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.
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.
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.
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.
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.
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.
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.
Appraisal rights are getting more attention in public M&A deals & appraisal conditions appear to be making a bit of a comeback. This Cleary blog discusses these developments & provides some thoughts on how a buyer should approach negotiating appraisal conditions. Here’s the intro:
Appraisal rights in public M&A transactions have recently garnered greater attention, particularly in Delaware. As a result, more attention is being paid to the possible inclusion of a closing condition protecting the acquiror against excessive use of appraisal rights, and this should lead to careful attention being paid to the negotiation and drafting of any such conditions and related provisions. Discussed below are some of the reasons for this greater attention, and suggestions regarding negotiating and drafting such provisions.
The blog addresses key issues in negotiating appraisal conditions for both one-step mergers & two-step deals incorporating a tender offer under Section 251(h) of the DGCL.
This Cooley blog draws some lessons for dealmakers from the cybersecurity problems experienced in the Verizon/Yahoo! & Telstra/Pacnet transactions. Here’s an excerpt addressing the initial cyber risk assessment:
The acquirer should consider the cybersecurity exposure that the acquisition of the target may impose. To determine such exposure, a variety of techniques could be used in performing a review of the target. An overall cyber risk assessment early in the process can provide a general idea of the general cyber maturity of the target. In addition to a diligence review of the target’s cyber documentation (e.g., security policy, incident response policy, access control policy, etc.) by the acquirer’s legal team, a well-developed cyber questionnaire could provide a decent perspective on the cyber aspects of the target’s operations.
This Norton Rose blog also offers tips for buyers on how to approach cybersecurity due diligence.
Yesterday, the SEC proposed amendments to the proxy rules that would require parties in a contested election to use universal proxy cards that would include the names of all director nominees. The proposal would permit shareholders to vote by proxy for their preferred combination of board candidates – as they could do if they attended the meeting & voted in person. Here’s the 243-page proposing release.
The proposed rules would:
– Allow shareholders to vote for the nominees of their choice by requiring proxy contestants to provide shareholders with a universal proxy card including the names of both management & dissident nominees.
– Enable parties to include all nominees on their universal proxy cards by changing the definition of a “bona fide nominee” in Rule 14a-4(d).
– Eliminate the Rule 14a-4(d)(4)’s “short slate rule,” since dissidents would no longer need to round out partial slates with management’s nominees.
– Require proxy contestants to notify each other of their respective director candidates by specific dates.
– Require dissidents to solicit shareholders representing at least a majority of the voting power of shares entitled to vote on the election of directors
– Require proxy contestants to refer shareholders to the other party’s proxy statement for information about that party’s nominees and inform them that it is available for free on the SEC’s website.
– Require dissidents to file their definitive proxy statement with the Commission by the later of 25 calendar days prior to the meeting date or five calendar days after the registrant files its definitive proxy statement.
The SEC also proposed amendments to Rule 14a-4(b), which would require proxy cards to include an “against” voting option for director elections when that vote has a legal effect, & also enable shareholders to “abstain” in a director election governed by a majority voting standard.
The ability to provide a “withhold” voting option when an “against” vote has legal effect would be eliminated. In addition, the proposed amendments to Item 21(b) of Schedule 14A would require disclosure about the effect of a “withhold” vote in an election of directors.