On February 3, 2017, the U.S. Federal Trade Commission (FTC or Commission) released the findings of its “Merger Remedy Study” (the FTC Study) which examined the effectiveness of Commission-required remedies in transactions from 2006 to 2012. The FTC Study—its first on merger remedies in over 16 years—provides an important window into the FTC’s current thinking about merger remedies that may help businesses plan and position transactions for FTC approval. Moreover, it also provides several key insights that potential divestiture buyers should consider during and after completion of the divestiture to ensure the remedy is successful.
The FTC Study concluded … Read more
An M&A appraisal case before the Delaware Supreme Court has drawn amicus briefs from two groups of esteemed professors — including three from Columbia Law School — with opposing views on how a company should be valued.
The case involves the sale in 2014 of payday lender DFC Global to private equity firm Lone Star Funds for $9.50 a share, or about $1.3 billion. Muirfield Value Partners and three other DFC investors argued that the price was too low and filed an appraisal action, which allows shareholders that did not vote for the buyout to ask a judge to determine … Read more
On January 13, 2017, the Internal Revenue Service (the “IRS”) and the Treasury Department (the “Treasury”) published new final and temporary regulations (the “New Regulations”) and issued a notice of proposed rulemaking by cross-reference to the temporary regulations that address inversion transactions. The New Regulations generally finalize the previous temporary and proposed regulations while making a few technical changes. Most notably, the New Regulations:
- expand the application of the “associated obligations” rule and exclude intercompany obligations from “nonqualified property” that gives rise to disqualified stock,
- retain the distinction between stock and asset reorganizations,
- leave undisturbed pre-IPO buyout transactions and
… Read more
2016 was an active year for M&A, though year-end results did not surpass record-levels set in 2015. Global deal volume for the year was $3.7l trillion and U.S. deal volume was $1.66 trillion (14.8% and 16.4% lower than their respective record levels in 2015). Sponsor-related deal volume for the year was $776.52 billion globally and $396.69 billion in the U.S. (down 22.6% and 32.9%, respectively, from 2015 levels and 12.5% and 6.5%, respectively, from 2014 levels). Strategic deal volume was $2.93 trillion globally and $1.26 trillion in the U.S., surpassing 2014 levels though falling short of 2015 record levels by … Read more
While 2016 was strong overall (see our annual review here), M&A activity in the last month was mixed. Total deal volume in December 2016 rose globally by 31.2% to $376.14 billion but declined in the U.S. by 49.4% to $78.58 billion. The number of deals reached 12-month lows both globally and in the U.S., with decreases of 24.2% to 2,505 and 28.8% to 591, respectively, with a more pronounced drop in the number of sponsor-related deals. Global strategic deal volume increased by 38.8% to $296.59 billion, while deal volume in the U.S. decreased by 58.5% to $48.54 billion. The … Read more
If 2008 through 2010 were years of tumult and recession in U.S. financing markets, and 2011 through 2015 years of recovery and growth, marked by ever-lower yields and record-setting financing activity even in the face of new compliance regimes, 2016 felt like a tipping point. After hitting record lows in the first half of the year, interest rates at last experienced a sustained rise, and the U.S. election results opened the door to major regulatory and legislative changes, including the potential roll-back of portions of Dodd-Frank and the potential roll-out of consensus-fueled fiscal stimulus.
During the course of a year … Read more
In common law countries such as the U.S., corporate governance aims primarily to protect shareholders from managers’ self-dealing. Post-Enron reforms such as the Sarbanes-Oxley Act of 2002 and various Securities and Exchange Commission rules are examples of this shareholder-oriented approach. However, to the extent that the interests of shareholders and debtholders are not entirely aligned, governance reforms that beneﬁt shareholders may harm debtholders. Similarly, some public polices such as state anti-takeover laws (ATLs) may entrench management and harm shareholders but benefit debtholders by reducing both the variance of cash flow from operations and the firm’s risk of default.
In our … Read more
There is a general perception that statutory appraisal challenges have been on the rise over the past several years. The Delaware Court of Chancery has issued a number of opinions during that time that use the merger price minus synergies as the best evidence of fair value. However, several notable opinions in 2016 have departed from this trend, relying instead on a discounted cash flow valuation derived from management projections and finding that the fair value for appraisal was significantly above the price paid by the acquirer in the transaction.
Statutory appraisal under Section 262 of the Delaware General … Read more
After the spike in activity due to megadeals in October, M&A activity returned in November to more normalized levels both in deal volume and number of deals. Total deal volume in the U.S. and globally declined in November 2016, by 56.1% to $154.31 billion and by 37.5% to $352.27 billion, respectively. The number of deals recovered somewhat from near record-low territory in October, with U.S. deals increasing by 9.5% to 774 and global deals by 10.7% to 3,095. These trends were primarily driven by a return to the norm in the level of strategic megadeal activity (as compared to October). … Read more
In In re Chelsea Therapeutics International LTD Stockholders Litigation, Vice Chancellor Sam Glasscock III of the Delaware Court of Chancery dismissed claims that Chelsea Therapeutics International Ltd.’s (Chelsea) board of directors acted in bad faith by selling Chelsea to Lundbeck A/S (Lundbeck) at an amount substantially below its standalone value. Specifically at issue were the board’s instructions to its financial advisor to ignore one set of financial projections in opining on the fairness of the sale, as well as the board’s choice to disregard a second set of projections before recommending the transaction to Chelsea’s stockholders. The plaintiffs did … Read more
The Delaware Supreme Court’s landmark decision in Corwin v. KKR Financial Holdings LLC, 125 A.3d 304 (Del. 2015) articulated a new defendant-friendly rule for post-closing damages actions for breaches of fiduciary duties. The Delaware Supreme Court held that where a transaction “not subject to the entire fairness standard of review has been approved by a fully informed, uncoerced majority of the disinterested stockholders,” the deferential business judgment standard of review will apply, leaving only a claim for waste. The Corwin decision was followed shortly by an order in Singh v. Attenborough, 137 A.3d 151 (Del. 2016) (ORDER), in which … Read more
M&A volume in October 2016 increased to record levels, as measured by total dollar value, largely due to a spike in the number of megadeals, with eight October deals valued at or above $10 billion dollars. Total deal volume in the U.S. and globally rose in October 2016, by 163% to $341.10 billion and by 75.6% to $549.10 billion, respectively—the highest monthly deal volume totals since the inception of this publication in April 2012. Despite the increase in M&A volume, however, the number of deals continued to fall towards record-low territory, with U.S. deals falling by 8.5% to 668 and … Read more
M&A activity in September 2016 rebounded across most metrics as compared to August 2016, both in the U.S. and globally. In the U.S., total deal volume increased by 18.9% to $129.08 billion and average deal value increased by 24.7% to $448.2 million, despite a 1.5% decrease in the total number of deals to 717. The global market also fared well, increasing by approximately 37.8% in total deal volume to $306.36 billion and approximately 50.6% in average deal value to $208.8 million, even though the total number of deals declined 7.1% to a 12-month low of 2,734, which equated to a … Read more
In the controversial practice of appraisal arbitrage, activist investors buy shares of a corporation to be acquired by merger so as to assert appraisal rights challenging the merger price – which may already have been approved by the target’s stockholders. The practice is controversial because the appraisal remedy is widely seen as intended to protect existing stockholders who are forced to sell their shares in the merger and not to afford hedge funds a way to extract extra returns from the deal. But the puzzle is why appraisal arbitrage is profitable, since the remedy seeks to determine fair prices using … Read more
In In re Books-A-Million, Inc. Stockholders Litigation, the Delaware Court of Chancery dismissed the fiduciary duty claims of former minority stockholders following a going-private, squeeze-out merger because the transaction satisfied the framework to invoke business judgment review as approved by the Delaware Supreme Court in Kahn v. M&F Worldwide Corp.
The plaintiffs brought fiduciary duty claims challenging the transaction pursuant to which the controlling stockholders of Books-A-Million, Inc. took the company private. The agreed price offered a premium to market, but was nevertheless lower than a competing offer from a third party to whom the controlling stockholders … Read more
Over the past five years the business models in the Entertainment, Media and Communications (EMC) sector have been upended, paving the way for new EMC players to enter the industry that were traditionally technology companies.
Not too long ago, the boundaries between content creation, content aggregation, and content distribution were clear in the EMC sector, with well-defined business models. But technology innovations, particularly the shift to digital, are rapidly and radically changing consumer behavior by allowing consumers to tap into content on demand.
Increasingly, consumers are cutting cords with traditional cable companies and paying for content directly from the packagers … Read more
Skadden and Erskine Chambers recently hosted a series of comparative corporate law events in conjunction with the University of Pennsylvania Law School; Queen Mary University of London School of Law; New York University School of Law; Wachtell, Lipton Rosen & Katz; Slaughter and May; Morris, Nichols, Arsht & Tunnell; and Richards, Layton & Finger.
The mock trials held at Inner Temple, London, offered new insights into contrasting English and U.S. advocacy and judicial opinions on complex cross-border M&A issues. Arguments were made by Richards, Layton & Finger partner Greg Williams and Morris, Nichols partner Bill Lafferty for the Delaware mock … Read more
Hedge fund activism is to corporate law’s early 21st century what the hostile takeover was to its late 20th century. Like the hostile takeover, activism threatens incumbent managers and disrupts their business plans by successfully appealing to the shareholders’ interest in immediate returns. Like the hostile takeover, activism occupies center stage in corporate law policy discussions, posing a choice between short-term gain and long-term investment. But there is a glaring point of distinction. Unlike the hostile takeover, activism has precipitated no significant changes in corporate law. Where the hostile takeover triggered structural changes in state corporate codes and the federal … Read more
As discussed in prior posts on the Cleary M&A and Corporate Governance Watch blog, recent applications of the Delaware Supreme Court’s decision in Corwin v. KKR Financial Holdings, 125 A.3d 304 (Del. 2015) have emphasized the high bar for surviving a motion to dismiss in damages actions by stockholder plaintiffs after completion of a merger transaction, as “dismissal is typically the result” where informed, disinterested stockholder approval requires application of the business judgment rule to extinguish all claims except for waste. See Singh v. Attenborough, 137 A.3d 151, 152 (Del. 2016). Two recent Chancery Court decisions have … Read more
In mergers and acquisitions transactions with privately-held target companies, transacting parties will often agree to make payments to the target shareholders contingent upon some post-closing events. One frequently used mechanism is an earnout. With an earnout, the parties will agree upon post-closing performance targets, using measures such as earnings, net income, or gross revenue, and the additional amount of consideration that the target shareholders are entitled to receive will depend on whether such performance targets are met over the earnout period, which typically lasts from one to five years after closing. For example, after paying $10 million at closing, an … Read more