DealLawyers.com Blog

We have posted the transcript for our recent webcast: “Developments in Debt Restructurings & Debt Tender/Exchange Offers.”

Last week, Wachtell Lipton filed a rulemaking petition with the SEC regarding the beneficial ownership reporting rules found in Section 13(d) of the Securities Exchange Act of 1934. Although it’s becoming more common for NYC firms to submit comment letters on SEC proposals, it remains rare for one of those firms to submit a rulemaking petition. Here is an excerpt from Wachtell Lipton’s memo regarding the petition:

Our request highlights the urgent need to amend the existing reporting framework to keep pace with market realities and abuses, in particular by closing the Schedule 13D ten-day window between crossing the 5% disclosure threshold and the initial filing deadline, and adopting a broadened definition of “beneficial ownership” to fully encompass alternative ownership mechanisms. Recent maneuvers by activist investors both in the U.S. and abroad have demonstrated the extent to which current reporting gaps may be exploited, to the detriment of issuers, other investors, and the market as a whole.

The current ten-day window both deprives the investment community of material information and creates an opportunity for investors to engage in “stealth” acquisitions of significant positions to the detriment of their counterparties and issuers, and contrary to the purposes of the Williams Act. Accordingly, we recommend that the SEC require that the initial Schedule 13D filing be made within one business day following the crossing of the 5% ownership threshold, using the “prompt” disclosure standard that the SEC requires with respect to material amendments to existing Schedule 13D filings. In addition, in order to give time for the market and investors to assess Schedule 13D disclosures, we recommend that the SEC adopt a “cooling-off period” between the acquisition of 5% beneficial ownership until two business days after the initial Schedule 13D filing is made during which acquirers would be prohibited from acquiring additional beneficial ownership.

Furthermore, the current definition of “beneficial ownership” under the Section 13 reporting rules is out of date and overly narrow, permitting activists to acquire significant influence and control while evading the 13D reporting requirements. To close this gap, and to keep pace with current market practices and disclosure regimes in other developed financial markets, we recommend that the SEC adopt a broad definition encompassing ownership of any derivative instrument which includes the opportunity, directly or indirectly, to profit or share in any profit derived from any increase in the value of the subject security.

We believe that these actions are necessary to further the smooth functioning and transparency of the U.S. securities markets and restore investor confidence. We urge the SEC to take prompt action to modernize the Section 13 rules consistent with the new authority granted by the Dodd-Frank Act.

Here’s a great example of how blogging has transformed journalism – mostly for the better. This blog on the “Software Advice Blog” analyzes possible future acquisitions by Hewlett-Packard. The blog considers the likelihood of each potential acquisition and presents an infographic that summarizes HP’s recent M&A activity up until now. It even includes a survey to find out what readers think about each possibility. Pretty nifty stuff!

Recently, the FTC and DOJ released a joint report that found that the number of merger filings jumped sharply during fiscal year 2010. Specifically, the agencies said they reviewed 1166 transactions under the Hart-Scott-Rodino Act, an increase of 63% over ’09. We have posted memos analyzing the report in our “Antitrust” Practice Area.

From Kevin Miller of Alston & Bird, a member of our Advisory Board:

On March 4th, the Delaware Chancery Court (VC Noble) issued an injunction prohibiting Atheros from holding a meeting of its stockholders to vote upon a merger agreement with Qualcomm pursuant to which Atheros would be acquired by Qualcomm for $3.1 billion in cash in In re: Atheros Communications. Based on a preliminary record, the Court enjoined the stockholder vote pending the distribution of curative disclosures regarding (i) the fees to be paid to Atheros’ financial advisor and (ii) the timing and extent of discussions with the President and CEO of Atheros with respect to his future employment by Qualcomm.

“Stockholders should know that their financial advisor, upon whom they are being asked to rely, stands to reap a large reward only if the transaction closes and, as a practical matter, only if the financial advisor renders a fairness opinion in favor of the transaction. . . .Defendants point out that contingent fees are customary. As set forth above, they are. Defendants argue that there is no magic contingent percentage that mandates something more than a disclosure that a “substantial portion” of the fee is contingent. Defendants are correct in this assertion as well. The Court, however, need not, in its current effort, draw any bright line. That fixing such a line might be difficult, if perhaps impossible, does not necessitate a conclusion that disclosure of the contingency percentage is always immaterial and of no concern. . . . coupled with the contingent fee concerns set forth above, the stockholders should be afforded an opportunity to understand fully the nature and means by which Atheros will compensate [its financial advisor]. Thus, that would include the amount of the fee as well.”

The Court rejected claims that the proxy statement relating to the merger contained material omissions regarding (i) the use of street forecasts rather than financial projections prepared internally by Atheros and (ii) the discount rate utilized in the discounted cash flow analysis performed by Atheros’ financial advisor. Here’s the proxy supplement.

“[Atheros’ financial advisor] decided that, under the methodology it employed, the internal projections were not useful because they would not allow for an “apples to apples” comparison with the information available for comparable transactions. Thus, it instead used only the Street Projections in its valuation analysis. The Plaintiffs may disagree with that decision, but, as the Court has observed, “[t]here are limitless opportunities for disagreement on the appropriate valuation methodologies to employ, as well as the appropriate inputs to deploy within those methodologies. Considering this reality, quibbles with a financial advisor’s work simply cannot be the basis of a disclosure claim.” [quoting In re 3Com]

The Court also rejected plaintiff’s request for an injunction based on allegations that the Board breached its fiduciary duties by implementing an inadequate sales process resulting in an unfair price.

“On the whole, there is nothing in the record to indicate that the Board acted unreasonably. It was an independent board with deep knowledge of the Company’s industry and it employed a robust and sophisticated process. As a result, the Court will not second-guess the Board’s conduct, and the Plaintiffs have failed to demonstrate any reasonable probability of success on the merits of their price and process claims.”

Tune in tomorrow for the webcast – “3rd Annual Public Company M&A Nuggets” – to hear Jim Griffin of Fulbright & Jaworski, Keith Flaum of Dewey & LeBeouf, Hal Leibowitz of WilmerHale and Claudia Simon of Paul Hastings engage in a lightning round of practical advice, covering all the hot M&A issues you are grappling with today, including the latest on tricky deal provisions and the ultimate list of “do’s” and “don’ts” during deal negotiations.

In his “Delaware Corporate & Commercial Litigation Blog,” Francis Pileggi writes: The tenure of Chancellor William B. Chandler, III on the Court of Chancery since 1989 is the topic of a retrospective article on Boardmember.com. The article describes the importance of the Court in the world of corporate law, and reviews the impact that the Chancellor has had on the Court, with quotes from the Chancellor in response to written questions. At the end of the article is a link to a list of seven cases selected as key opinions of the Court issued during His Honor’s time on the bench.

We have posted the transcript for our recent webcast: “Recent Developments Regarding Fairness Opinions, Valuation Analyses and Related Topics.”

Here is news from Potter Anderson’s John Grossbauer: On Monday, Delaware Vice Chancellor Laster delivered this opinion in Olson v. eV3, in which he awarded $1.1 million in fees to a plaintiff who challenged a top-up option. The Vice Chancellor found the most viable claim to be the technical invalidity claim as to how the option consideration was determined and approved, rather than the “appraisal dilution” claim that has been much discussed. The opinion provides the Court’s view of best practices in the top-up arena, including requiring express board approval for the terms of the top-up.

Here is news from this Wilson Sonsini memo: On February 3rd, the General Office of the State Council of China promulgated the Circular on Formalizing Security Review System of Mergers and Acquisitions of Domestic Enterprises by Foreign Investors (Circular No. 6), which clarifies the mechanisms and procedures for China’s national security review of foreign investments. In this memo, we discuss the scope of and process for China’s national security review as described in Circular No. 6 and the implications for certain foreign investments and cross-border transactions in China.