How U.S. and UK Deal Structures Protect Minority Shareholders

Takeover transactions are often the most significant activity affecting corporations and their shareholders. Accordingly, there are intense debates about the value and impact of takeovers and the extent to which law should regulate such transactions. One area of focus for takeover regulation has been the potential impact of takeovers on minority shareholders. The focus on minority shareholders is not surprising as research suggests that laws which protect minority shareholders are associated with stronger financial markets.

In a recent book chapter, I focus on how deal structures affect the protection of minority shareholders in two common law jurisdictions, the U.S. and … Read more

How U.S. Bank M&A Affect Systemic Risk

During the 2008 financial crisis, the U.S. government viewed the survival of large consolidated banks as inextricably linked to the welfare of the overall economy, prompting such institutions to be labeled too-big-to-fail (TBTF) and granted government assistance. The primary and preferred means of bank resolution by federal regulators was, however, mergers and acquisitions (M&A). The basic idea was that through a merger a healthy bank would acquire a failing bank, saving the economy from the full cost of the distressed bank’s collapse. This private-sector solution was preferred because the government did not have to use public funds to bail out … Read more

Paul Weiss Offers M&A at a Glance for September 2017

Continuing a relatively flat year so far, M&A activity showed mixed results in September 2017, with the global market switching positions with the U.S. from last month and generally faring better. In the U.S., total deal volume, as measured by dollar value, decreased by 31.2% to $90.51 billion, while the number of deals increased by 7.8% to 927. Globally, deal volume increased by 1.5% to $289.22 billion, and the number of deals increased by 6.7% to 3,456.

Strategic vs. Sponsor Activity

In the U.S., strategic deal volume increased by 4.9% to $81.04 billion, and the number of deals increased by … Read more

Wachtell Discusses How Capable and Committed Bank Boards Drive Deals and Create Value

Directors of regulated financial institutions have exceedingly difficult jobs with many demands.  The aftermath of the financial crisis led to countless new regulatory requirements and expectations, many of these unwritten and evolving based on political currents or varying views at different levels of the regulatory hierarchy.  Governance processes and actions are examined and second-guessed like never before.  For many companies, new and shifting compliance burdens tend to crowd out other business on board agendas.

At the same time, these boards have faced prolonged operating and economic challenges.  Initially, defaults and delinquencies in loan portfolios and low interest rates choked financial … Read more

The Case for Speeding the Merger Process

Corporate planners and practitioners know well that it takes quite a long time to close a long-form merger, with the shareholder approval requirement accounting for the bulk of the delay in almost half of such mergers. But we have not yet identified mechanisms for shortening the delay, in part because we assume that shareholder approval and related procedures are necessary. In a forthcoming article, I question this assumption and find that shareholder approval in the context of long-form mergers is in fact not nearly as valuable as we might expect.

Contrary to conventional wisdom, merger votes are rarely close. … Read more

Latham Offers Three Lessons from DOJ Lawsuit to Unwind Merger

On September 26, 2017, the US Department of Justice’s Antitrust Division (DOJ) sued to unwind Parker-Hannifin Corporation’s (Parker’s) consummated acquisition of CLARCOR Inc. (CLARCOR) on the ground the transaction created a monopoly in the US market for aviation fuel filtration systems and filter elements, in violation of Section 7 of the Clayton Act. DOJ’s complaint demands divestitures sufficient to replace CLARCOR’s pre-acquisition position in the marketplace, among other relief.[i]

Notably, Parker’s US$4.3 billion acquisition of CLARCOR had already cleared US antitrust review under the Hart-Scott-Rodino Antitrust Improvements Act (HSR Act). According to company filings and press reports, Parker announced … Read more

Takeover Threats, Job Security Concerns, and Earnings Management

The market for corporate control is widely regarded, at least theoretically, as an important corporate governance mechanism for aligning the interests of managers and shareholders of a firm. A healthy takeover market can also help countries attract domestic and foreign capital to their stock markets, increase the global standing of their economies, and strengthen protections for minority shareholders. In a recent article, I examine how takeover laws enacted in 13 countries between 1995 and 2004 affect managers’ decisions about financial reporting. I find that such laws can lead to more earnings management and financial reporting opacity by making managers fearful … Read more

Akin Gump Discusses Uptick in CFIUS Review Activity

On September 19, 2017, the Committee on Foreign Investment in the United States (CFIUS or the “Committee”) released its annual report (“Report”) to Congress. One day later, CFIUS also released more limited data on foreign investment activity in 2016 (the “2016 Table”). CFIUS is an interagency body with authority to review investments that could result in foreign control of U.S. businesses—referred to as “covered transactions”—for potential national security concerns.

The Report summarizes CFIUS activities in 2015, the most recent year for which complete data on foreign investment activity is available. Notably, CFIUS has historically published its statutorily mandated annual report … Read more

Paul Weiss Offers M&A at a Glance for August 2017

Global M&A activity declined in August 2017, with total deal volume, as measured by dollar value, decreasing 4.0% to $277.65 billion and the number of deals decreasing 5.6% to 3,119. The U.S. remained a bright spot in the M&A market, however, with mostly gains from July levels. In the U.S., total deal volume increased by 38.1% to $130.26 billion and the number of deals increased by 12.8% to 838.

Strategic vs. Sponsor Activity

In the U.S., strategic deal volume increased 29.3% to $78.12 billion, and the number of deals rose 8.7% to 673.  By comparison, global strategic deal volume increased … Read more

Paul Weiss Offers M&A at a Glance for July 2017

Global and U.S. M&A activity in July 2017 increased in total deal value, despite a decline in the number of deals. Globally, total deal volume by dollar value increased by 14.6% to $303.85 billion, while the number of deals decreased by 8.9% to 3,029. Similarly, in the U.S., total deal volume by dollar value increased by 13.1% to $108.99 billion, while the number of deals decreased by 9.6% to a 12-month low of 644.

Strategic vs. Sponsor Activity

Strategic activity drove the market, with strategic deal volume, as measured by dollar value, increasing by 14.8% to $213.90 billion globally and … Read more

A Simple Plan to Liberate the Market for Corporate Control

It’s time to exempt a certain type of hostile bid – an all-cash, all-shares tender offer – from a poison pill defense.  In essence, I propose a statutory rule requiring a board to remain neutral in the face of such an offer unless the company’s certificate of incorporation allows otherwise.  This would be similar to but less general than Rule 21 of the UK’s Takeover Code.

Argument for Change

In Unocal Corp. v. Mesa Petroleum, the Delaware Supreme Court created the so-called Unocal test, a standard of review for board actions aimed at warding off a hostile bidder … Read more

Paul Weiss Offers M&A at a Glance for June

M&A activity in June 2017 struggled to build upon any recent favorable indicators. Globally, total deal volume by dollar value decreased from May 2017 volume by 3.5% to $263.00 billion, and the number of deals decreased by 5.8% to 3,116. The market’s downward trend was more pronounced in the U.S., where total deal volume by dollar value decreased over the same period by 8.1% to $94.44 billion, and the number of deals decreased by 21.7% to 662.

Strategic vs. Sponsor Activity

Sponsor-related activity, both globally and in the U.S., slipped from its strong performance in May, decreasing in total dollar … Read more

A Reality Check on the Appeal of the DFC Global Appraisal Case

A peculiar appeal is currently before the Delaware Supreme Court. The case involves the judicial appraisal of DFC Global, a company acquired by a private equity firm in 2014. Approximately 12 percent of DFC stockholders dissented, and the Court of Chancery found that the fair value of the company was $10.30 per share, slightly higher than the $9.50 transaction price that the board had negotiated. On appeal, DFC Global has asked the Delaware Supreme Court for a rule of law that the Court of Chancery must defer to the merger price in an arm’s length transaction where there was a … Read more

Gibson Dunn Discusses Appraisal Actions in Delaware

In re Appraisal of PetSmart, Inc.[i]

Under Delaware law, “the Court shall determine the fair value of the shares exclusive of any element of value arising from the accomplishment or expectation of the merger.”[ii] As the statute places the duty to determine fair value on the court, the burden of proof is not specifically allocated to either of the litigating parties, and so “the burden to establish fair value by a preponderance of evidence rests on both” the petitioners and the company.[iii] This construct presents what Vice Chancellor Slights described in In re Appraisal of PetSmart, Inc.Read more

Paul Weiss Offers M&A at a Glance for May

M&A activity showed mixed results in May 2017, with similar trends to April’s figures, both in terms of deal volume and number of deals.
Globally, total deal volume, as measured by dollar value, increased by 6.9% to $274.05 billion and the number of deals increased by 7.9%
to 3,145. In the U.S., although the number of deals increased by 9.4% to 816, a decrease in average deal size led to a 6.0% decrease in total
deal volume to $102.13 billion.

Strategic vs. Sponsor Activity

Sponsor-related activity rebounded in May (with all metrics nearing or marking their 12-month high), but strategic … Read more

Targeting Corporate Inversions: Are We Doing the Right Thing?

Congress, the U.S. Department of the Treasury (“Treasury”), and countless legislators have criticized corporate inversions — mergers designed to help American companies lower their tax bills by moving overseas — since McDermott International completed the first one in 1982. Nearly 59 percent of registered voters across the country believe it is Congress’ duty to stop such deals, according to a 2015 study, but about 35 years after the first one, little progress has been made. Every law against these transactions is met with a creative way around it. In other words, when Congress and the Treasury close one loophole, another … Read more

Paul Weiss Discusses Appraisal Risk in Private Equity Transactions

Although still a minority of M&A transactions, appraisal actions are on the rise. In 2012, 20 transactions involving Delaware-incorporated target companies were challenged, but in 2016, this number increased to 48, representing a 240% bump in four years. Further, these figures do not include transactions where appraisal demands were settled before the 120-day deadline for filing an appraisal petition.

With this recent uptick in appraisal litigation, private equity firms should understand the associated risks for, including some that may be unique to PE deals. Recent Delaware decisions and anecdotal perceptions (real or otherwise) have suggested that private equity-led buyouts may … Read more

How Policy Uncertainty Affects M&A

Uncertainty about government economic policy reduces corporate investment and increases financing costs, as prior research has shown. In our new paper, we examine the relationship between policy uncertainty and M&A and the implications for shareholder value. We use the BBD policy uncertainty index developed by Baker, Bloom, and Davis (2016) as a proxy to examine how policy-related economic uncertainty affects firm acquisitiveness, the time it takes to complete a deal, the method of payment, and acquirer and target shareholder value. The BBD index is based on the weighted average of three components: the frequency of newspaper articles containing key terms … Read more

SCOTUS Just Invented Unlikely Sentry Against Corporate Tax Inversions: Patent Trolls

Tax regulators and acquisition sponsors have long been embroiled in a cat and mouse game in the context of corporate inversions—cross-border transactions in which a U.S.-incorporated public corporation is “acquired” by a foreign entity, and the survivor’s locus of incorporation moved out of the United States. If done in compliance with applicable tax regulations, inversions typically allow American targets to avoid high U.S. corporate tax rates on worldwide income, and make use instead of far lower tax rates applied only to income generated within the survivor’s destination jurisdiction.

As tax inversions grew in popularity, federal authorities responded with a gauntlet … Read more

Paul Weiss Offers M&A at a Glance for April

Global M&A activity in April 2017 declined by most measures from its March 2017 level, while the U.S. showed more mixed results. Globally, total deal volume, as measured by dollar value, decreased by 16.6% to $253.91 billion, whereas in the U.S., a large increase in average deal size led to a 58.4% increase in total dollar volume to $108.11 billion. The increase in U.S. volume came despite a 27.1% decrease in number of deals to 669, similar to the global decrease of 25.3% to 2,708 (a new 12-month low for number of deals globally).

Strategic vs. Sponsor Activity

Strategic activity … Read more