On December 19, 2014, the Delaware Supreme Court issued a ruling reversing an order of the Court of Chancery granting a preliminary injunction that would have enjoined an agreed-to merger and required a mandatory post-signing 30-day go-shop period. In C&J Energy Services, Inc. v. City of Miami General Employees’ and Sanitation Employees’ Retirement Trust, No. 655/657 (Del. Dec. 19, 2014), the Supreme Court held, among other things, that the Court of Chancery had imposed a non-existent requirement that a selling company must engage in an active market process as a matter of law.
The Transaction. The transaction that … Read more
On December 8, 2014, the American Bankruptcy Institute (“ABI”) Commission to Study the Reform of Chapter 11 (the “Commission”) issued its Final Report and Recommendations (the “Report”). The Report proposes a number of important changes to Chapter 11.
The Commission was formed in 2012 to respond to shifts in the financial markets, corporate structures and credit and derivatives products since the Bankruptcy Code’s adoption in 1978 and is comprised of leading bankruptcy practitioners, professors and judges. The Report is the result of an in-depth, two-year review of Chapter 11 by the Commission and 13 separate Advisory Committees. The “Recommended Principles” … Read more
In In re Zhongpin Inc. Stockholders Litigation (Nov. 26, 2014), the Delaware Chancery Court found that the plaintiffs had pled sufficient facts to raise an inference that Xianfu Zhu, who was the company’s founder, Chairman and CEO, was a controlling stockholder, even though he owned only 17% of the company’s stock and had not controlled the directors’ decision relating to his going-private bid. Vice Chancellor Noble’s decision appears to have been based on a conclusion that the unusual degree to which Zhu was indispensable to the company as a practical matter precluded the special committee from functioning effectively because—without Zhu’s … Read more
Just five weeks after the Antitrust Division of the U.S. Department of Justice announced that Flakeboard America had abandoned its plan to acquire a medium-density fiberboard (MDF) mill and two particleboard mills from SierraPine in the face of the Division’s competitive concerns, the Division has settled separate gun-jumping and Section 1 claims against the same parties relating to their conduct during the course of the Division’s review of the transaction.
This enforcement action is a reminder that parties to mergers and acquisitions – whether or not reportable under the Hart-Scott-Rodino Act (“HSR Act”) regime – need to exercise care both … Read more
[On November 5, 2014,] the Board of Governors of the Federal Reserve System (the “Federal Reserve”) approved a final rule (the “Final Rule”) implementing Section 622 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), which establishes a financial sector concentration limit (the “Section 622 Concentration Limit”). The Section 622 Concentration Limit generally prohibits insured depository institutions, bank holding companies, foreign banking organizations (“FBOs”) that are treated as bank holding companies, savings and loan holding companies, other companies that control an insured depository institution, as well as nonbank financial companies designated by the Financial Stability Oversight … Read more
In an October 14, 2014 decision on a motion to dismiss, the Delaware Court of Chancery (C Bouchard) held that business judgment review applied to breach of fiduciary duty claims asserted against directors in connection with a stock-for-stock sale of KKR Financial Holdings LLC (“KFN”) to KKR & Co. L.P. (“KKR”), an entity which held 1% of KFN’s stock and whose affiliate managed KFN’s day-to-day operations under a management agreement having terms making it difficult for KFN to sell to anyone other than KKR. The Court held business judgment to be the appropriate standard of review because (i) the … Read more
The Treasury Department and the IRS recently released Notice 2014-52 (the “Notice”), which describes regulations that the government intends to issue to target the tax benefits of corporate inversions. The provisions of the Notice are summarized in our previous client memorandum dated September 23, 2014, Treasury Issues Long-Awaited Anti-Inversion Guidance. This Client Newsflash highlights a feature of the Notice that has not attracted much public attention, and that appears both to eliminate the ability of many foreign insurance companies to participate in inversion transactions and to impede the ability of many foreign insurance companies to acquire U.S. target companies … Read more
In the first half of 2014, master limited partnership (MLP) mergers and acquisitions (M&A) transactions represented approximately 25 percent of all US oil and gas industry M&A activity. MLP transactions in the midstream and upstream subsectors have dominated the MLP M&A market. By value, the vast majority of these deals (88 percent) consisted of public companies acquiring private targets. Following the trend from last year, entity-level (as opposed to asset-level) M&A transactions have been the primary form of MLP M&A activity so far this year. From this year’s transactions, we have identified four trends worth exploring.
1. The Kinder Morgan … Read more
On September 30, 2014, the Delaware Supreme Court reversed a jury verdict finding that ev3, Inc. breached its contractual obligation to the shareholders of Appriva Medical, Inc., a company purchased by ev3. In ev3, Inc. v Lesh, No. 515m 2013, the Delaware Supreme Court ruled that an integration clause in a definitive merger agreement that provided for survival of a previously signed letter of intent did not transform the non-binding provisions of the LOI into binding provisions. The case was remanded to the Delaware Superior Court for further proceedings consistent with the Delaware Supreme Court’s opinion.
Post-Merger Milestone Payments… Read more
Hedge fund activism has increased almost hyperbolically. Some view this optimistically as a means for bridging the separation of ownership and control; others are more pessimistic, seeing mainly wealth transfers from bondholders or speculative expectations of a takeover as fueling the spike. Equivalent division exists over the impact of this increased activism, with optimists seeing real gains that do not erode over time and improvements in operating performance, and pessimists predicting shortened investment horizons, increased leverage, and reduced investment in research and development.
In a paper recently posted on SSRN, we take an analytic perspective. We begin by surveying the … Read more
The following post comes to us from Minor Myers, Assistant Professor at Brooklyn Law School, and Charles Korsmo, Assistant Professor at Case Western Reserve University School of Law. It is based on their recent paper, “The Structure of Stockholder Litigation: When Do the Merits Matter?,” which is forthcoming in the Ohio State Law Journal and is available here.
We offer a novel perspective on an old question in corporate law: Do the merits matter in stockholder litigation? In short, we find that the merits appear to matter very little in an important type of stockholder litigation—fiduciary duty class … Read more
Berkshire Hathaway Inc. has agreed to pay a civil penalty of $896,000 concerning its conversion of notes into voting securities of USG Corporation in December 2013, which was more than five years after Berkshire’s HSR Act filing to acquire an initial USG stock position and thus past the expiration date of the original HSR. In addition, Berkshire previously had made a corrective filing in July 2013 concerning the acquisition of voting securities of a different issuer and was, therefore, treated as a repeat offender by the Federal Trade Commission.
On Wednesday, August 20, the Federal Trade Commission (“FTC”) … Read more
A recent Delaware Supreme Court decision highlights the growing risks to companies of extensive statutory “books and records” demands that recently have become a favorite in the toolkit of plaintiffs’ lawyers and even activist shareholders conducting what are often speculative fishing expeditions under the guise of investigating alleged corporate wrongdoing. The statutory inspection right under Section 220 of the Delaware corporation law (and analogous rights in other states) permits shareholders with a holding of any size to access almost any internal information under the control of the company as long as there is a “proper purpose” for the request. Most … Read more
On July 15, 2014, the US Court of Appeals for the District of Columbia (DC Circuit) ruled that if the President, pursuant to his powers under the Exon-Florio Amendment to the Defense Production Act of 1950 (DPA), deprives a foreign acquirer or investor in the United States of its constitutionally protected property interests, the foreign acquirer or investor must be accorded certain due process protections. The case at issue, Ralls Corp. v. CFIUS et al, is the first-ever challenge to the review process conducted by the Committee on Foreign Investment in the United States (CFIUS), an inter-agency committee within … Read more
Alongside the more typical summer fare, such as coverage of the best beach reading and the latest action movie blockbuster, this summer the media have been abuzz with seemingly daily reports on the latest so-called “inversion” transactions shifting a U.S.-based multinational corporation’s tax residence offshore. Recently announced transactions include the Medtronic acquisition of Irish-listed Covidien (which itself had previously inverted); Mylan’s acquisition of the Abbott Laboratories non-U.S. specialty and branded generics businesses for $5.3 billion in stock; and AbbVie’s $54 billion acquisition of Shire, a London-listed, Jersey incorporated, Irish tax resident corporation. Other transactions remain in the planning stages (Walgreens-Boots), … Read more
From 2004 through 2010, the number of appraisal petitions filed in Delaware rose and fell roughly in parallel with the overall level of merger activity, with appraisal rights being asserted in about 5% of the transactions for which they were available. In 2011, however, the rate of petitions more than doubled (to 10%) and it has continued to increase. In 2013, 28 appraisal petitions were filed in Delaware, representing about 17% of appraisal eligible transactions. In 2014, so far, more than 20 appraisal claims already have been filed in Delaware. The amounts at stake in appraisal actions have increased as … Read more
Citing a trend in recent years of private equity firms acquiring insurers, particularly life insurers writing fixed and indexed annuity contracts, the New York State Department of Financial Services on May 14, 2014 released for public comment proposed amendments to its regulations governing the approval process for the direct or indirect acquisition of control of insurance companies domiciled in New York. The proposed amendments seek to reduce “the possibility that any person seeking to acquire control of a New York domestic insurer has interests that conflict with the interests of policyholders, shareholders or the public” and “minimiz[e] the potential … Read more
In a recent decision, Chen v. Howard-Anderson, the Delaware Chancery Court once again questioned the reasonableness of how a board conducted the sale of a company when it permitted stockholder claims to go to trial. The decision provides yet another reminder—if one is needed—that boards and their advisors need to ensure that a sale process is conducted in a manner that promotes a level playing field for all bidders and that disclosure to stockholders provides a fair and balanced description of the process.
Former stockholders of Occam Networks Inc. are challenging the February 2011 merger of Occam and … Read more
Two recent developments have changed the playing field of corporate governance: (1) the Delaware Chancery Court’s ruling this month on the use of a two-tier poison pill in the Sotheby’s case (and Sotheby’s quick and conciliatory settlement two days later, which conceded three seats on Sotheby’s expanded board to Third Point LLC, a particularly aggressive hedge fund), and (2) the joint $50 billion bid of Pershing Square Capital Management and Valeant Pharmaceuticals International Inc. for Allergan Inc. In their wake, every pundit has announced that this is the heyday of hedge fund activism. Fund managers now hold the whip hand, … Read more
The best part of a Delaware Chancery Court opinion is the first 30 or so pages. In most important cases, the opinion typically starts by telling a story – a detailed account of the people who figure in the dispute, what they did, their motives and personalities, and how this character-driven narrative resulted in the dispute the court must resolve. Often there is drama: exposition, crisis and denouement. The recent decision over the validity of a poison pill invoked to disadvantage Third Point’s effort to dislodge Sotheby’s management is a great example. The interest and importance of the case is … Read more