Entrenchment Through Discretion over M&A Contractual Provisions

Managerial entrenchment is detrimental to shareholder value (Faleye (2007), Cohen and Wang (2013), and Cohen and Wang (2017)). Managers are able to become entrenched by making specific investments whose value is higher under their watch than under that of the next-best alternative managers (Shleifer and Vishny (1989)). This value differential will be lost if shareholders replace managers who entered into such deals. As a result, those managers gain leeway to increase their compensation and exercise more discretion over firm strategy in a way that might destroy shareholder value.

In a recent article, we explore how managers who are not yet … Read more

Cleary Gottlieb Discusses the UK Competition Law Implications of a No-Deal Brexit

A no-deal Brexit would have significant and immediate effects on UK competition law enforcement:

  • Parallel investigation of mergers, cartels, and dominance cases by the UK Competition and Markets Authority (“CMA”) and European Commission (“EC”);
  • Possible delay to transactions notified to the EC but not cleared by Brexit day;
  • A significant increase in the CMA’s caseload, stretching its resources;
  • New challenges for claimants bringing EU follow-on damages cases in the UK courts.

If the UK leaves the EU on 31 October 2019 without a withdrawal agreement, it will affect how UK and EU competition law applies to businesses with UK activities.… Read more

Davis Polk Discusses FTC Scrutiny of Vertical Mergers

The U.S. antitrust agencies have struggled for decades to provide comprehensive guidance on the antitrust treatment of so-called vertical mergers—generally, mergers of two companies at different levels of the distribution chain.  Recent developments suggest a new effort to articulate the legal and economic bases for the assessment of vertical mergers.  While the specifics have not yet been articulated, it is anticipated that the guidance will address theories of unilateral and coordinated harm, the treatment of efficiencies, and the evaluation of whether remedies are sufficient to address competitive harms.  It remains to be seen, however, whether these efforts will provide greater … Read more

Gibson Dunn Discusses Proposed Regulations for Expanded CFIUS Jurisdiction

On September 17, 2019, the U.S. Department of the Treasury issued over 300 pages of proposed regulations to implement the Foreign Investment Risk Review Modernization Act of 2018 (“FIRRMA”), legislation that expanded the scope of inbound foreign investment subject to review by the Committee on Foreign Investment in the United States (“CFIUS” or the “Committee”). FIRRMA expanded—subject to the promulgation of these implementing regulations—the Committee’s jurisdiction beyond transactions that could result in foreign control of a U.S. business. The Committee’s jurisdiction will now include non-passive but non-controlling investments, direct or indirect, in U.S. businesses involved in specified ways with critical … Read more

Paul Weiss Offers M&A at a Glance for August 2019

M&A activity in the U.S. and worldwide weakened in August across almost all indicators. The number of deals fell by 9.5% in the U.S., to 641, and by 21.9% globally, to 2,394. The total value of deals[1] fell by 14.3% in the U.S., to $119.86 billion, and by 21.9% globally, to $259.78 billion. Finally, average deal value decreased by 5.4% in the U.S., to $187.0 million, but stayed flat globally, at $108.5 million. Figure 1.

Strategic vs. Sponsor Activity

Both strategic and sponsor activity generally declined. The number of strategic deals decreased in the U.S. by 7.8% to … Read more

Cleary Gottlieb Discusses the Virtues of Standardization in M&A

Standardization can be a virtue and one that M&A lawyers, likely due to self-interest and ego, sometimes resist.  If venture financing and derivatives practices can have widely accepted forms of legal documentation as a starting point, why should M&A be an exception?  Ironically, agreements for takeovers of publicly traded companies – once revered as a rarified realm that only an elite group huddled in skyscrapers in Manhattan could navigate – has evolved considerably toward standard forms thanks to enhanced attention to these publicly filed agreements and an effort by Delaware courts to draw clearer guidelines about precisely what will and … Read more

Davis Polk Discusses M&A Impact of Changes to Loss Carryforwards

On September 9, 2019, the Internal Revenue Service (“IRS”) released proposed regulations (the “Proposed Regulations”) that, if finalized in their current form, would in many cases dramatically reduce the portion of a company’s net operating loss (“NOL”) carryforward that is available to be used following a so-called ownership change of the company.  The Proposed Regulations would be effective for ownership changes occurring after they are finalized.

The Proposed Regulations would make other significant changes potentially applicable to distressed companies.  Those aspects of the Proposed Regulations are beyond the scope of this memorandum.  To learn … Read more

Cleary Gottlieb Offers 2019 Mid-Year Developments in Securities and M&A Litigation

The most significant securities decision to be handed down in the first half of 2019 came from the Supreme Court in Lorenzo v. SEC, which clarified the scope of “scheme liability” under Rule 10b-5(a) and (c). Another significant ruling came from the Tenth Circuit in SEC v. Scoville, which held that the Dodd-Frank Act permits the SEC to bring fraud claims or claims under Section 17 of the Securities Act based on sales of securities that do not constitute domestic transactions within the meaning of Morrison v. National Australia Bank Ltd.

The second half of the Supreme Court’s … Read more

Cadwalader Discusses CFIUS and Foreign Investor Deals

The national security implications of corporate deals involving foreign investors continues to be a headline-grabbing topic. Last summer, President Trump signed into law the Foreign Investment Risk Review Modernization Act of 2018 (“FIRRMA”), which expanded the types of transactions subject to national security review by the Committee on Foreign Investment in the United States (“CFIUS”). As we approach the first anniversary of FIRRMA, it has – unsurprisingly – made it more critical than ever to identify and address whether a cross-border deal involving non-U.S. parties is subject to CFIUS review and approval, and if so, to … Read more

Paul Weiss Offers M&A at a Glance for June 2019

M&A activity in the U.S. and globally in June was mixed. While the number of deals decreased by 23.7% in the U.S., to 655 deals, and by 13.2% globally, to 2,487 deals, the total value of deals[1] increased significantly, by 122.3% in the U.S., to $313.89 billion, and by 63.2% globally, to $478.29 billion. The average value of deals increased in the U.S. by 191.2%, to $479.22 million, and globally by 10.2%, to $192.32 million. Figure 1.

Strategic vs. Sponsor Activity

The levels of strategic versus financial buyer activity were also mixed. The number of strategic deals decreased … Read more

Paul Weiss Offers M&A at a Glance for May 2019

M&A activity in the U.S. and globally for the month of May was generally consistent with April levels. The most notable changes in May were an increase in the number of sponsor-related deals by almost 75% to 187 in the U.S. and by almost 40% to 404 globally.  The number of U.S. deals increased by 2.7%, to 760, while the number of global deals decreased by 5.2%, to 2,644. The total value of U.S. deals[1] decreased slightly by 1.1%, to $138.88 billion, and the total value of global deals increased by 4.5%, to $287.57 billion. Average value of announced … Read more

Inside the Black Box of Private Merger Negotiations

Several authors (Boone and Mulherin, 2007[1]; Aktas, de Bodt, and Roll, 2010[2]) have noted a paradox in the mergers and acquisition (M&A) market since 1990. While there have been few competing public bidders, hostile offers, or public-offer price revisions, the average premiums paid to acquire target firms have been substantial. On the surface, the combination of friendly deals and high premiums seems puzzling, given that target management is more likely to negotiate private benefits at a cost to shareholders in friendly deals, while hostile offers are more likely to induce multiple-bidder auctions, which should theoretically yield … Read more

Deals, Activism, and SEC Regulation Get Lively Airing at M&A and Corporate Governance Conference

A host of top attorneys, judges, scholars, regulators, and advisers debated the latest issues in corporate and securities law on June 7 at a Columbia Law School conference in New York, offering cutting-edge thoughts on everything from cybersecurity to shareholder activism to the potential regulation of proxy advisers.

The day-long event featured a keynote conversation with U.S. Securities and Exchange Commissioner Robert J. Jackson, Jr., who among other topics discussed whether the SEC’s new Regulation Best Interest went far enough in protecting retail investors. Appearing on panels about M&A, Delaware law developments, and shareholder activism were the likes of Delaware … Read more

Debevoise Discusses When to Disclose a European Deal

In Europe, when negotiating a transaction which may affect the market price of listed instruments of the parties, a key question arises: when to disclose it to the market? The short answer is as soon as possible unless you have a legitimate interest in delaying the announcement, the delay will not mislead the market and the confidentiality remains protected. This note details what it means in practice.

Pursuant to MAR (Market Abuse Regulation—EU Regulation No. 596/2014 of 16 April 2014), effective throughout the European Economic Area, an issuer is required to inform the public as soon as possible of inside … Read more

Paul Weiss Offers M&A at a Glance for April 2019

M&A activity in the U.S. and globally generally fell in the month of April. The number of U.S. deals decreased by 15.6%, to 622, and the number of global deals decreased by 10.3%, to 2,530. However, the total value of U.S. deals[1] increased by 58.1%, to $186.69 billion, largely due to the announcement of a few megadeals. Similarly, the total value of global deals decreased by 7.0%, to $317.15 billion. In terms of the average value of announced public mergers, it increased in the U.S. by 87.4%, to $300.15 million, and globally by 3.6%, to $125.35 million. Figure 4Read more

Protecting Against Protectionism in EU M&A

In a recent paper, we explore EU law covering EU cross-border mergers. These are typically more difficult and costlier than purely national mergers. Additionally, political hurdles can exist. In a time of global political and institutional transformations away from open markets and towards protectionism, the opposition to takeovers and mergers based on public interest considerations, such as national security, sees a revival.

This trend towards protectionism, together with a focus on industrial policy, has different facets. For example, recently France and Germany seemed to defend the idea of European champions, corporations that can compete on the global financial and … Read more

Davis Polk Discusses Investing in Blockchain Technology

Blockchain technology continues to be a lively topic of conversation in legal, business and technology circles. This includes heated debates about whether and when the technology will deliver on its many promises and how the most common applications employing blockchain—that is, cryptocurrencies and other types of digital tokens—should be regulated in the United States and globally. Despite having experienced “crypto winter”—including a precipitous drop in cryptocurrency values, persistent skepticism about blockchain applications and a growing regulatory focus on the technology—many are convinced that the technologies underlying the blockchain are here to stay, and may hold great promise as a solution … Read more

Cleary Gottlieb Discusses CFIUS and the Unwinding of Kunlun’s Acquisition of Grindr

On March 27, 2019, journalists affiliated with Reuters reported that the Kunlun Group (“Kunlun”), a China-based tech firm, was preparing to sell its wholly owned subsidiary, Grindr, after the Committee on Foreign Investment in the United States (“CFIUS”) informed the group that Kunlun’s continued ownership of Grindr constituted a national security risk.  This forced divestiture of Grindr is a pointed reminder that CFIUS remains focused on protecting the sensitive personal data of U.S. citizens, has the power to upend closed deals that have not been cleared by the committee, and is dedicating increased resources to the review of transactions that … Read more

Mergers and the Role of Earnings-Per-Share

Lawyers and investors pay close attention to how stock-based deals affect the acquirer’s short-term earnings per share (EPS). Merger announcements are regularly accompanied by discussions of whether the deal will be accretive or dilutive for the acquirer’s EPS, and if immediately dilutive, how quickly the deal would turn accretive.  Finance theory, however, does not imply any particular benefit of an EPS-accretive deal (in which the post-merger EPS is higher than the acquirer’s pre-merger EPS), focusing instead on whether the deal creates value. The over-emphasis on the EPS impact may suggest a myopic focus on short-term stock price and a neglect … Read more

Arnold & Porter Discusses Significant 2018 Decisions Affecting Private Company M&A

The following compilation is our fifth annual review of significant state court decisions relevant for private company M&A transactions and related governance matters and disputes. The summary includes the landmark Akorn v. Fresenius decision, which is the first Delaware M&A decision to uphold a buyer’s termination right on the basis of an MAE. A few of the decisions concern drafting points, a few concern overall deal process and planning points, and two of the decisions concerned fiduciary duty breaches in contested situations (one was a public company decision that has relevance to the private M&A context).

Akorn, Inc. v.

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