Here’s the key findings excerpted from this blog by Towers Watson about a recent change-in-control survey:
The survey responses suggest that enhancing severance for terminations in conjunction with a CIC is widespread. The vast majority (93%) of respondents indicated they do so for some portion of employees below the NEO level, with two-thirds (67%) of those companies offering enhanced cash compensation (salary and/or bonus) and accelerated vesting of equity and about a quarter (26%) offering only accelerated vesting of equity (see Figure 1).
Other key findings include the following:
– Many (40%) of those companies that provide enhanced cash compensation include employees below the senior vice president (SVP) level. And about half of companies that provide enhanced cash compensation do so for all employees at a given level, while half provide it selectively.
– The percentage of companies offering a flat severance amount irrespective of tenure versus those offering a tenure-based benefit is significantly higher for CIC severance than for other types of severance. For example, 61% of companies provide executive vice presidents (EVPs)/SVPs a flat severance benefit in the absence of a CIC, while 96% offer a flat benefit following a CIC. Employees below the EVP/SVP level see an increase in the percentage receiving a flat amount of severance, but neither the magnitude of increase nor the percentage receiving a flat amount are as high as for EVPs/SVPs.
– Those that switch from tenure-based to a flat amount in a CIC provide more severance as a result of the switch at most tenure levels.
– Of those that maintain tenure-based severance in a CIC, median minimum benefits are higher in a CIC situation than in a normal severance situation at all levels to guarantee a certain level of benefit for more recently hired employees. Of those that provide flat severance with or without a CIC, median benefits are one-third to one-half higher following a CIC at all levels.
– Treatment of bonuses for the year of termination is enhanced following a CIC in about half the respondents for EVP/SVPs and in a quarter to a third of the companies for employees at lower levels. The most common treatment is to pay at least full target bonus regardless of performance or portion of the year worked. The most common treatment of bonuses in normal severance situations is to pay a bonus prorated for the part of the year worked.
– The most prevalent treatment of both time-based and performance-based equity awards is accelerated vesting for those who are terminated following a CIC (i.e., double-trigger vesting).
– Just 37% of respondents said they believed M&A activity would strengthen in the next 12 months – down from 59% of respondents in last year’s survey. 20% said they expect the market to weaken, compared with just 9% of respondents last year. Meanwhile, fewer than half (48%) of respondents were bullish about the U.S. economy overall for the next 12 months, compared with 62% in 2014.
– 52% said that strategic buyers most influenced U.S. deal valuation over the past 12 months, up from 42% in 2014. When asked why, some respondents noted availability of cash and financing for buyers seeking synergistic transactions.
– Although just 48% of respondents said they had a positive outlook on the U.S. economy over the next 12 months, the percentage was still higher than the results in all but three years since the question was first asked in the survey in 2005.
– Similarly, just 38% of respondents said they expect the U.S. economy to improve in the next 12 months, down from more than half who picked that choice in 2013 and 2014 but higher than the results in 2011 and 2012.
– Health care and technology were the top two sectors respondents picked for the most M&A activity in the next year, followed by energy, industrial/manufacturing and automotive. These rankings were similar to the 2014 findings.
– A stronger economy was the top choice given by respondents when asked to pick the factor that would most positively impact financial services M&A in the next 12 months. A weaker economy was cited as the top negative factor in the market.
– Of the 72% of respondents who expect an increase in M&A activity involving privately owned businesses, the most common explanation was concerns about aging business owners, as those owners may think valuations of their businesses are reaching top levels.
Tune in tomorrow for the webcast – “An M&A Conversation with Myron Steele & Jack Jacobs” – to hear about the latest state law developments from former Delaware Supreme Court Chief Justice Myron Steele and former Delaware Supreme Court Justice Jack Jacobs.
According to the Chancery Daily, the Delaware Senate confirmed the nomination of Tamika Montgomery-Reeves, a partner at Wilson Sonsini, as Vice Chancellor of the Delaware Court of Chancery last week by a vote of 21-0. VC Montgomery-Reeves succeeds Donald Parsons whose term expires this month. As noted in this Reuters article, Tamika is the first female VC since 1994 – and the first black VC. About time to say the least.
In what is being hailed as an historic step in promoting women lawyers to the Delaware bench, the slate of candidates for an upcoming vacancy on the state’s prestigious Chancery Court are all female. It is believed to be the first time in Delaware’s history that the commission charged with creating a short list of qualified candidates for the governor chose a lineup of exclusively women lawyers. The Judicial Nominating Commission, which screens all applicants, made its selection last week and the names have been sent to Gov. Jack Markell. He is expected to announce his nominee in mid-October.
According to sources, the candidates are Abigail M. LeGrow, who is a Master in Chancery or judicial officer who assists the court; Tamika Montgomery-Reeves, a corporate lawyer and partner at Wilson Sonsini Goodrich & Rosati in Wilmington; and Elena C. Norman, a partner and corporate lawyer at Young Conaway Stargatt & Taylor in Wilmington. LeGrow and Montgomery-Reeves declined to comment. Norman could not be reached for comment. Unless Markell rejected the entire slate, which experts say is extremely unlikely, America’s preferred court for resolving corporate disputes will have a female judge for the first time since 1994. It will be only the second time in the court’s 223-year history that a female will serve as a Chancery judge.
“This breaks glass,” said Claire DeMatteis, general counsel with Affinity Health Plan who last year wrote a critical article on the lack of women appointed to seats on the Chancery and Supreme courts. “Let’s put this in perspective: No litigant has gone before a woman judge in Chancery Court for 21 years.” “It’s about time,” said Elizabeth Wilburn Joyce, a partner in the women-owned Pinckney, Weidinger, Urban & Joyce in Wilmington, a member of the National Association of Minority and Women Owned Law Firms. “We are thrilled.”
Here’s the intro from this blog by Cooley’s Cydney Posner:
The SEC has posted new CDIs addressing the issue of “unbundling” of proxy proposals under Rule 14a-4(a)(3), which requires that the form of proxy “identify clearly and impartially each separate matter intended to be acted upon.” The focus of the new CDIs is unbundling of proposals in connection with M&A transactions. These CDIs will replace the 2004 set of CDIs on this topic.
The new CDIs discuss when, in an M&A transaction in which the target’s shareholders receive equity of the acquiror and the agreement requires the acquiror to amend its organizational documents in a material respect, the target and/or the acquiror must present that amendment as a separate proposal on the proxy card, even though the amendment is embedded in the agreement. The CDIs also discuss the application of these principles to circumstances where the parties form a new entity to act as an acquisition vehicle that will issue equity securities in the transaction.
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.”