This January-February issue of the Deal Lawyers print newsletter was just posted – & also mailed – and includes articles on (try a 2016 no-risk trial):
– Rural Metro: Lessons Learned
– Unbundling Proposals After the Holidays
– Boards & Their Financial Advisors: What Do Recent Delaware Opinions Mean for Processes & Relationships?
– Explosion of Representation & Warranty Insurance in the Lower Middle Market
– How Target Could Impact Acquirer’s Conflict Minerals Reporting
– Some Crystal Balling: M&A Insurance & the Future Role of Deal Lawyers
– So Where Are All The M&A Arbitration Provisions?
– Closing Your M&A Deal on a Weekend
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.
As noted on this MoFo blog, FINRA has filed a proposed rule with the SEC which would reduce the regulatory burden for broker-dealers that limit their activities to M&A and certain corporate financing transactions. The proposed rule would create a new category of broker-dealers called “Capital Acquisition Brokers” or “CABs.” The proposed rule was published in the Federal Register on December 23th and will become effective after SEC approval, which normally occurs within 45 days after the date of publication.
Here’s an excerpt from this Cleary Gottlieb blog:
The past few years have witnessed a resurgence in the mergers and acquisitions and initial public offering markets—particularly for health care. Many private companies have pursued a dual-track M&A/IPO process, in which the company simultaneously pursues an IPO and a confidential sale. The dual-track process has been growing in popularity among health care companies, since the IPO process can be helpful in generating momentum for a potential sale in a consolidating industry.
Examples of large private companies that have successfully gone down the dual-track road include Bausch & Lomb, which was nearing the launch of its IPO road show when it was bought by Valeant in May 2013, and Biomet, which had already filed with the Securities and Exchange Commission for an IPO when it announced its merger with Zimmer. And these are not the only examples.
Dual-track processes allow companies to leverage their preparatory work, and to some extent the publicity surrounding the SEC filing process for an IPO, to pursue both an IPO and a sale of the company simultaneously. In particular, the publicity around a potential IPO provides a deadline for potential acquirors, creating a greater sense of urgency to sign up a deal before the target goes public, since it is significantly more expensive and complicated–and riskier–to acquire a public company.
As more health care companies, including “emerging growth companies” (EGCs) under the JOBS Act, plan for monetization events, they need to weigh several considerations when planning for a dual-track process:
– Confidentiality issues EGCs are permitted to submit registration statements confidentially with the SEC, and only file publicly 21 days prior to the roadshow. Filing confidentially may allow for a smoother IPO process by avoiding market speculation about IPO timing and valuation–and the company’s responses to SEC comments. But a confidential filing will not be helpful in generating acquiror demand, and it cannot be used by potential acquirors to expedite their due diligence. Companies pursuing a dual-track process that qualify as EGCs should consider filing publicly, particularly if a sale of the company is their primary focus.
– Investor/Acquiror meetings EGCs are permitted to engage in IPO “testing-the-waters” investor meetings, even prior to filing a registration statement. Because the SEC may request any written materials used in testing-the-waters meetings, companies should make clear in meetings with potential acquirors that they are being provided in connection with a sale of the company and not part of the IPO process. To the extent written materials are used as part of M&A meetings, they should be consistent with the IPO registration statement, since they may be discoverable in any IPO disclosure lawsuit. Also, potential acquirors should sign nondisclosure agreements to help protect against leaks or misuse of information by a competitor.
– Due diligence The same data room used for due diligence by potential acquirors can be used as the basis for the IPO due diligence to be conducted by the underwriting banks. Typically, an acquiror would conduct more extensive due diligence than an underwriter, and, as a result, an M&A data room will contain more documents than an IPO data room. For that reason, companies can start with the M&A data room and pare it back for IPO due diligence.
Here’s news from Cliff Neimeth of Greenberg Traurig:
Since the Delaware Court of Chancery’s decision a couple of years ago in Boilermakers Local 154 Retirement Fund v. Chevron Corp., 73 A.3d 934 (Del. Ch. 2013), and the adoption effective August 1, 2015 of Section 115 of the DGCL (which essentially codified Boilermakers), I’ve adopted exclusive forum bylaws (“EFBs”) for dozens of Greenberg Traurig’s Delaware corporate clients pursuant to unilateral board action. We’ve especially counseled such adoption concurrently with, or immediately preceding, the public announcement of merger, business combination and similar extraordinary corporate transactions (in general anticipation, but obviously prior to the commencement or overt threat, of fiduciary litigation challenging the transaction and the actions and decisions of the board). Such “same-day” adoption was expressly upheld in City of Providence v. First Citizens BankShares, Inc., 99 A.3d 229 (Del. Ch. 2014), although the decision was legislatively modified on other grounds pursuant to Section 115 of the DGCL.
To date, hundreds of mostly (but not exclusively) public Delaware corporations have adopted EFBs and, when challenged in litigation outside of Delaware, the courts of several non-Delaware states – mostly in preliminary “stay” and other delayed-intervention hearings – have deferred to Delaware’s strong policy interest, at least in the first instance, in seeking to retain exclusive jurisdiction over the adjudication of intra-corporate disputes animating the internal affairs of Delaware corporations before subjecting the corporation to the defense of multi-jurisdictional litigation arising out of the same facts and circumstances and the risk of inconsistent judgments and erroneous interpretations of Delaware’s statutory and judicial corporate law.
The decision of the Oregon Supreme Court (Roberts v. TriQuint Semiconductor, Inc.) is significant – not just because it is the latest non-Delaware court decision acknowledging the facial and contractual validity of Delaware EFBs – but because it appears to be the only reported non-Delaware appellate court decision, to date, fully addressing on the merits the contextual (i.e., “as-applied”) validity of the EFBs. Moreover, the decision (which reversed the decision of the lower Oregon court) confirmed that an EFB adopted two days prior to the announcement of an MOE involving the subject corporation did not constitute unreasonable proximity.
The decision essentially reiterates the policy rationale for upholding EFBs that the Delaware courts (and certain non-Delaware courts) have articulated to date, although the Oregon Supreme Court noted that Oregon law controlled the determination by an Oregon court of whether the EFB of a Delaware corporation was enforceable.
It’s important to make sure that an EFB expressly allows the Delaware corporation to waive the EFB and/or consent to the jurisdiction of a non-Delaware forum. Indeed, there may be circumstances where the adoption of an EFB is inappropriate or unreasonable and, as oft-cited by the Delaware courts (especially in an “as-applied” fiduciary litigation), inequitable action does not become permissible just because it is legally possible. Also, remember that pursuant to Section 115 of the DGCL it is permissible for an EFB to expressly confer on a non-Delaware court jurisdiction over the adjudication of non-Delaware disputes, provided that such extra-Delaware jurisdiction is not exclusive. It is in this latter regard that the City of Providence decision was legislatively modified by Section 115 of the DGCL.
Notably, despite ISS’ and Glass-Lewis’ general disdain for EFBs adopted without stockholder approval and their policy of recommending “withhold authority” against corporate governance committee chairs in such context, that tail shouldn’t – in itself – wag the dog in a situation where the adoption of an EFB is otherwise warranted as determined in good faith by the Board after careful consideration of all the relevant facts, risks and merits. This is especially true when an extraordinary corporate transaction is being announced and the surrounding facts are such that it is a “clear day” for adoption of the EFB. To date, EFBs adopted unilaterally have not faced significant adverse reaction from the portfolio managers and proxy voting departments at leading national index funds, quant investors and regulated asset management firms.
The TriQuint decision should help further deter the commencement of multi-jurisdictional litigation against Delaware corporations in a (non-Delaware) jurisdiction where such corporation is headquartered or otherwise has a strong commercial nexus. Time, of course, will tell.
With Star Wars mania upon us, I thought it worth highlighting this funny paper entitled “It’s a Trap: Emperor Palpatine’s Poison Pill: The Collapse of the Galactic Economy and How the Empire Actually Won”…
Occasionally, you hear that people have received advice to be especially careful about emails so “don’t put it in an email, give him/her a call.” Often the advice is couched in terms of “avoid putting anything in an email that you would be embarrassed to read about on the front page of the Wall Street Journal. Make a call instead.” That advice is insufficient given what often happens in litigation. According to a recent WSJ article regarding pending M&A litigation, it’s alleged that: “[employee of buyer] later testified that [employee of target’s financial advisor] called him and said “we should not email on this.”
And then consider this quote from a recent Delaware Chancery Court opinion:
“On the evening of March 24, [employee of buyer] summarized the situation in an email [to other employees of the buyer]: I have spoken to a number of bankers on our side (for advice) and theirs (for back-channel feedback). There are definitely two other offers as we suspected, both say they need another week of work but the company’s bankers think it is more like 2-3 weeks. Sounds like both are higher but again not a knock-out, I haven’t been able to get more specific info than that.”
Things to bear in mind include:
1. Any advice, if given by one transaction participant to another participant or their representatives, is discoverable. Even if you don’t disclose it, the other person may – and you should assume likely will.
2. While not necessarily wrongful, there can be lots of innocent and/or perfectly valid reasons for making the suggestion to talk rather than exchange email (e.g., to avoid ambiguity or misinterpretation or because time is of the essence) – plaintiffs will likely allege that the person making the suggestion was trying to hide something damaging.
3. Just because you speak with someone and don’t put it in an email doesn’t ensure that the substance of the conversation will not be memorialized in writing – and be discoverable. Even if you don’t put it in an email, the person you talk to may.
The bottom line is: while it is not always possible to avoid saying, doing or writing things that are potentially vague, ambiguous or subject to misinterpretation, and sometimes back-channel communications are authorized for purposes of seeking a bump in price from the buyer, you should not assume that it’s okay to say something so long as you don’t put it in an email. The better advice is to try to “avoid saying, doing or putting anything in an email that you would be embarrassed to read about on the front page of the Wall Street Journal.”
On the heels of Dole CEO David Murdock, etc. agreeing to a $114 million settlement in the Delaware case in which VC Laster awarded shareholders a total of $148 million for their misleading activity in a buyout (the settlement is not yet finalized), this article notes that a federal class action case against Dole & Murdock has been filed in Delaware. Here’s the new complaint – and a blog about this new lawsuit..
InvestmentBank.com is pretty good for explaining elementary M&A concepts. Here’s the intro from a blog about complementary acquisitions:
Understanding where one is weak can prove to be a strength. This is especially true when the known weaknesses are eventually eliminated. When weaknesses are inherent in a company, it can create risks to the capital invested by shareholders and lenders. One way to overcome such weaknesses and risks is to eliminate them by acquiring complementing strengths. The following items showcase company weaknesses and risks that can effectively be remedied with a little M&A.
Regulatory & Legal Risks
– Companies in nonregulated industries could represent a fine target if a buyer is seeking to assuage some of the existing and burdensome compliance and legal issues. The reverse is also true. A company in a more pristine regulatory environment may be wholly unprepared when seeking acquisitions in a similar, but more regulated vertical.
– Poor union relations can be more easily be offset by acquiring a company in a similar, but less nonunion sector to help offset greater exposure to employee strikes.
– Market concentration risk can be reduced by acquiring a company with a less concentrated industry focus, further diversifying the market risk profile.
– Firms in a higher tax bracket can reduce taxation risk by acquiring a company with legitimate tax advantages. We’ve seen, helped and know of firms that have successfully done this work through the successful acquisition and restructuring of firms with high net operating losses. Other options are also available here.
– Weak intellectual property protection (e.g. trademarks, patents & copyrights) could be offset by acquiring or licensing the necessary patents to avoid later legal conflict over the lack of legal protection.
– When a firm has inferior or insufficient technology, a target acquisition may help to offset the lack thereof.
Here’s the intro from this blog by Cooley’s Cydney Posner:
The recent PWC survey of almost 800 directors of public companies contains some interesting data on directors’ views of communications with hedge fund activist and institutional shareholders, as well as proactive approaches to mitigate the risk of an activist challenge. (For survey results regarding board diversity, see this PubCo post.)
As expected, the level of director communications with institutional shareholders has increased from 2012, up from 62% to 69%. More significant perhaps is the change occurring in the breadth of topics that directors are now willing to discuss. Although it‘s still the case that “shareholder proposals” is the only topic that more directors view to be “very appropriate’’ for discussion (44%) as compared to “somewhat appropriate” (42%), the percentages registered for “very appropriate” increased across all topics.
Similarly, the percentages of directors viewing any of the surveyed topics as “not appropriate” decreased across the board. To unpack the numbers, the survey indicated that, for 2015, 77% of directors believe it is at least “somewhat appropriate” to discuss executive compensation with shareholders compared to just 66% in 2013. Similarly, 66% of directors now believe it is at least “somewhat appropriate” to discuss company strategy development and oversight, compared to only 45% in 2013.
The survey also showed an increase from 46% in 2013 to 66% in 2015 in the percentage of directors that believe direct shareholder communications regarding the use of corporate cash and resources to be at least “somewhat appropriate”; the survey speculates that the increase “may be a response to the concern many activists have expressed about dividends, stock buybacks, and other uses of cash.” Relative to data for 2014, board composition and management performance are two topics that saw significant increases in the percentages of directors who view them as “very appropriate” topics and significant declines in the percentages that view them as “not appropriate.”
As noted in this Moody’s Shareholder Activism report, shareholder activism is set to reach a record high in 2015 – so far, there have been 178 public shareholder activist campaigns as of mid-October, compared with 165 over the same timeframe last year…