DealLawyers.com Blog

Tune in today for the webcast – “FCPA Issues in Deals Today” – to hear Mauricio Espana and Derek Winokur of Dechert and Rebekah Poston of Squire Sanders explain how FCPA diligence is being conducted, how reps & warranties related to FCPA violations are being negotiated, and more. Please print off these course materials in advance.

This academic study is food for thought regarding the time spent negotiating walk-away rights in public M&A deals. Here is the abstract:

Practitioners and academics have long assumed that the legal terms of acquisition agreements add value to mergers, yet legal scholarship has failed to subject this premise to empirical scrutiny. The conventional wisdom is that markets must value the tremendous amount of time and money that M&A lawyers invest in negotiating and tailoring the legal provisions of acquisition agreements to address the distinctive risks facing each merger. Otherwise, the merging parties would not spend so much on legal fees. But the empirical question remains of whether the legal terms of acquisition agreements add any value beyond the financial terms of mergers (negotiated by investment bankers). For this reason we designed a modified event study of target company stock prices that shows that M&A lawyers’ extensive negotiations on the legal terms of acquisition agreements do not add significant value to mergers.

Our analysis of target company stock prices leverages the fact that merger announcements (which lay out the financial terms) are generally disclosed one to four trading days before the disclosure of acquisition agreements (which delineate the legal terms). We focused on a data set of cash-only public company mergers spanning the decade from 2002 to 2011 to ensure that the primary influence on target company stock prices is the expected value of whether a legal condition will prevent the deal from closing.

Our analysis shows that there is no economically consequential market reaction to the disclosure of the acquisition agreement. Markets appear to recognize that parties publicly committed to a merger have strong incentives to complete the deal regardless of what legal contingencies are triggered. We argue that the results suggest that M&A lawyers are fixated on the wrong problems by focusing too much on negotiating “contingent closings” that allow clients to call off a deal, rather than “contingent consideration” that compensates clients for closing deals that are less advantageous than expected. This approach can enable M&A lawyers to protect clients against the effects of the clients’ own managerial hubris in pursuing mergers that may (and often do) fall short of expectations.

Hats off to Kevin LaCroix for another fine blog entitled “Takeover Litigation in 2012” discussing Professors Davidoff & Cain’s new paper showing litigation over deals continued at a high rate last year…

Here’s a blog from Gregory Bader of Gunster about the re-rise of stock in deals…

The Dell saga is reaching another chapter. As noted in this DealBook blog, Blackstone has dropped out of the bidding (for which it will be reimbursed for conducting diligence, as I have blogged before). The DealBook blog includes the text of Blackstone’s letter, which supports the special committee’s argument that Dell’s business is on the decline.

Here is a chart from The Conference Board providing stats on poison pills and fiduciary outs…

Gibson Dunn’s Jim Moloney recently blogged:

The Division of Corporation Finance recently granted no-action relief to Alamos Gold, a Canadian corporation, in connection with its proposed acquisition of Aurizon Mines Ltd., another Canadian corporation. The proposed acquisition is structured as a tender offer with consideration consisting of a mix of stock and cash subject to proration that would limit each form of consideration to a specified maximum aggregate amount in both the initial and any subsequent offering period. The Division granted an exemption from Rule 14d-10(a)(2) under the Exchange Act, which provides that no bidder shall make a tender offer unless the consideration offered and paid to any security holder for its securities tendered is the highest consideration paid to any other security holder for its securities tendered. In addition, relief was granted from Rules 14d-11(b) and 14d-11(f) under the Exchange Act, which provide that a bidder may offer a mix of consideration in a subsequent offering period provided there is no ceiling on any form of consideration offered, and the same form and amount of consideration is offered in both the initial and subsequent offering periods.

The Staff’s position in Alamos Gold is consistent with the no-action relief granted in prior Canadian cross-border transactions involving a mix of stock and cash consideration subject to aggregate maximums, including Barrick Gold Corporation (avail. January 19, 2006) and Teck Cominco Limited (avail. June 21, 2006).

This relief comes at a time when there is a noticeable increase in cross-border M&A activity and shareholder activism in Canada. In particular, Coeur d’Alene Mines’ recent announcement of its CAD$350 million acquisition of Orko Silver Corp. and First Quantum Minerals’ CAD$5.1 billion acquisition of Inmet Mining Corp. Thus, when structuring acquisition transactions in Canada, and elsewhere, bidders should consider the Division’s increasingly flexible approach to allowing the offer of stock and cash alternatives in tender offers.

Cornerstone Research does a great job marketing its studies – and the latest M&A litigation one is no exception. Kevin LaCroix has read it and gives his analysis in this blog…

In this blog, Francis Pileggi provides a few notes from the 25th Tulane Corporate Law Institute – so does this “M&A Law Prof Blog.” Here are three other pieces:

– Strine on M&A Litigation Settlements: ‘Catfish Can’t Get Much Lower’
– Delaware Supreme Court Judge Gives Strine Another Lash
– Citigroup Banker Says It’s Too Early to Toast a Revival in M.&A.

We have posted the transcript of our recent webcast: “Growing Controversies Over Company Valuations Under Delaware Law.”