In this podcast, Patrick Lawler of Chapman & Cutler delves into how private equity funds are borrowing to support their M&A habits, including:
– Has increased borrowing from private equity funds helped fuel the trend of these funds doing M&A?
– What are the latest private equity trends regarding when they borrow?
– What are some of the key issues that private equity borrowers consider in securing financing for their transactions?
The Evolving ‘Best Price’ Rule
Tomorrow, catch the head of the SEC’s Office of Mergers & Acquisitions (as well as two former SEC Staffers) in our webcast: “The Evolving ‘Best Price’ Rule.” Spurred by conflicting court decisions, the SEC recently adopted amendments to its “best price” rule. Join these experts as they explore the impact of this rulemaking on M&A activity:
– Brian Breheny, Chief, Office of Mergers & Acquisitions, SEC’s Division of Corporation Finance
– Dennis Garris, Partner, Alston & Bird LLP
– Jim Moloney, Partner, Gibson Dunn & Crutcher LLP
What this program will cover:
– What changes did the SEC make to the best price rule?
– What issues might still arise in the wake of the SEC’s changed rule?
– How might the SEC’s changes impact deal structures?
– How might the SEC’s changes impact compensation arrangements in transactions?
In our “Conference Notes” Practice Area, we have posted notes from the “Public Company M&A Developments” panel held at the recent PLI Securities Law Institute. Panelists included:
– Brian Breheny, Chief, Office of Mergers and Acquisitions, SEC’s Division of Corporation Finance
– John Finley, Partner, Simpson Thacher & Bartlett LLP
– Gregory Varallo, Partner, Richards Layton & Finger, PA
– Patricia Vlahakis, Partner, Wachtell, Lipton, Rosen & Katz
Inside Private Equity: Why Funds are Doing the Going Private Deals
Over the holidays, I read this interesting Fortune article about the mindset and strategies involved with private equity funds doing deals. Below is an excerpt from the article:
“Yet there is another side to this story. The little-discussed heart of the matter: There are management strategies and techniques that enable PE-owned firms to produce stunning results that others can’t match. These successful practices have long seemed shrouded by the “private” in private equity. But they needn’t be.
Look inside the companies owned by major private-equity firms, talk to the executives who run them, and you’ll find a distinctive way of managing that’s sharply different from what goes on in most publicly traded companies or most private companies under conventional ownership. Investigation shows why privately held firms – at least if they’re owned by one of the major buyout shops – have important advantages over competitors, and why they’re regrading the playing field in several industries. Many of the lessons apply to virtually any organization.
The differences begin at the most fundamental level, with new objectives. Private-equity firms want to buy companies for their portfolio, fix them, grow them and sell them in three to five years. The eventual buyer could be another company in the portfolio company’s industry, another private-equity firm or the public, through an IPO. The holding period is occasionally less than a year or as long as ten years. But always the goal from day one is to sell the company at a profit.
Facing a goal like that changes a manager’s mindset – usually in positive ways. No longer seeing a corporate future that stretches indefinitely into the distance, executives realize that they gain nothing by resisting change: With the exit looming, driving change is their only hope.
‘Everybody in the company knows you’re on a sprint to do well,’ says von Krannichfeldt. ‘It’s not this mindset of working for a company that’s been there for 100 years and will continue for another 100 years. I find this much more intense than a public company.’
Pay is a whole different concept in PE-owned companies. Don’t come to play unless you’re prepared to put significant skin in the game. While public companies talk a lot about aligning executive pay with performance, they typically award stock options and restricted stock on top of already substantial pay packages, giving executives lots to gain but little to lose.
And in big companies those options reflect the fortunes of the overall corporation, not the specific business a manager is running. By contrast, private-equity firms make the game much more serious. Not only is a far larger share of executive pay tied to the performance of an executive’s business, but top managers may also be required to put a major chunk of their own money into the deal.”
After then talking about all the freedoms of the privately-held company, the article goes on to note: “If it all sounds too good to last, some people worry that it may be. Private equity has become so large, powerful and successful that some firms may be doing too much, too fast.”
Last week, a lawsuit – Murphy v. Kohlberg Kravis, 06-cv-13210, Southern District of New York (Manhattan) – was filed accusing a slew of buyout firms of rigging buyouts. We have posted a copy of the complaint in our “M&A Litigation” Portal – and this lawsuit is analyzed in this blog.
Below is an article from Bloomberg on the lawsuit:
Kohlberg Kravis Roberts & Co., Carlyle Group and most other major U.S. buyout firms were accused in a shareholder lawsuit of illegally conspiring to hold down the prices they paid when taking companies private.
The suit was filed in Manhattan federal court by investors who claim they were shortchanged because the firms restrained bidding for leveraged buyouts such as the $33 billion takeover of hospital chain HCA Inc., the largest LBO ever. It alleges the firms broke antitrust laws by forming “clubs” to make offers, sharing information and agreeing not to outbid each other.
“Investors in the target company are deprived of the full economic value of their holdings and `squeezed out’ at artificially low valuations,” says the suit, which seeks class- action status. Private-equity firms, which have announced a record $425 billion of LBOs this year, are already the target of a U.S. Justice Department investigation into possible antitrust behavior. They’ve also come under fire in Europe and the U.S. for burying the companies they buy in debt while recouping their costs with dividends.
The lawsuit, which seeks unspecified damages, resembles a pending antitrust case in Manhattan federal court. That one accuses 12 investment banks, including Goldman Sachs Group Inc. and Merrill Lynch & Co., of rigging initial public offerings of technology companies in the late 1990s. A federal appeals court last year ruled that the case, which alleges that the firms required investors who received IPO shares to buy additional stock in the after-market, can go forward. “This is a class action for people who were bought out,” said Fred Isquith, a lawyer at Wolf Haldenstein Adler Freeman & Herz in Manhattan, which brought the case.
Triple Damages
U.S. District Judge Louis Stanton in New York will determine whether to grant the suit class-action status. The complaint seeks to represent tens of thousands of shareholders in dozens of LBOs. Since the lawsuit alleges violations of federal antitrust laws, plaintiffs would be able to recover triple damages if they win. The other firms named as defendants in the complaint are Clayton, Dubilier & Rice Inc., Silver Lake Partners, Blackstone Group, Bain Capital LLC, Thomas H. Lee Partners LP, Texas Pacific Group, Madison Dearborn Partners LLC, Apollo Management LP, Providence Equity Partners Inc., Merrill Lynch & Co. and Warburg Pincus LLC.
The only top-tier U.S. buyout firms missing from the suit are Cerberus Capital Management LP and Fortress Investment Group LLC. Other than Merrill Lynch, the suit doesn’t include the private-equity units of the largest investment banks. Officials for the defendants either declined to comment or didn’t immediately return phone calls seeking comment.
Three Deals
According to the suit, the named plaintiffs – L.A. Murphy, Marvin Sternhell and Henoch Kaiman — were investors in three companies: HCA, Univision Communications Inc. and Harrah’s Entertainment Inc. The suit says the investors would have gotten more for their shares if there had been “free and open competition” among the firms bidding for the companies.
Instead, the firms conspired to “artificially fix, maintain or stabilize” buyout prices. The 20-page complaint doesn’t provide any details on how the firms allegedly fixed prices. Private-equity firms use a combination of equity and debt for takeovers and seek to cuts cost, improve cash flows and invest in technology to bolster the long-term prospects of their investments before selling them after three to five years.
Lower Price
On July 24, a group including KKR and Merrill Lynch, both based in New York, and Bain Capital of Boston agreed to buy HCA. The firms were joined by Thomas F. Frist Jr., a co-founder of the Nashville-based company. The price, equal to $51 a share, was 6.5 percent more than HCA’s closing price on the previous trading day.
Univision on June 27 accepted an offer of $12.3 billion, or $36.25 a share, from a buyout group that included Chicago-based Madison Dearborn; Providence Equity of Providence, Rhode Island; Texas Pacific Group, which is based in Fort Worth, Texas; Boston- based Thomas H. Lee Partners; and billionaire investor Haim Saban. The purchase price was lower than the $40 a share that the Los Angeles-based company had originally sought before three buyout firms dropped out of a rival bidding group led by Spanish broadcaster Grupo Televisa SA. Blackstone and KKR, both based in New York, and Washington-based Carlyle pulled out amid disagreements over how much to offer.
Harrah’s Entertainment is weighing a buyout offer of $15.5 billion, or $83.50 a share, from New York-based Apollo Management and Texas Pacific Group after rejecting an earlier $81-a-share offer from the two LBO firms. The new offer is 11 percent higher than Harrah’s share price of $75.11 at 1:36 p.m. in New York Stock Exchange composite trading.
In this no-action letter, the SEC Staff granted relief in connection with Bayer’s tender offer for Schering to permit the bidder to provide for a two-month subsequent offering period. SEC rules limit the subsequent offering period to 20 business days. This relief was granted to avoid a conflict with German law which permits a longer period. The SEC also granted relief allowing the bidder to adjust the consideration offered (during both the initial offering period as well as the subsequent offering period) in order to take into account any statutory interest as well as the payment of any guaranteed dividends payable pursuant to the terms of the agreement between the parties and German law. So rather unique fact pattern – but you are not going to see this come up every day…
Here is a blurb from Saturday’s WSJ: “It’s no longer sufficient for corporate chieftains heading into battle to employ an army of mercenaries — now many of them need more than that. Half of all companies have hired more than one banking adviser when doing deals this year. That’s the most to date. But while it may be good news for bankers worried about full employment, companies aren’t necessarily doubling their fees.
During the most recent mergers-and-acquisitions boom, only about a third of companies used multiple advisers on deals, according to Dealogic, which compiles corporate-finance data. One explanation for this is that the 2001 stock-market implosion exposed much of the previous decade’s deal-doing as misguided. Combined with the post-Enron scandals, that propelled directors to take on extra outside help, not least out of fear of their legal liabilities.
This trend plays well with the boutique investment banks whose senior rainmakers are marketing themselves as consiglieri proffering counsel directly to executives without armies of bankers behind them. Indeed, boutiques such as Evercore and Greenhill have taken a quarter more of advisory fees this year than they did in the past year.
And with only half of all deals using more than one adviser, there’s ample room to grow. That’s a great opportunity for new shops such as Joe Perella’s boutique, even if it means dividing an only slightly bigger pie among many more hungry mouths.”
Today, the SEC posted the adopting release for its best price rule amendments. They will become effective 30 days after publication in the Federal Register.
From ISS’s 2006 Postseason Report: Not long ago, mergers and acquisitions advisers routinely viewed transactions as “in the bank” immediately upon the announcement of a deal. While regulatory concerns could occasionally scuttle a deal, the shareholder vote was usually a foregone conclusion. But today, thanks to hedge fund activists, a shareholder vote can be very much in doubt.
Consider the Novartis buyout of Chiron earlier this year. Novartis originally offered $40 per share and then raised its bid to $45. After CAM North America and ValueAct Capital opposed the deal as inadequate, Novartis ultimately agreed to pay $49 per share, and shareholders approved the transaction with 85 percent of votes cast. While detractors contend that hedge funds have short-term trading interests that diverge from the interests of companies and their long-term investors, examples such as Chiron indicate ordinary investors can benefit from the efforts of hedge funds.
The Chiron case also illustrates the crucial role that hedge funds played this past year in M&A. Hedge funds also helped produce a record year for proxy contests. The most notable fight occurred at H.J. Heinz, where Nelson Peltz’s Trian Group hedge fund fielded a five-nominee slate. Despite a $13 million effort by management to woo institutional investors, the dissidents won two seats. While Heinz had the support of labor investors and the California Public Employees’ Retirement System, Peltz, who described himself as an “operational” activist, won support from ISS and two other proxy advisory firms. Heinz was not Peltz’s only target this year. In March, he persuaded the board at Wendy’s International to install three of his nominees.
A confluence of trends has opened the door to these hedge fund activists. First, high-profile M&A disasters like the AOL-Time Warner merger and numerous academic studies have established a new conventional wisdom among investors that a significant percentage of deals destroy shareholder value. Second, high-profile scandals, such as Enron, WorldCom, and Tyco International, have made shareholders more cynical about the decision-making processes of directors. Lastly, investors and regulators have begun to pay more attention to how fiduciaries vote shares. Today, institutional shareholders who consistently defer to management may be accused of abdicating their fiduciary duties.
Hedge funds, with their growing economic clout (an estimated $1 trillion in assets under management worldwide), have become the catalyst for the new world order of M&A and proxy fights. While union and public pension funds have long voiced concerns over golden parachutes or the labor impact of a proposed deal, hedge funds maintain a laser focus on shareholder value. After all, fund managers get paid 20 percent of any shareholder value they can “help” create.
Such thinking is even spreading to an unlikely quarter: traditional asset managers. These managers have long preferred to work behind the scenes and sell their shares if their concerns were not remedied. But lately, some asset managers have taken the first tentative steps toward activism. In the Chiron buyout, dissidents were joined by Citibank’s asset management arm, providing legitimacy to the activists’ cause. To the extent that other traditional investors follow that lead, the power of hedge funds to bring change to companies will only increase.
Mergers and Acquisitions
As of mid-September, 308 U.S. M&A transactions had gone to a shareholder vote. In all of 2005, there were 402 transaction votes, according to ISS data. Other notable mergers and acquisitions from the past year included:
– Guidant’s Acquisition by Boston Scientific: In November 2005, Johnson & Johnson and Guidant announced that they had agreed to cut the price that Johnson & Johnson would pay to acquire the medical device company after Guidant recalled products and announced deteriorating sales. The new price was $63 per share, 17 percent less than the $76 per share Guidant shareholders had expected. In December, Boston Scientific started a bidding war for Guidant. Guidant announced in January that it had agreed to be acquired by Boston Scientific for $80 a share in cash and stock. Shareholders of both companies approved the transaction in March with more than 97 percent of votes cast. In September, Johnson & Johnson, which received a $705 million break-up fee, sued Boston Scientific and Guidant, contending that Guidant leaked confidential information. Boston Scientific contends that the lawsuit has no merit.
– Sprint Nextel’s Acquisition of UbiquiTel: In April, UbiquiTel, a seller of wireless phone service under the Sprint brand, agreed to be acquired by Sprint Nextel for $10.35 per share. The total deal was valued at approximately $1.3 billion (based on $1.0 billion in equity value plus $297 million in net debt). Deephaven Capital Management (an 18 percent shareholder) submitted a filing expressing its opposition to the offer price. Shareholders approved the merger in June.
– Armor Holdings’ Acquisition of Stewart & Stevenson Services: In late February, Stewart & Stevenson Services, which makes and services military vehicles, announced that it had agreed to be purchased by Armor Holdings for $35 per share. In March, Oshkosh Truck announced it had participated in an auction process and had bid $35.50. Oshkosh also stated that it was prepared to offer a higher price, but it was barred by a standstill agreement from making an offer after the process concluded. In April, Ramius Capital (a 5 percent shareholder) urged Stewart & Stevenson’s board to waive the standstill provisions and permit other parties to make a superior proposal. Shareholders approved the $1.14 billion transaction by more than a two-thirds vote in May.
– Micron Technology’s Acquisition of Lexar Media: Lexar Media and Micron Technology agreed to merge, with Lexar shareholders receiving 0.5625 shares of Micron common stock per Lexar share. Billionaire investor Carl Icahn and hedge funds Elliott Associates and Glenview Management opposed the deal, arguing that the price for their Lexar shares was too low. In response, the companies agreed to swap shares at a higher exchange ratio (0.5925 Micron shares per Lexar share), a 5 percent increase from the initial ratio. Glenview supported the revised deal, but Elliott and Icahn opposed it. The $801 million transaction was approved narrowly by Lexar shareholders in mid-June.
Notable International Transactions
In one of the year’s biggest international transactions, Dutch-based Mittal Steel merged with Arcelor of Luxembourg after Arcelor shareholders rejected a competing bid from Russia’s Severstal. Arcelor agreed to the € 27 billion ($34.5 billion) transaction in June after months of acrimony. The combined company, which now holds 10 percent of global steel production, plans to expand in India and China. The fight for Arcelor, along with Enel’s overtures for Suez and other hostile bids in Europe, inspired France and Luxembourg to adopt legislation to permit “poison pill” takeover defenses.
In a significant trans-Atlantic deal, Lucent Technologies agreed to merge with French telecom firm Alcatel. Lucent shareowners will receive 0.1952 of an American depositary share of Alcatel for every common share of Lucent that they hold. Upon completion of the €8.6 billion ($11 billion) merger, Alcatel shareholders will own approximately 60 percent of the combined company and Lucent shareholders will own about 40 percent. Shareholders at both firms voted to approve the transaction in early September, despite concerns that Alcatel was overpaying for Lucent.
Also this year, six mining companies were involved in a flurry of competing transactions. Toronto-based Inco sought to acquire fellow Canadian nickel producer Falconbridge in a friendly acquisition, but faced a rival bid from Xstrata, a Swiss coal producer. In May, Teck Cominco, a Canadian zinc producer, launched a hostile bid for Inco. Phelps Dodge of the United States joined the fray with a friendly offer for Inco. CVRD of Brazil, the world’s largest iron ore producer, jumped with its own hostile all-cash offer for Inco. Falconbridge decided to accept Xstrata’s offer. Teck pulled out in August, and Inco’s board recommended that shareholders vote for the Phelps Dodge cash-and-stock offer. In early September, Inco and Phelps Dodge canceled the $18.2 billion deal after concluding from early proxy returns that the transaction would not receive the necessary two-thirds approval from Inco shareholders.
Other international transactions in the news include: German energy giant E.On’s offer for Endesa of Spain; the competing bids for Euronext by the NYSE Group and Deutsche Boerse; the merger of European autoway operators Autostrade and Abertis; Sears Holdings’ effort to buy the remaining shares of Sears Canada; and the merger of Tattersall’s and UniTab in Australia.
Surge in Proxy Contests
So far, it appears that 2006 will be a record year for proxy fights. According to FactSet Research Systems’ SharkRepellent.net Web site, there were 80 proxy fights during the first six months of the year. That exceeds the 54 fights in all of 2005, the 40 contests in 2004, and 74 contests in 2003. (SharkRepellent counts a proxy contest once an investor files a notice of an intent to submit proxy materials, so its numbers are higher than other firms that track only fights where actual materials are filed.) In addition to proxy fights, there have been 122 other activist campaigns this year where shareholders have advocated for stock buybacks, increased dividends, sale of the company, or other change, according to SharkRepellent.
Another factor that has led to more proxy fights has been the gradual erosion of poison pill plans, classified boards, and other takeover defenses. Fifty-four percent of S&P 500 companies don’t have poison pills, while a majority of S&P 500 directors likely will be subject to annual elections by the end of 2006, according to ISS data.
This season, hedge funds have been successful in many of their dissident campaigns. According to investment bank Morgan Joseph, hedge funds have won board representation in 35 percent of their campaigns.
While the Heinz proxy fight generated significant attention from investors, many proxy fights have settled before going to a vote. By mid-August, 31 proxy fights tracked by ISS had culminated in a settlement. So far this year, 21 proxy contests have gone to a vote, as compared with 18 in all of 2005, according to ISS data.
The most notable company to settle a proxy fight this year was Time Warner, which reached an accord with Carl Icahn in February. Icahn, joined by Franklin Mutual Advisors, SAC Capital Advisors, and JANA Partners, raised concerns about the company’s strategy to release value for shareholders. In early February, Icahn and his allies presented a report that called for Time Warner to be split into four publicly traded companies and to buy back at least $20 billion of stock. A week later, Icahn and the company announced a settlement, under which Icahn agreed not to run a minority slate, while management committed to increase the size of a share buyback, slash additional costs, and appoint two new directors. The Time Warner case is a prominent example of a recent trend of hedge funds banding together to advocate for governance, strategic, or financial change.
Other recent settlements include Acxiom’s settlement with ValueAct Capital, the agreement by Pep Boys to nominate four directors proposed by Barrington Capital Group, and the settlement that Topps reached with Pembridge Capital Management and Crescendo Partners.
Settlements between issuers and activist shareholders are typical of the compromise a target company will “choose” when it becomes clear that it will lose a proxy fight. With a settlement, the issuer may be able to extract some concessions from the dissidents (usually a board seat or two) that it was unlikely to have obtained if the original slates had gone to a vote. Moreover, the company is able to save face by not officially “losing” the contest. At the same time, the dissidents often can get everything they asked for and appear reasonable, which can only enhance their options in future negotiations.
In addition to Heinz and Time Warner, other noteworthy proxy fights included:
– BASF’s Hostile Tender Offer for Engelhard: German chemical giant BASF launched a proxy contest for five seats on Engelhard’s classified board along with a hostile tender offer. Engelhard, a New Jersey-based firm that makes pollution control equipment, countered by offering a recapitalization plan that called for a $45 per share cash self-tender for up to 20 percent of its shares. BASF originally offered $37 per share and then raised its bid to $39. On May 30, three days prior to the scheduled meeting, Engelhard announced a merger agreement with BASF and recommended that investors accept the German firm’s $5 billion offer. Shareholders subsequently tendered more than 90 percent of the shares.
– Massey Energy’s Proxy Fight With Third Point: Massey Energy operates coal mines in West Virginia, Kentucky, and Virginia. Third Point nominated two directors, arguing that the board needed a “new voice.” Third Point claimed that the company has “massively” underperformed industry benchmarks and had “lavished” compensation on its CEO. Management argued that its strategic plan has contributed to a significant increase in shareholder value in the past five years and that the board had been responsive to shareholder concerns. After a dispute over vote results, the company agreed in July to allow the dissident nominees to join the board and to reimburse some of their legal fees.
– InfoUSA’s Proxy Fight With Dolphin: Dolphin LP sought the election of three nominees to infoUSA’s board. The dissidents faced an uphill challenge because CEO and Chairman Vinod Gupta and his family owned 43.6 percent of the Nebraska-based mailing list company. Dolphin argued that the company has performed poorly since 2001 and has traded at multiples that are below those of its public peers. Management countered that it delivered 4 percent organic revenue growth in the first quarter of 2006 and was implementing a strategic plan to position the company for continued growth. The incumbent directors narrowly survived, winning at least 50.7 percent approval in May. Dolphin reported that investors not affiliated with management supported the dissident slate by a 13 to 1 margin.
We have posted a transcript from our recent webcast: “SPACs: How to Use a Special-Purpose Acquisition Company.”
Court Rules Against Dutch Takeover Defense
From ISS’ “Corporate Governance Blog“: The European Commission moved a step closer to its goal of establishing the fundamental shareholder right of “one-share, one-vote” when the European Court of Justice (ECJ) ruled late last month against the Dutch government’s holding of “golden share” takeover defenses in two firms.
European governments should “avoid wasting their time in introducing special share arrangements,” commission spokesman Oliver Drewes told the International Herald Tribune following the ruling. Drewes said the ruling would aid the commission as it turned its sights on Germany, where for years the body has sought to repeal defenses protecting Volkswagen.
In 2003, the commission filed suit against the Dutch government, arguing the golden shares it held in telecommunications giant Royal KPN and postal-services company TNT hindered foreign investment in those firms and violated the principle of the free movement of capital.
The two companies were privatized in 1994, but the government retained a 20 percent stake in KPN and a 35 percent stake in TNT, formerly known as TPG. The golden shares give the Dutch government veto power over stock issues; restrictions on, or removal of, priority rights of ordinary shareholders; acquisitions, disposals or dissolution; withdrawal of the special share, bylaw amendments; and dividend distributions.
The Dutch government argued that its golden shares complied with Article 56 of the European Community that prohibits restrictions on the free movement of capital across national borders. “Even if a link were to be established between the special shares at issue and the decision to invest, such a link would be so uncertain and indirect that it could not be regarded as constituting an obstacle to the free movement of capital,” the Dutch government contended, according to court records. Amsterdam also argued its golden share in TNT was justified because it would guarantee “universal postal service” and thus represented an “overriding reason in the general interest.”
The court agreed with commission officials who argued that the special shares convey disproportionate influence to the government over important management decisions such as the structure of the companies and business activities. The fact that the special shares could only be withdrawn with the government’s approval also provided ammunition for commission lawyers arguing against the defenses.
The commission views the ruling as a critical step toward removing barriers to cross-border acquisitions in what many investors view as an environment of renewed protectionism in Europe. After Mittal Steel launched a takeover of Arcelor earlier this year, Luxembourg and France enacted laws making it easier for firms to deploy takeover defenses.
Last month’s ruling, however, may discourage such initiatives and put greater pressure on Germany to remove limitations that bar any investor from acquiring more than 20 percent of Volkswagen’s voting rights. Commission spokesman Drewes said he “was absolutely confident that this case [Volkswagen] will go in the way that is favorable to the opinion of the European Commission.” In 2003, the commission won similar cases against the Spanish and U.K. governments’ golden shares in national champion companies, including airport operator BAA in Britain and Spain’s Telefonica and energy giant Repsol.
Today, the SEC adopted long-awaited amendments to the best-price rule, Rule 14d-10, which brings the M&A world back to “normal” in the wake of conflicting decisions among the US Circuit Courts in this area during the past few years. Here is an opening statement from Corp Fin – and here is an opening statement from Chairman Cox.
As expected, the amendments:
– clarify that the rule applies only with respect to the consideration offered and paid for securities tendered in a tender offer
– clearly exclude compensation arrangements, so long as they meet certain requirements
– provide a safe harbor for compensation arrangements that are approved by independent directors
– include an exemption that contains specific substantive standards that must be satisfied
Join two of the SEC Staffers who drafted the rule amendments – as well as two former SEC Staffers who served in Corp Fin’s Office of Mergers & Acquisitions – in this newly announced webcast: “The Evolving ‘Best Price’ Rule.”
On Wednesday, the SEC announced that it will take action on a number of items, including:
– adopting changes to the tender offer best price rule next Wednesday, October 18th
– delaying a proposal to amend Rule 14a-8 from next Wednesday to December 13th (remember this is the AFSCME case response from the SEC)
– proposing guidance on internal controls on December 13th (part of the SEC’s recommended package of 404 relief announced by the SEC a few months ago)
– adopting rules for foreign private issuer deregistration on December 13th
– adopting rules for e-Proxy (i.e., Internet proxy delivery) on December 13th
Based on the SEC’s notice about next week’s “best-price” rule consideration, it appears that the SEC will apply the amendments to both issuer and third-party tender offers and will clarify that the best-price rule (i) does not apply to securities that are not tendered in a tender offer; and (ii) does not apply to consideration paid according to employment compensation, severance or other employee benefit arrangements with securityholders. It does not appear that the amendments will provide similar exemptive relief or a safe harbor with respect to other agreements with securityholders (e.g., commercial arrangements) or that they will include a de minimus exception.
And as the shareholder proposal rule amendment quickly became a political issue – and potentially a 3-2 vote along partisan lines if shareholder access was not included as part of the SEC’s proposal – my guess is that the delay might have been to move it to a post-election date…
M&A Dispute Resolution: Getting Deal Lawyers Into the Game
Next Tuesday, catch Jim Freund, Mediator and former Partner of Skadden Arps Slate, Meagher & Flom LLP – and one of the foremost M&A lawyers of any generation – in our webcast: “M&A Dispute Resolution: Getting Deal Lawyers Into the Game.” Settling the all-too-frequent post-closing disputes spawned by M&A deals is too important to be left solely to the litigators! Transactional lawyers should step up to the plate to help achieve commercially-sound solutions through negotiation or mediation.
Among other topics, Jim will cover:
– Why is resolving disputes such tough work
– How deal lawyers can add real value for their clients in the mediation process
– What are some common pitfalls in M&A disputes – and how to overcome them
– What are the keys to persuading a mediator as to the merits of your cause
And now you can catch this program at no cost if you take advantage of our no-risk trial for 2007 (and get access to DealLawyers.com for the rest of 2006 for free).