DealLawyers.com Blog

In this chart from SharkRepellant, over the past decade, you can determine how many proxy fights were won by management or dissidents, how many were settled and how many were withdrawn or pending…

I have posted the transcript for our recent webcast: “How to Sell a Division: Nuts & Bolts.”

In this Akin Gump blog, Daniel Fisher weighs in on two new Delaware cases:

Last week, in American Capital Acquisition Partners, LLC v. LPL Holdings, Inc. (February 3, 2014), the Delaware Court of Chancery, in connection with a disputed earnout provision, allowed a claim for breach of the implied covenant of good faith and fair dealing to survive a motion to dismiss. In taking this relatively rare step, the court showed a willingness to fill a ‘gap’ in contractual drafting with an obligation to act in good faith, and deal fairly, with respect to a matter the parties did not focus on in negotiations. Specifically, the claims that survived were based on allegations that clients, personnel and opportunities of the acquired company were actively diverted post-closing to another subsidiary of the buyer, thereby impeding the acquired company’s ability to meet the performance guidelines that would have entitled the sellers (plaintiffs) to certain contingent payments (both under the Stock Purchase Agreement (SPA) and their employment agreements).

On the other hand, the court dismissed the claims alleging breach of those implied covenants by the buyer in failing to make technological adaptations to help increase profitability because the plaintiffs anticipated, but failed to bargain for, such an obligation in the SPA.

Interestingly, this case also involved a non-reliance issue, and since the SPA included both an integration clause and a provision disclaiming reliance on extra-contractual representations, the court did not allow the sellers’ fraudulent inducement claim. Here’s the language:

“Non-Reliance. Except for the representations and warranties by the Company in this Agreement, Buyer and Seller each acknowledge and agree that no Person is making, and Buyer nor Seller is not relying on, any representation or warranty of any kind or nature, express or implied, at law or in equity, or otherwise, in respect of the Company, the Business, the Sellers or the Buyer, including in respect of the Company’s Liabilities, operations, assets, results of operations or condition.”

On a related topic, in the recent case of Blaustein v. Lord Baltimore Capital Corp. (January 21, 2014), the Delaware Supreme Court held that the directors of a closely held corporation do not have a fiduciary duty to consider buying out minority stockholders. Instead, stockholders should rely on contractual protections to facilitate liquidity. The court also affirmed that, based on the repurchase provisions in the relevant stockholders agreement, the implied covenant of good faith and fair dealing did not create a duty to negotiate a reasonable repurchase price for the shares.

Very shortly after I blogged the below, I became aware that Broadridge reversed it’s position with this note: “Upon further internal review, Broadridge will not be implementing the change announced last week. Both sides of a proxy contest will continue to receive interim voting updates for their own and each other’s ballot.” Thanks to Sabastian Niles of Wachtell for the heads up!

This was my early morning blog: In this Davis Polk blog, Ning Chiu reports:

Broadridge has announced a new policy that during proxy contests, each party will only receive the interim results of votes cast for its own proxy card, reports the WSJ. Companies and dissidents can share voting information if both sign confidentiality agreements. This new policy could make it more difficult for solicitations, including determining whether an investor has not voted at all, or has instead voted for the other side.

A possible effort by the ABA to ask the SEC to shorten the period required to conduct broker search cards could also impact proxy contests. Currently, SEC Rule 14a-13 requires issuers to notify or “search” the banks and brokers at least 20 business days prior to the record date. A petition may seek to shorten that time to five days. Some argue that the lengthy period does not account for technological advancements, and a shorter period would facilitate the process for voting on major transactions and allow for a shorter period before annual meetings take place. Others, however, contend that the compressed broker search period would affect the time for activists and others aligned with their views to invest in the stock prior to the record date, or permit a competing offer for transactions.

With SEC Chair Mary Jo White recently recognizing “shareholder activism” as something different than what has been perceived in the past, the debate over whether activism is a “good thing” or not has never been hotter. Check out this new paper by Professors Rose & Sharfman entitled “Shareholder Activism as a Corrective Mechanism in Corporate Governance“…

In this blog, Ethan Mark of Stinson Leonard Street provides recent examples of merger agreements that deal with privilege in the wake of the Great Hill decision…

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.