause to address it. And then other smart lawyers recognized the value of that newly drafted clause, and adapted and improved it until it became a standard part of most M&A agreements. But once that clause became attached to the “market” it became divorced from the brain or brains that created it, and soon everyone was using it regardless of whether they truly understood all the reasons that prompted its drafting.
Even worse, market attachment is so strong that even after a standard clause has been repeatedly interpreted by courts to have a meaning that differs from the meaning ascribed to that clause by those who purport to know but do not actual know its meaning (mindlessly using the now brainless clause), it continues to be used without modification. Such is the case for many with the ubiquitous Material Adverse Change (“MAC”) or Material Adverse Effect (“MAE”) clause.
Glenn offers up some specific suggestions for buyers negotiating MAC clauses, and closes with advice that all deal lawyers should take to heart:
Don’t let “it’s market” ever be an acceptable explanation for the inclusion or lack of inclusion of any provision of an agreement. Know what every provision of your agreement means on its face, as well as how any standardized provisions have been interpreted by the courts that could ultimately be involved in any dispute over your agreement.
This Proskauer memo addresses a recent Delaware Chancery Court decision recommending to the Supreme Court that Delaware to change its approach to the preclusive effect of judgments in derivative litigation. Here’s the intro:
The Chancellor of Delaware’s Court of Chancery yesterday urged the Delaware Supreme Court to revise Delaware law on preclusion in shareholder derivative actions. The court’s July 25, 2017 decision in In re Wal-Mart Stores, Inc. Delaware Derivative Litigation recommended that the Supreme Court adopt a rule that a judgment in one derivative action cannot bind the corporation or its stockholders in another derivative action unless either
– the first action has survived a motion to dismiss because a pre-suit demand on the corporation’s board of directors would have been futile or
– the board has given the plaintiff authority to proceed on the corporation’s behalf by declining to oppose the derivative suit.
In other words, preclusion would not apply unless the stockholder in the first case had been empowered by either a court or the board to assert the corporation’s claims.
So what’s going on here? According to this blog by Prof. Ann Lipton, the court’s moves are ultimately about responding to the threat posed by multi-forum litigation:
Delaware’s recommendation that derivative plaintiffs seek books and records before proceeding with their claims simply invites faster filers to sue in other jurisdictions – and invites defendants to seek dismissals against the weakest plaintiffs, which will then act as res judicata against the stronger/more careful ones.
Delaware’s latest proposal to deal with the problem came in the form of a suggestion from its Supreme Court: perhaps when derivative actions are dismissed for failure to allege demand futility, it would violate the constitutional due process rights of subsequent plaintiffs to bind them to that decision. The theory is that until the demand requirement is satisfied, a plaintiff represents only him or herself, and not the corporate entity; therefore, any dismissal only extends to that plaintiff. In January, the Supreme Court remanded to Chancery to make a determination of the constitutional law issues. SeeCal. State Teachers Ret. Sys. v. Alvarez, 2017 WL 239364 (Del. 2017).
Well, a few days ago, Chancellor Bouchard came back with an answer. He concluded that an Arkansas court’s dismissal of a derivative case on the grounds that those plaintiffs failed to show demand futility should not bar similar claims by Delaware plaintiffs.
As we’ve previously blogged, Delaware has seen a dramatic decline in the percentage of deal litigation that has been filed in its courts in recent years. Although there are lots of reasons for the decline, making it harder to use out of state settlements of weak derivative claims to preclude stronger claims from being brought in Delaware courts may help to at least slow, if not stop, the bleeding.
This recent article by King & Spalding’s Rob Leclerc & John Anderson and Morris Nichols’ Eric Klinger-Wilensky & Nathan Emertiz addresses practical considerations for boards considering a “single-bidder” deal process. Here’s the intro:
Whether a public company should engage in a “single-bidder” process is one of the most difficult questions a target public company’s board of directors must consider during the early stages of a transaction. In the right circumstances, a single-bidder process can result in an expedient transaction that maximizes stockholder value while minimizing the risks associated with putting a corporation “in play.”
In other circumstances, a single-bidder process can be a high risk proposition that exposes the deal to uncertainty and the directors and officers to possible monetary liability. Although there are no“bright line” rules under Delaware law regarding the appropriateness of a single-bidder process, there are certain circumstances in which, we believe, a Delaware court likely would view a single-bidder process more favorably than in other situations.
The article reviews the factors that support a board’s decision to engage in a single-bidder process, as well as practical considerations associated with such a process – including negotiating exclusivity agreements, deal protections, and “go shops” or other market checks.