Last week, in this order, the SEC approved the NYSE’s rule changes to make it easier for SPACs to be listed on the exchange. In addition to SPAC listings, the rule changes will impact reverse mergers. It is expected that the Nasdaq’s SPAC proposals will be approved soon too.
Advance Notice Bylaws: Delaware Supreme Court Affirms Jana Partners
Yesterday, the Delaware Supreme Court issued this Order affirming the decision of the Court of Chancery in the CNET/Jana matter.
Recently, I received a question about an old blog about how officers and directors are not considered passive under Rule 13d. Jim Moloney of Gibson Dunn notes that one thing that he and another lawyer at the firm didn’t cover back in that old blog was the SEC Staff’s informal position that if a 13(d) reporting person starts out reporting on Schedule 13D (because they are not eligible to report on Schedule 13G initially), then they can’t later move over to a Schedule 13G in reliance on one of the other categories permitting reporting on Schedule 13G (i.e., Rule 13d-1(b), (c) or (d)) unless such person was initially eligible to report on Schedule 13G and simply filed on 13D voluntarily.
In the opposite situation, where a reporting person starts out reporting on a Schedule 13G, then loses his or her 13G eligiblity because the person is no longer “passive” for example, that person would need to amend onto 13D and stay there until such time as 13G eligibility is re-established (e.g., the reporting person becomes “passive” again). At that time, the reporting person could move back to reporting on Schedule 13G again.
So the bottom line is that a person can “re-establish” 13G eligibility and move back to reporting on Schedule 13G, but if the person was never eligible in the first place, and filed an initial 13D, that person can not later move onto 13G simply because they become eligible to report on that form. They would need to sell their position down, below 5%, and then purchase shares crossing the 5% along with the requisite 13G eligibility criteria satisfied and could then file an initial report on Schedule 13G. See Rule 13d-1(h) and footnote 23 and accompanying text in the SEC’s 1998 Adopting Release on 13D/G (adopting Rule 13d-1(c)).
JPMorgan Chase/Bear Stearns: Splicing the Delaware Issues
Tomorrow, join us for the rescheduled webcast – “JPMorgan Chase/Bear Stearns: Splicing the Delaware Issues” – as Professors Elson, Davidoff and Cunningham analyze a host of novel provisions in the JPMorgan Chase/Bear Stearns merger agreement.
Yesterday, the SEC posted its 194-page proposing release related to the amendments to the cross-border rules, the first proposed changes to the rules since they were initially adopted in 1999. A departure from recent practice, these proposals were approved by the Commission seriatim rather than in an open Commission meeting.
The proposing release includes many proposed rule changes that would codify existing Staff interpretive positions and exemptive orders – although there are some areas that are proposed to change – as well as some Staff interpretive guidance that the SEC seeks comment on. The SEC’s proposals include:
1. Refinement of the tests for calculating U.S. ownership of the target company for purposes of determining eligibility to rely on the cross-border exemptions in both negotiated and hostile transactions, including changes to:
– Use the date of public announcement of the business combination as the reference point for calculating U.S. ownership;
– Permit the offeror to calculate U.S. ownership as of a date within a 60 day range before announcement;
– Specify when the offeror has reason to know certain information about U.S. ownership that may affect its ability to rely on the presumption of eligibility in non-negotiated tender offers;
2. Expanding relief under Tier I for affiliated transactions subject to Rule 13e-3 for transaction structures not covered under our current cross-border exemptions, such as schemes of arrangement, cash mergers, or compulsory acquisitions for cash;
3. Extending the specific relief afforded under Tier II to tender offers not subject to Sections 13(e) or 14(d) of the Exchange Act;
4. Expanding the relief afforded under Tier II in several ways to eliminate recurring conflicts between U.S. and foreign law and practice, including:
– Allowing more than one offer to be made abroad in conjunction with a U.S. offer;
– Permitting bidders to include foreign security holders in the U.S. offer and U.S. holders in the foreign offer(s);
– Allowing bidders to suspend back-end withdrawal rights while tendered securities are counted;
– Allowing subsequent offering periods to extend beyond 20 U.S. business days;
– Allowing securities tendered during the subsequent offering period to be purchased within 14 business days from the date of tender;
– Allowing bidders to pay interest on securities tendered during a subsequent offering period;
– Allowing separate offset and proration pools for securities tendered during the initial and subsequent offering periods;
5. Codifying existing exemptive orders with respect to the application of Rule 14e-5 for Tier II tender offers;
6. Expanding the availability of early commencement to offers not subject to Section 13(e) or 14(d) of the Exchange Act;
7. Requiring that all Form CBs and the Form F-Xs that accompany them be filed electronically;
8. Modifying the cover pages of certain tender offer schedules and registration statements to list any cross-border exemptions relied upon in conducting the relevant transactions; and
9. Permitting foreign institutions to report on Schedule 13G to the same extent as their U.S. counterparts, without individual no-action relief.
In addition to those proposed rule changes, the Corp Fin Staff provides interpretive guidance or solicit commenters’ views on the following issues:
1. The ability of bidders to terminate an initial offering period or any voluntary extension of that period before a scheduled expiration date;
2. The ability of bidders in tender offers to waive or reduce the minimum tender condition without providing withdrawal rights;
3. The application of the all-holders provisions of our tender offer rules to foreign target security holders;
4. The ability of bidders to exclude U.S. target security holders in cross-border tender offers; and
5. The ability of bidders to use the vendor placement procedure for exchange offers subject to Section 13(e) or 14(d) of the Exchange Act.
If you’re wondering if the lack of an open Commission meeting means that this rulemaking is less important to the SEC, the answer would be “no.” Until a few Chairman ago, most rulemakings were approved seriatim and only the ones that the SEC wanted to get the attention of the mass media were approved at an open meeting. “Seriatim” simply means that each Commissioner signs an order indicating whether they vote in favor of a particular proposing or adopting release.
That trend started to change when Harvey Pitt became Chair (remember all that SOX-forced rulemaking) and it is my hunch that since the open meetings are more “open” now due to the Web, that trend has continued to today. Plus, the SEC likes the publicity. But it’s a production to hold an open meeting, so some rulemakings have to go seriatim to keep the rulemaking machine humming.
Join us tomorrow for the webcast – “2008: The Year of the Hedge Fund Activist” – to learn about the latest strategies and tactics used by hedge fund activists, as well as latest planning tips employed by those that seek to stave off these attacks. The panel includes:
– David Katz, Partner, Wachtell Lipton Rosen & Katz
– Ron Orol, Senior Writer, The Deal and The Daily Deal
– Damien Park, President & CEO, Hedge Fund Solutions, LLC
– Veronica Rendon, Partner, Arnold & Porter LLP
– Professor Randall Thomas, Vanderbilt University Law School
– Christopher Young, Director of M&A Research, RiskMetrics Group
The Death of Contract?
And warm up for Professor Steven Davidoff’s performance in next week’s webcast – “JPMorgan Chase/Bear Stearns: Splicing the Delaware Issues” – (which has been rescheduled to Wednesday, May 14th) by reading Steve’s blog on the NY Time’s DealBook regarding how Bank of America is likely to renegotiate its contract to buy Countrywide. The comments posted about Steve’s analysis are fairly insightful too.
A few months ago, in the wake of the Department of Justice’s inquiry into alleged anti-competitive behavior among private equity firms, a handful of class actions have been filed alleging collusion among private equity firms (here is an example of a complaint from a Massachusetts lawsuit). These complaints generally alleged a conspiracy among private equity firms to rig bids or otherwise collude to suppress the prices paid in going-private transactions.
On February 21st, in what appears to be the first decision to address these issues, a district court dismissed an action – Pennsylvania Avenue Funds v. Edward J. Borey (W.D. Wash) – against two private equity firms that had joined forces in a bidding contest, concluding that the facts alleged did not establish a violation of the Sherman Act. We have posted a bunch of memos analyzing this decision in our “Antitrust” Practice Area.
The Williams Act – 40 Years Later!
On May 21st and 22nd, Georgetown University Law Center will be hosting a conference to commemorate the 40th anniversary of the adoption of the Williams Act takeover regulations. The speakers and panelists will include members of the SEC staff, academics, financial journalists, international takeover regulators, practitioners, bankers, and Delaware judges. It’s free – but you still need to register (here is the agenda). If you have questions, contact Larry Center at center@law.georgetown.edu.
Earlier that week, the SEC’s Division of Corporation Finance will be hosting a meeting of international takeover regulators at the Commission’s headquarters – so representatives from the U.K., Germany, France, Hong Kong, Australia and Japan will be at the conference, lunch and reception if you want to rub elbows with folks from other regulators.
Many thanks to Broc for inviting me to join the blog. I thought I’d use my first post to flag a new case out of Delaware – from the Superior Court, not the Court of Chancery.
In Transched Systems Ltd. v. Versyss Transit Solutions, LLC, 2008 WL 948307 (Del. Super. Ct. Apr. 2, 2008), the court dismissed negligent misrepresentation claims allegedly made by a seller while negotiating an asset purchase agreement. The court had no trouble dismissing the claim in light of the contract’s exclusive remedy provision:
The foregoing indemnification provisions shall constitute the sole and exclusive remedy for monetary damages in respect of any breach of or default under this Agreement by any Party and each Party hereby waives and releases any and all statutory, equitable, or common law remedy for monetary damages any Party may have in respect of any breach of or default under this Agreement.
The court also relied on an integration clause and the following extra-contractual disclaimer:
Except as expressly set forth [herein], Sellers make no representation or warranty, express or implied, at law or in equity, in respect of any of its assets (including, without limitation, the Acquired Assets), or operations, including, without limitation, with respect to the merchantability or fitness for any particular purpose. Buyer hereby acknowledges and agrees that, except to the extent specifically set forth [herein], Buyer is purchasing the Acquired Assets “as-is, where-is.” Without limiting the generality of the foregoing, Seller makes no representation or warranty regarding any assets other than the Acquired Assets or any liabilities other than the Assumed Liabilities, and none shall be implied at law or in equity.
This case is one of many Delaware decisions blessing specific contract language that can limit a party’s remedies to indemnification (except for fraud). It’s also a good reminder for buyers and sellers of the significance of extra-contractual disclaimers.
In yesterday’s fee rate advisory, the SEC announced that filing fees will be going up after October 1st (or whenever Congress approves the SEC’s budget, which historically is significantly later than October 1st) to $55.80 per million from $39.30 per million of securities registered with the SEC.
This is a 42% hike, after a 28% hike last year. Before this period, there had not been a hike for quite some time. Note that there is no mention in the SEC’s press release of a reason for the hike. Actually, the press release doesn’t even mention that this is a hike from last year (but we still remember how Chairman Cox was quite proud of the steep drop in ’06, with a lot of fanfare in that press release). You may recall that the SEC’s fee rates aren’t related to the amount of funding available to the SEC; instead, the money goes to the US Treasury.
Coming Soon: SEC’s Proposal on Cross-Border Rules
I wonder who put the SEC’s Office of Public Affairs up to issuing this odd press release Tuesday to announce that Corp Fin has made its recommendations to the Commission regarding proposals on the cross-border tender, exchange offer and business combination rules? That’s a new one – and I doubt we shall see a press release each time a rulemaking is sent to the 10th floor for consideration.
As noted in this NY Times article on Friday (and this Wilson Sonsini memo), the SEC settled a case with a former securities who allegedly spread false rumors to profit from a pending buyout of Alliance Data Systems by the Blackstone Group (the deal tanked later due to other reasons). The SEC said this was its first “rumormongering” case.
According to the NY Times article, the trader allegedly “fabricated a rumor that Alliance Data’s takeover was being renegotiated to $70 a share from $81.75 a share. The trader said that Alliance Data’s board was meeting to discuss the revised proposal. At the time, Alliance Data’s board members were on a plane and could not be reached for comment.” Trading in Alliance Data’s stock was suspended due to heavy volume caused by the rumor, which the trader had sent via instant messages to 31 other traders and other market participants. He was short selling the stock at the time.
Reading the SEC’s complaint, it’s not clear if the trader knew that the board was on a plane and unavailable – my guess is that he didn’t know (and thus was unlucky because if they had been reached and quashed the rumor more quickly, the damages would have been reduced and perhaps this case wouldn’t have been brought or the penalty would be been less than the $130,000 he ended up paying.
In the SEC’s press release, SEC Chairman Cox noted ““The commission will vigorously investigate and prosecute those who manipulate markets with this witch’s brew of damaging rumors and short sales.” It will be interesting to see if the SEC’s Enforcement Division will be bringing more of these cases, particularly due to the heightened interest in hedge funds and their failures to adopt adequate insider trading compliance programs (see Dave Lynn’s recent blog on the SEC’s Section 21(a) Report involving the investigation of the Retirement Systems of Alabama).
Tune in tomorrow for our webcast – “JPMorgan Chase/Bear Stearns: Splicing the Delaware Issues” – during which Professors Elson, Cunningham and Davidoff will analyze the novel Delaware issues presented by the Bear Stearns transaction, including addressing:
– What significant anti-takeover provisions are in the amended merger agreement?
– How does the provision work that calls for the parties to work in good faith to restructure the deal if Bear Stearn’s shareholders turn it down?
– What is the JPMorgan Chase guarantee – and how does it work? How about the NYC building option and the Section 203 provision?
– How valid are the attacks against the fairness opinions delivered in the deal?
– Why was there a discussion of a 39.5% share exchange and what would be the Delaware law on it?
– How about the abandoned, uncapped 19.9% option – was that valid under Delaware law?
To warm up for the program, check out Professor Davidoff’s analysis of the Form S-4 filed for the deal (which the SEC declared effective on Friday) as well as this WSJ article indicating that post-deal details will be announced soon.
Claims Against Clear Channel Are Dismissed in New York Lawsuit
A New York judge dismissed counterclaims against Clear Channel Communications on Friday in a lawsuit over the funding of a $20 billion buyout of the radio station operator, Reuters reported. (Here is the complaint.)
The private equity buyers, THL Partners and Bain Capital, sued the banks in New York and Texas, seeking to force them to fund the deal. Clear Channel joined them in the Texas suit, but was not a plaintiff in the New York case. The banks had filed several counterclaims against both Clear Channel and the buyout firms.
The judge dismissed the counterclaims against Clear Channel, but said the counterclaims against the buyout firms would continue. The buyout firms must answer those counterclaims within 10 days, the judge said in the ruling. A copy of the ruling was obtained by Reuters.
“We are grateful that Justice Freedman sent our case back to Texas where it belongs,” Clear Channel said in a statement. Clear Channel had agreed to be acquired at the height of the private equity boom last year. The credit markets has changed significantly since then, causing the cost of financing leveraged-loan debt to surge.
The banks were to provide more than $22 billion financing and earn more than $400 million in fees, but they balked when the debt markets deteriorated and asked for the terms of the deal to be changed, according to a copy of one of the suits. “The banks can have their lawyers churn out as many motions and briefs as they want, but ultimately this case boils down to a simple question of right and wrong, and they will face a jury in Texas to decide that question,” Clear Channel said.
The banks, which include Citigroup, Morgan Stanley, Credit Suisse Group , Royal Bank of Scotland Group, Deutsche Bank and Wachovia, said in a statement: “We are happy that the court has ordered that the banks counterclaims against the sponsors should proceed in New York.”
On Monday, the Department of the Treasury’s Committee on Foreign Investment in the United States (“CFIUS”) issued proposed regulations governing national security reviews of foreign investments in US companies. The proposed regulations – issued to implement amendments adopted by the Foreign Investment and National Security Act of 2007 – are the most significant changes to the CFIUS rules since their adoption in ’91. Some say they do not go as far as had been feared in tightening review of foreign acquisitions, but that they do expand the scope and nature of such reviews in limited but important ways. We have posted memos analyzing the proposed changes in our “Sovereign Wealth/National Security Considerations” Practice Area.