Proposed amendments to the Delaware appraisal statute announced recently are expected to be adopted by the Delaware Legislature. The stated purpose of the amendments is to reduce the recent rise in the volume of appraisal petitions. If adopted, the amendments would apply to merger agreements entered into on and after August 1, 2015.
The proposed amendments.
- Option for companies to reduce interest cost (the “Interest Reduction Amendment”). This Amendment would provide an option for a company in an appraisal proceeding to pay a cash amount to the dissenting shareholders before the appraisal proceeding ends (an “Upfront Payment”). Statutory interest would
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In an environment of escalating antitrust activity around the globe with ever increasing government sanctions and private litigation exposure, it pays to ensure that your antitrust compliance efforts evolve with changes in your business and the enforcement landscape and are road-tested through regular audits. In this briefing, we highlight some key areas of antitrust enforcement to be prepared for in 2015.
Aggressive Prosecution of Cartels Will Continue
With the proliferation of leniency programs and “amnesty plus” incentivizing companies to self-report cartel conduct, 2015 is likely to bring new cartel investigations and expansion of existing cases into related product markets. The … Read more
The Committee on Foreign Investment in the United States (“CFIUS”), a multi-agency U.S. regulatory body empowered to review transactions involving a foreign person and a U.S. business that may affect U.S. national security, recently delivered its unclassified Annual Report to Congress for the calendar year 2013 (“Annual Report”). In accordance with the legal prohibition against public disclosure of such information, the Annual Report contains no information with respect to specific transactions. Nonetheless, it remains a remarkable window into the reach and operation of CFIUS, and its impact on transactions involving U.S. businesses.
As in previous years, and as required … Read more
Delaware corporations and their advisers have been eagerly awaiting the response of the Delaware legislature to the recent surge in appraisal arbitrage and judicial pronouncements allowing this activity and suggesting that lawmakers should step in if they perceive a problem. It now appears based on a proposal released by the Delaware Corporation Law Council that the legislature may act as soon as this week. If the lawmakers follow the recommendations of the Council (which they usually do) the changes will likely disappoint Delaware corporations, make mergers and acquisitions in that important state more difficult, reduce deal flow, and lead to … Read more
A triad of recent decisions out of the Delaware Court of Chancery highlight the urgent need for legislative reform in Delaware to ameliorate the risk that appraisal arbitrage – now a multibillion dollar industry – poses to transactional vitality and shareholder value.
In two recent cases, In re Appraisal of Ancestry.com, Inc. (Ancestry I) and Merion Capital LP vs. BMC Software , Vice Chancellor Glasscock followed the literal interpretation of the Delaware appraisal statute adopted in 2007 by Chancellor Chandler in In re Appraisal of Transkaryotic Therapies, Inc. Before Transkaryotic, it was generally understood that … Read more
In two recent rulings, the New York Supreme Court rejected settlements arising from lawsuits in which plaintiff stockholders challenged the defendant public companies’ merger-related disclosures. The court in each case found that proposed supplemental disclosures that defendants would provide were immaterial as a matter of law and therefore the court declined to approve the settlements of the stockholders’ claims. The rulings provide helpful guidance on materiality in the context of merger disclosures and continue the trend of greater judicial scrutiny of so-called “merger tax” settlements. In light of that increased scrutiny, stockholder plaintiffs may choose to bring fewer … Read more
Acquisition financing activity was robust in 2014, as the credit markets accommodated increased demand from rising M&A activity. At over $749 billion, global 2014 M&A loan issuance was up approximately 40 percent year over year, the highest total since before the Great Recession. While the aggregate figures suggest a borrower-friendly market, the actual picture is more nuanced. Investment grade acquirors benefited from a consistently strong financing environment throughout 2014 and finished the year with a flourish (including a $36 billion commitment backing Actavis’ acquisition of Allergan), while leveraged acquirors encountered more volatility, as lenders responded quickly to regulatory changes and … Read more
Stockholders’ ability to sue to protect their interests plays a critical role in corporate governance. As described by the Delaware Court of Chancery: “Due to rational passivity, ‘it is likely that in a public corporation there will be less shareholder monitoring expenditures than would be optimum from the point of the shareholders as a collectivity.’ Incentivized by contingent fees, specialized law firms representing stockholder plaintiffs can ‘pursue monitoring activities that are wealth increasing for the collectivity (the corporation or the body of its shareholders).’ ‘In so doing, corporations are safeguarded from fiduciary breaches and shareholders thereby benefit.’ Understood from … Read more
On December 19, 2014, the Delaware Supreme Court issued a ruling reversing an order of the Court of Chancery granting a preliminary injunction that would have enjoined an agreed-to merger and required a mandatory post-signing 30-day go-shop period. In C&J Energy Services, Inc. v. City of Miami General Employees’ and Sanitation Employees’ Retirement Trust, No. 655/657 (Del. Dec. 19, 2014), the Supreme Court held, among other things, that the Court of Chancery had imposed a non-existent requirement that a selling company must engage in an active market process as a matter of law.
The Transaction. The transaction that … Read more
On December 8, 2014, the American Bankruptcy Institute (“ABI”) Commission to Study the Reform of Chapter 11 (the “Commission”) issued its Final Report and Recommendations (the “Report”). The Report proposes a number of important changes to Chapter 11.
The Commission was formed in 2012 to respond to shifts in the financial markets, corporate structures and credit and derivatives products since the Bankruptcy Code’s adoption in 1978 and is comprised of leading bankruptcy practitioners, professors and judges. The Report is the result of an in-depth, two-year review of Chapter 11 by the Commission and 13 separate Advisory Committees. The “Recommended Principles” … Read more
In In re Zhongpin Inc. Stockholders Litigation (Nov. 26, 2014), the Delaware Chancery Court found that the plaintiffs had pled sufficient facts to raise an inference that Xianfu Zhu, who was the company’s founder, Chairman and CEO, was a controlling stockholder, even though he owned only 17% of the company’s stock and had not controlled the directors’ decision relating to his going-private bid. Vice Chancellor Noble’s decision appears to have been based on a conclusion that the unusual degree to which Zhu was indispensable to the company as a practical matter precluded the special committee from functioning effectively because—without Zhu’s … Read more
Just five weeks after the Antitrust Division of the U.S. Department of Justice announced that Flakeboard America had abandoned its plan to acquire a medium-density fiberboard (MDF) mill and two particleboard mills from SierraPine in the face of the Division’s competitive concerns, the Division has settled separate gun-jumping and Section 1 claims against the same parties relating to their conduct during the course of the Division’s review of the transaction.
This enforcement action is a reminder that parties to mergers and acquisitions – whether or not reportable under the Hart-Scott-Rodino Act (“HSR Act”) regime – need to exercise care both … Read more
[On November 5, 2014,] the Board of Governors of the Federal Reserve System (the “Federal Reserve”) approved a final rule (the “Final Rule”) implementing Section 622 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), which establishes a financial sector concentration limit (the “Section 622 Concentration Limit”). The Section 622 Concentration Limit generally prohibits insured depository institutions, bank holding companies, foreign banking organizations (“FBOs”) that are treated as bank holding companies, savings and loan holding companies, other companies that control an insured depository institution, as well as nonbank financial companies designated by the Financial Stability Oversight … Read more
In an October 14, 2014 decision on a motion to dismiss, the Delaware Court of Chancery (C Bouchard) held that business judgment review applied to breach of fiduciary duty claims asserted against directors in connection with a stock-for-stock sale of KKR Financial Holdings LLC (“KFN”) to KKR & Co. L.P. (“KKR”), an entity which held 1% of KFN’s stock and whose affiliate managed KFN’s day-to-day operations under a management agreement having terms making it difficult for KFN to sell to anyone other than KKR. The Court held business judgment to be the appropriate standard of review because (i) the … Read more
The Treasury Department and the IRS recently released Notice 2014-52 (the “Notice”), which describes regulations that the government intends to issue to target the tax benefits of corporate inversions. The provisions of the Notice are summarized in our previous client memorandum dated September 23, 2014, Treasury Issues Long-Awaited Anti-Inversion Guidance. This Client Newsflash highlights a feature of the Notice that has not attracted much public attention, and that appears both to eliminate the ability of many foreign insurance companies to participate in inversion transactions and to impede the ability of many foreign insurance companies to acquire U.S. target companies … Read more
In the first half of 2014, master limited partnership (MLP) mergers and acquisitions (M&A) transactions represented approximately 25 percent of all US oil and gas industry M&A activity. MLP transactions in the midstream and upstream subsectors have dominated the MLP M&A market. By value, the vast majority of these deals (88 percent) consisted of public companies acquiring private targets. Following the trend from last year, entity-level (as opposed to asset-level) M&A transactions have been the primary form of MLP M&A activity so far this year. From this year’s transactions, we have identified four trends worth exploring.
1. The Kinder Morgan … Read more
On September 30, 2014, the Delaware Supreme Court reversed a jury verdict finding that ev3, Inc. breached its contractual obligation to the shareholders of Appriva Medical, Inc., a company purchased by ev3. In ev3, Inc. v Lesh, No. 515m 2013, the Delaware Supreme Court ruled that an integration clause in a definitive merger agreement that provided for survival of a previously signed letter of intent did not transform the non-binding provisions of the LOI into binding provisions. The case was remanded to the Delaware Superior Court for further proceedings consistent with the Delaware Supreme Court’s opinion.
Post-Merger Milestone Payments… Read more
Hedge fund activism has increased almost hyperbolically. Some view this optimistically as a means for bridging the separation of ownership and control; others are more pessimistic, seeing mainly wealth transfers from bondholders or speculative expectations of a takeover as fueling the spike. Equivalent division exists over the impact of this increased activism, with optimists seeing real gains that do not erode over time and improvements in operating performance, and pessimists predicting shortened investment horizons, increased leverage, and reduced investment in research and development.
In a paper recently posted on SSRN, we take an analytic perspective. We begin by surveying the … Read more
The following post comes to us from Minor Myers, Assistant Professor at Brooklyn Law School, and Charles Korsmo, Assistant Professor at Case Western Reserve University School of Law. It is based on their recent paper, “The Structure of Stockholder Litigation: When Do the Merits Matter?,” which is forthcoming in the Ohio State Law Journal and is available here.
We offer a novel perspective on an old question in corporate law: Do the merits matter in stockholder litigation? In short, we find that the merits appear to matter very little in an important type of stockholder litigation—fiduciary duty class … Read more
Berkshire Hathaway Inc. has agreed to pay a civil penalty of $896,000 concerning its conversion of notes into voting securities of USG Corporation in December 2013, which was more than five years after Berkshire’s HSR Act filing to acquire an initial USG stock position and thus past the expiration date of the original HSR. In addition, Berkshire previously had made a corrective filing in July 2013 concerning the acquisition of voting securities of a different issuer and was, therefore, treated as a repeat offender by the Federal Trade Commission.
On Wednesday, August 20, the Federal Trade Commission (“FTC”) … Read more