The Delaware Supreme Court’s recent decision in Singh v. Attenborough (May 6, 2016, en banc, “Zale III”), written by Chief Justice Leo E. Strine, Jr., is consistent with the trend of Delaware decisions that, as a practical matter, have significantly narrowed the risk of directors being found to have breached fiduciary duties in M&A transactions. The decision is most notable, however, for apparently reversing the momentum of recent Delaware decisions that have been interpreted as potentially expanding the risk of aiding and abetting liability for M&A financial advisors.
- Lower risk of aiding and abetting liability for bankers.
… Read more
After the July 4th weekend, Reynolds Holding will be taking over as the fourth editor-at-large of the CLS Blue Sky Blog. It has been a remarkable year and a half, and I am confident our Blog will continue to grow in the coming years. I am grateful to the faculty committee (Professors Jack Coffee, Ed Greene, Robert Jackson and Kate Judge), the student editors (Jennifer Barrows, AJ Farkas and John Knight) as well as Columbia Law School for providing opportunity and support. I intend to continue writing as time allows and invite you to visit my webpage. I believe … Read more
Target firms typically employ either an auction or a negotiation method during merger negotiations. In auction deals, the pre-public takeover process involves contacting several potential bidders, signing confidentiality/standstill agreements and accepting private bids. In negotiation deals however, the target engages with only one bidder in the pre-public takeover process. Using either selling method, the target board negotiates with the bidder(s) and if an acceptable price is obtained from a bidder, a definitive merger agreement is signed and a public announcement is made. Typically, after the public announcement of a merger agreement, target boards do not actively solicit new bids although … Read more
On May 6, 2016, the Delaware Supreme Court affirmed the Delaware Chancery Court’s ruling that Zale Corporation’s sale to Signet Jewelers withstood scrutiny under the business judgment rule because the transaction was approved by a fully-informed, uncoerced vote of the disinterested stockholders, and that an aiding and abetting breach of fiduciary duty claim against Zale’s financial advisor failed as a matter of law where the plaintiff failed to establish that the Zale board had acted with gross negligence. In so holding, the Court reaffirmed its holding in Corwin v. KKR Financial Holdings LLC, 125 A.3d 304 (Del. 2015), that … Read more
The rise of shareholder activism has become a global phenomenon. Shareholder activists are not only present–as they started–in the US, but also in European and Asian Markets. This situation has generated a vast literature about the desirability (or not) of shareholder activism.  In essence, there are two main positions: (i) those who argue that shareholder activists improve the corporate governance of the firm, and therefore they help increase the value of the firm; and (ii) those who claim that shareholder activists only improve the value of the firm in the short-term, and they encourage managers to cut … Read more
The corporate board is commonly seen as a crucial governance device that operates to both monitor corporate management and provide strategic advice. Recent corporate governance research has discovered a broad range of evidence of internal board monitoring and advisory activities; but relatively little on the impact of the board’s interactions and connections with different external agents on firm value and corporate decisions. Yet, board members are typically experienced and powerful businessmen, and well embedded in the center of important business and social networks. Does it matter?
Yes, substantially. In our recent paper “Directors as Connectors: The Impact of the External … Read more
The work of Columbia Law School Professor Kate Judge appears in the list of twelve best corporate and securities law articles in 2015, based on a poll conducted by the Corporate Practice Commentator. Teachers in corporate and securities law were asked to select the best corporate and securities articles from a list of articles published and indexed in legal journals during 2015. More than 540 articles were on the list. Professor Judge was selected for her article Intermediary Influence appearing in the University of Chicago Law Review.… Read more
In an article recently posted on SSRN.com, I explain why the law requires agents to act with single-minded devotion to their principals. For example, a lawyer must do what is best for a client and may not subordinate a client’s interest to that of anyone else. This is true even when a lawful act beneficial to a client would subject a third party to serious harm. When representing a landlord who wants a derelict tenant evicted, for example, a lawyer must prosecute the eviction expeditiously even if the tenant has nowhere else to go.
In the parlance of legal … Read more
Whether one ascribes to the agency theory of shareholder primacy or the contractarian theory of director primacy, boards of directors have great discretion in determining whether, when, and how to sell the corporation. Defensive tactics, like poison pills, can be tools in wielding that discretion in the service of creating shareholder value. However, a poison pill designed either to oppress a minority shareholder, as in eBay v. Newmark, or to minimize the impact of activist shareholders, as in Versata Enterprises, Inc. v. Selectica, Inc., seems to exceed the “maximum dosage” of the pill. The “tax benefits preservation … Read more
A corporate inversion involves the relocation of a corporation’s legal domicile to a lower-tax nation (host country) while retaining its material operations in its higher-tax country of origin (home country). Corporations have been engaging in inversions for over three decades. The first inversion in 1982 occurred when Louisiana-based construction firm McDermott International converted one of its cash-rich Panama-based subsidiaries into the new parent firm, thereby paying much lower income taxes.
Corporate inversions have become headline news again in the US. Last year, US-based pharmaceutical company Pfizer announced a merger with Ireland-based Allergan. Pfizer expected to reduce its effective tax rate … Read more
In our recent paper forthcoming in The Financial Review (2016), we highlight the role of venture capital (VC) in spawning new ventures. That is, after acquisitions, IPOs and other successful exits, entrepreneurs backed by venture capitalists (VCs) tend to form new companies or become angels coaching and investing in entrepreneurs. In our recent paper, we examine for the first time the specific conditions under which entrepreneurs actually stick with entrepreneurship in the form of starting a new company or becoming an angel. We address the question of when does entrepreneurial finance spawn the creation of new ventures by examining detailed … Read more
Hedge fund activism is the latest rave in corporate governance. Activist hedge funds build stakes in target firms in order to press management for various changes. When managers are uncooperative, they may just be forced to step down. Lest you think only managers of small, not well-established firms have reason to fear, some of the most powerful managers in corporate America, for example the CEOs of Bob Evans, Hertz, Sotheby’s, Yahoo, etc., have all failed to avoid such fate. It appears that no firm is immune to the threat of HFA.
Managers, needless to say, have great incentive to avoid … Read more
Just six months ago, when the Supreme Court’s current term opened in October, things looked bleak for the class action. Three major cases were on the Court’s docket, and each seemed handpicked as a vehicle for the Court’s conservatives to curb the availability of the class action. Nonetheless, it has now become clear that this assault has fallen short. The high water mark in this hostile tide was probably reached in 2011 when the Court decided both Wal-Mart Stores, Inc. v. Dukes and AT&T Mobility LLC v. Concepcion. In these cases, the Court both tightened the standards … Read more
On January 7th 2016, Thomson Reuters and the National Venture Capital Association (NVCA) published their Exit Poll Report, which stated that in the U.S. 77 venture capital (VC)-backed initial public offerings (IPOs) raised $9.4 billion in 2015. Over the same period, 93 non-VC-backed U.S. companies went public, raising $23.9 billion (Ernest & Young – IPO Global Trends 2015). For experts in the field of VC investments these numbers cannot appear surprising: the contribution by VCs to the growth of American stock exchanges is a well-documented phenomenon (e.g., Megginson and Weiss, 1991; Lee and Wahal, 2004; Nahata, 2008). … Read more
The “meh” economy that accounts for some of the sourness in the American electorate is partly due to a design flaw in the US corporate governance system. One proffered diagnosis is that companies invest for the short term and are too quick to return cash to shareholders through stock repurchases. Why? It’s the attack of hedge funds, shareholder activists looking for short term gain even at the expense of investments that would produce higher returns over the long run, and, along the way, would lead to employment gains and then wage gains. What follows, then, is a prescription for changes … Read more
Columbia Law School is looking for an Editor-at-Large to oversee and administer the Columbia Law School Blue Sky Blog. The Blog, now completing its third year, has grown rapidly and become one of the most read sources of current information and opinion on corporate law, securities law, and financial regulatory issues, including white collar crime, enforcement, antitrust, restructuring and kindred topics. The Blog’s content presents legal developments and insights from a range of sources, including practitioners, academics and regulatory bodies. A new post is generally published at least once every weekday and the Blog also highlights important news developments in … Read more
Why do we memorialize some bargains in dozens of related contracts, rather than just one? Mergers and acquisitions deals, for example, are often formed through constellations of agreements that I call “unbundled bargains.” At the center of an unbundled bargain, there is a heavily negotiated acquisition agreement. Surrounding it, there are dozens of ancillary agreements that buttress the deal.
In a paper forthcoming in the University of Pennsylvania Law Review, and available here, I argue that unbundled bargains help parties design better deals ex ante and enforce deals more effectively ex post. I also argue that recognizing deals … Read more
The world of corporate governance is undergoing two intense, inter-related debates. One is a debate as to whether profit-maximization in the short term is really different from profit-maximization in the long term, and if so whether American corporations are currently too short-termist. The second debate is whether shareholder profit maximization is and should be the exclusive goal for corporate managers. The debates are inter-related because corporations focused on long term rather than short term profits are likely to more fully take into account the interests of other stakeholders, although even a robust focus on the long term will not fully … Read more