As noted in this memo by Jessica Forbes & Gregory Gnall of Fried Frank, in a significant departure from prior guidance, the SEC’s Division of Trading and Markets issued a no-action letter – entitled “M&A Brokers” – last week that permits a person giving advice on M&A deals to receive transaction-based compensation under certain conditions without having to register as a broker-dealer. Note that the no-action letter is subject to numerous conditions, some of which may limit its utility, including the limitation that it only relates to the sale of privately held companies and that the M&A broker may not directly or indirectly through its affiliates provide financing for an M&A transaction. Here’s some analysis from Keith Bishop…
This blog by Kevin LaCroix provides a pretty good summary of the state of affairs. The shocking stat is that 97.3% of all takeovers in 2013 with a value of over $100 million experienced a shareholder lawsuit, which represents the highest litigation rate recorded.
And here’s Keith Bishop’s proposal for preventing M&A deals with being such a litigation burden. The proposal boils down to:
Certificates of mergers include an additional box that may be checked. If this box is checked, an additional fee will be imposed for filing the certificate but stockholders will forfeit all rights to sue in relation to the merger. The amount of the fee will be based on a percentage of the merger consideration. The fees will be allocated to any plaintiffs’ firm providing useful suggestions for enhanced disclosures. A further refinement might be to apply a multiplier randomly to some fees so that the economic windfall attributes of the current system are preserved.
This recent WSJ article gives us these stats:
There have been a total of 141 votes on executive compensation packages linked to company takeovers, and 86% passed, according to FactSet SharkWatch. That’s up from 82% the prior year on 113 votes.
The increase runs counter to direction from proxy adviser Institutional Shareholder Services, which is making more negative recommendations on pay perks for executives who sell their companies.
ISS advised shareholders to vote against 28% of golden parachute proposals between February and the end of October, according to compensation consultants Pearl Meyer & Partners. That was a big jump from negative recommendations in 20% of all votes held through the end of 2012.
Tune in tomorrow for the webcast – “How to Sell a Division: Nuts & Bolts” – during which Bass Berry’s Page Davidson, WilmerHale’s Stephanie Evans and Kaye Scholer’s Joel Greenberg will walk us through the nuts & bolts of selling a division.
Here’s a 2013 recap from Cooley:
A series of cases in 2013 refined the law in Delaware relating to the enforceability of non-reliance clauses. Non-Reliance clauses are generally intended to limit a buyer’s ability to make fraud claims based upon representations made outside of the acquisition agreement (e.g., in diligence materials in the data room, spoken in meetings). Based upon previous case law, a properly drafted non-reliance clause would be enforced in Delaware to bar fraud claims that were based upon representations made outside of the four corners of the acquisition agreement. Three cases in 2013 challenged existing case law and we expect will impact the drafting and negotiation of non-reliance provisions.
Anvil Holding v. Iron held that a non-reliance provision that includes only a statement by the seller that they are making no other representations is not sufficient to bar an extra-contractual fraud claim under Delaware law. The court held that a buyer must, in the applicable agreement, affirmatively disclaim reliance upon extra-contractual representations for the language to bar fraud claims (clarifying the 2012 contrary holding in RAA Management v. Savage Sports Holdings).
Pyott-Boone Electronics Inc. v. IRR Trust discussed the inherent tension between a broadly written full-disclosure rep (the so-called “10b-5 rep”) and a non-reliance provision and is a warning to drafters to ensure that these two provisions are consistent and clear.
Finally, Transdigm v. Alcoa Global Fasteners held that a non-reliance provision will not bar extra-contractual fraud claims that are based upon active concealment of material information if the non-reliance provision does not expressly disclaim reliance on extracontractual omissions.
Recent studies show that the majority of private-target acquisitions include some form of non-reliance clause (72% of deals in the 2011 ABA Private Target Deal Points Survey and 52% of deals in the 2012 SRS M&A Deal Terms Study included some form of non-reliance or no other representation clause). Regardless of which side of the table you sit, this issue will be frequently negotiated. Staying on top of the current state of the law in this area is crucial to avoiding significant unintended consequences. We encourage all M&A professionals to be aware of the holdings from these cases and to ensure that their non-reliance provisions are drafted appropriately.
This January-February Issue of the Deal Lawyers print newsletter was just sent to the printer and is a special “looking forward, looking back” issue which includes 9 articles from some of the most prominent members of the M&A bar:
1. 10 Most Influential M&A Developments of this Millennium
– by Barbara Borden & Jennifer Fonner DiNucci
2. Where Are All the Women M&A Dealmakers?
– by Diane Holt Frankle
3. Modernization of Corporate Law in the Fly-Over States
– by Phil Garon
4. A New Era for Management Compensation in Change-in-Control Transactions
– by Michael Katzke & Henry Morgenbesser
5. The Future of Mergers
– by Marty Lipton
6. The Impact of the Internet on Deal Lawyering: Some Reflections
– by Brian McCarthy
7. Important Trends in Cross-Border M&A for US Professionals: 1990-2013
– by Phillip Mills
8. Special Negotiating Committees & the Delaware Bar
– by Gil Sparks
9. Other People’s Money: The Evolution of Dealing with Financing Execution Risk in LBO & Strategic Mergers
– by Robert Spatt
If you’re not yet a subscriber, try a 2014 no-risk trial to get a non-blurred version of this issue on a complimentary basis.
As noted in this Sullivan & Cromwell memo, the thresholds set forth in the HSR Act have been revised―as they are annually―based on the change in gross national product. The minimum size of transaction has been raised from $70.9 million to $75.9 million effective thirty days after the notice is published in the Federal Register. The notice is expected to be published this week.
The Wachtell Lipton memo below describes a pretty amazing case – as the DoJ is seeking to unwind the merger over a year after it was completed. Apparently the company’s own internal documents were particularly bad. Another reminder of smart people doing stupid things with a computer. Antitrust ain’t my bag – but I would think the concept that the judge was so dismissive of customer testimony will cause many in the antitrust bar to shake their heads. Here’s the Wachtell Lipton memo:
In a significant victory for the Department of Justice, the U.S. District Court for the Northern District of California last week held that Bazaarvoice, Inc.’s completed acquisition of rival PowerReviews violated the antitrust laws. The court found that the government would be entitled to an injunction requiring the divestiture of PowerReviews, but acknowledged that “that is not a simple proposition 18 months after the merger” and scheduled a hearing to discuss potential remedies.
Bazaarvoice acquired PowerReviews in June 2012, in a $160 million transaction that was exempt from the Hart-Scott-Rodino Act’s reporting and waiting period requirements. Days after the acquisition closed, the DOJ opened an investigation that led to the filing of a complaint in January 2013. After a three-week trial, and relying heavily on the parties’ internal documents, the court found that PowerReviews was Bazaarvoice’s closest and only serious competitor in the market for “rating and review” platform services sold to e-commerce businesses.
The court’s opinion cites dozens of internal documents showing that, prior to the merger, “Bazaarvoice considered PowerReviews its strongest and only credible competitor, that the two companies operated in a duopoly, and that Bazaarvoice’s management believed that the purchase of PowerReviews would eliminate its only real competitor.” More than 100 Bazaarvoice customers testified at trial that the acquisition had not harmed them, but the court found their testimony “speculative at best,” and therefore “entitled to virtually no weight.” Similarly, the court gave little weight to post-acquisition evidence regarding the transaction’s effect on pricing, holding that, since Bazaarvoice was aware of the DOJ’s pending investigation, such evidence was subject to manipulation. With its focus on the parties’ internal documents, the opinion is an important reminder of the critical role such documents play in antitrust merger review. Parties must be ever mindful of what their documents say about industry competition and their rationale for the transaction.
Just a few days before the court issued its opinion in Bazaarvoice, the DOJ challenged another consummated acquisition by Heraeus Electro-Nite, requiring a clean sweep divestiture of the acquired assets, an action that brings the number of consummated deals challenged by the antitrust agencies during the Obama administration to more than 20. These actions highlight the increased scrutiny of non-reportable transactions and underscore the antitrust risks buyers assume in these deals.
As discussed in our August 1, 2013 memo, while parties to HSR-exempt mergers sometimes operate under the misimpression that antitrust concerns are moot, ignoring the issue effectively transfers all antitrust risk to the buyer at closing. Before entering into such transactions, buyers should consider the substantive antitrust issues raised by the acquisition just as they would in a reportable deal, including the feasibility of remedies short of clean sweep divestitures, the practicality of unscrambling assets post-integration, and the impact on their business in the event of a future mandated divestiture.
Here’s a memo summarizing the “2013 ABA M&A Private Target Deal Points Study” that was recently released…
Here’s news from this Akin Gump blog:
Since SIGA Technologies Inc. v. PharmAthene Inc. (Del. 2013), the duty to negotiate in good faith is well recognized in Delaware, but it is not as clear when exactly that duty arises. On December 2, 2013, in Osco Motors Company, LLC v. Marine Acquisition Corp., the Delaware district court explained how the duty is created and distinguished Delaware law from New York law. The court distinguished between the express, contractual duty of good faith, created through the parties’ agreement (such as in a letter of intent, as long as such provision is binding), and the implied covenant of good faith and fair dealing, created by statute and implied in parties’ agreements (which must be separately claimed).
In addition, the court disagreed with the defendants’ claim that they did not violate the confidentiality agreement because they used the confidential information, but did not disclose the information. The court confirmed the standard from Martin Marietta Materials, Inc. v. Vulcan Materials Co., that “confidentiality agreements are intended and structured to prohibit both the use and disclosure of confidential, nonpublic information, unless the parties agree otherwise.”