Davis Polk Discusses Strengthening UK Merger Control

The UK operates a voluntary merger control regime[1].  In addition, the European Commission (EC) operates a ‘one-stop shop’ jurisdiction to review the largest and most complex cases on behalf of all EU Member States, including the UK.  The combination of a voluntary UK regime and EC jurisdiction over major deals has resulted in the UK’s antitrust authority – the Competition and Markets Authority (CMA) – historically having a lower profile than many other major G20 enforcement authorities.

With Brexit now looming, however, the CMA is seeking to raise its global profile and to articulate … Read more

“Trulia,” “Akorn,” and the Roller Coaster of M&A Litigation

U.S. corporate law adopts a regulation-by-litigation model where the efficient balance between incentives and filters is essential for litigation to perform its function. In this model, over-litigation is not only a detrimental distortion but also a significant indication that the regulating mechanism is not efficiently working and that some corrective actions are required.

Given the dramatic increase in M&A litigation in recent years, culminating in 2014 with challenges to 95 percent of deals valued at more than $100 million,  a correction was to a certain extent predictable. It came from the Delaware Court of Chancery in 2016 with In re Read more

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

M&A activity in the U.S. and worldwide was mixed in October. The number of deals continued to fall with a decline of 11.2% in the U.S., to 744, and of 8.1% globally, to 2,708. At the same time, total deal value[1] rose by 37.5% in the U.S., to $99.29 billion, and by 47.2% globally, to $282.72 billion. Average deal value also increased by 54.8% in the U.S., to $133.5 million, and by 60.2% globally, to $104.4 million.  Figure 1.

Strategic vs. Sponsor Activity

The number of strategic deals decreased in the U.S. by 15.6% to 583 and globally … Read more

Common Ownership and Competition in Mergers and Acquisitions

Common ownership – the phenomenon of firms sharing stockholders with industry competitors – is becoming ubiquitous, with 82 percent of S&P 500 firms having common ownership at the end of 2015 compared with just 17 percent in 1990.

At least in theory, a cross-owner has incentives to reduce competition among its portfolio companies because doing so may boost their earnings (likely at the cost of consumers or other companies). For example, common ownership within the finance industry has been found to reduce interest rates that savers receive on their deposits, while common ownership between airline companies tends to raise air … Read more

Merger Breakups

One of today’s most pressing antitrust questions is how antitrust should address the conduct of dominant technology companies, such as Amazon, Facebook, and Google. Once heralded as the champions of innovation and the modern economy, these companies are now the subject of growing calls for their breakup, including through actions by the federal antitrust agencies to challenge and unwind key mergers in the technology industry, including Facebook-Instagram, Amazon-Whole Foods, and Google-DoubleClick.

But nearly every one of the technology mergers identified for challenge and breakup was previously reviewed and cleared by the antitrust agencies pursuant to the existing federal merger review … Read more

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

M&A activity in the U.S. and worldwide declined against many indicators in September, confirming numerous recent reports that dealmaking has taken a downturn. While the number of deals rose by 13.9% in the U.S., to 803, and by 7.6% globally, to 2,806, their total value[1] fell by 41.0% in the U.S., to $71.49 billion, and by 28.0% globally, to $187.97 billion. Average deal value also decreased by 48.2% in the U.S., to $89.0 million, and by 33.1% globally, to $67.0 million. Figure 1.

Strategic vs. Sponsor Activity

Similarly, while the number of strategic deals increased in the U.S. … Read more

The Asymmetric Private Information Mask: Informed Trading in Takeovers

The U.S. Securities and Exchange Commission (SEC) has increased the regulation of asymmetric information-based trading, aiming to mitigate disclosure of material private information to select market participants. These efforts have not been fully successful, raising questions about the impact of asymmetric information on private equity trades, informed trades, and expected gains. The integrity of competing market structures and market makers’ rent has heightened the need to understand and measure the cost components of the market maker bid-ask spread. Whether the existence of private information in takeovers through selective disclosure is harmful to financial markets is still uncertain. Inside information is … Read more

Skadden Discusses DOJ and the Arbitration Option for Merger Review

After letting the option go unused for more than 20 years, the Antitrust Division of the Department of Justice recently announced it would use arbitration to settle its challenge of the proposed merger of two aluminum producers. In a press release last month, the Division acknowledged that this is the first time its history that it has used arbitration rather than litigation as a means to resolve an antitrust challenge. The emergence of arbitration as an alternative to litigation raises questions about its proper mechanisms and its potential impact on the merger review process.

Novelis-Aleris Agreement and Rationale

On Sept. … Read more

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