In a series of decisions that began with Corwin v. KKR Financial Holdings LLC, it is now clear under Delaware law that boards of directors will receive the protection of the business judgment rule “when a merger that is not subject to the entire fairness standard of review has been approved by a fully informed, uncoerced majority of the disinterested stockholders.”[i] On March 31, 2017, in In re Saba Software, Inc. Stockholder Litigation, the Delaware Chancery Court determined, for the first time, that a transaction did not satisfy the Corwin standard.[ii] Although Saba addresses unique facts, … Read more
Global M&A activity in March 2017 was generally stronger than in February and also outperformed U.S. activity, where a decline in average deal size overshadowed an increase in the number of deals. Globally, total deal volume, as measured by dollar value, increased by 47.3% to $299.58 billion, whereas in the U.S., a decrease in average deal size led to a 38.7% decrease in total dollar volume to $65.91 billion. The decrease in U.S. volume came despite a 2.9% increase in number of deals to 886, which was not as strong as globally, where the number of deals increased by 15.6% … Read more
The legal advisory market for major corporate transactions is dominated by a relatively small number of elite law firms. What value do these law firms provide? Regulatory expertise, innovative drafting, speed of execution, and reputational cachet have all been offered as likely candidates. In Market Information and the Elite Law Firm, I argue that a considerable share of the profits earned by these firms also derives from selling their information about current “market” transaction terms.
Indeed, corporate transactions such as mergers and acquisitions or financings are characterized by several salient facts that lack a complete theoretical account. First, they … Read more
On March 7, 2017, the Delaware Chancery Court granted a motion to dismiss in In re Columbia Pipeline Group, Inc. Shareholder Litigation, which capped a line of cases starting with Corwin v. KKR Financial Holdings LLC and continued with In re Volcano Corporation Shareholder Litigation that clarified that the business judgment rule applies to tender offers and to mergers that are approved by a “fully informed, uncoerced vote” of disinterested stockholders in which the merger counterparty is a non-controlling stockholder or a non-conflicted controlling stockholder.[i] Read together, these cases provide a roadmap for practitioners to limit post-closing stockholder … Read more
M&A activity generally declined in February 2017, both globally and in the U.S. Total deal volume, as measured by dollar value, decreased globally by 30.1% to $202.45 billion, and in the U.S. by 3.7% to $106.47 billion. The number of deals followed similar trends, decreasing globally by 8.4% to 2,858 and decreasing in the U.S. by 10.2% to 828. These declines were primarily driven by declines in strategic M&A activity. Globally, strategic deal volume decreased by 40.6% to $144.56 billion and the number of deals decreased by 10.4% to 2,520. In the U.S., strategic deal volume decreased by 2.7% to … Read more
Of the nearly 6,000 U.S. firms that conducted initial public offerings between 1980 and 2008, 38 percent became merger bidders within three years after the IPO and 12 percent became takeover targets. It is important that investors understand these developments, given how often post-IPO M&A activity occurs and how much it can affect the value of companies.
Take for instance First Solar and Paypal. First Solar, the second largest maker of solar panels worldwide, explicitly disclosed that a primary use of its 2006 IPO proceeds would be to engage in acquisitions to achieve vertical integration. Not surprisingly, First Solar acquired … Read more
The practice of nominal shareholder plaintiffs challenging virtually every sizable corporate merger with a lawsuit alleging a fiduciary breach has been a scandal for some time. At least when brought by the “bottom fishers” of the plaintiff’s bar, these suits result invariably in a nonmonetary, “disclosure only” settlement that benefits no shareholder, but does justify an award of fees to the plaintiff’s attorney (the only party with an economic interest in the suit).
The near inevitability of M&A litigation is a relatively recent phenomenon, as the rate soared after 2000. One study finds that only 12 percent of M&A transactions … Read more
It has long been a policy of corporate law1 that the informed business decisions of independent and disinterested directors are protected by the presumption of the business judgment rule.2 Courts are reluctant to second-guess decisions that are made by directors in good faith and with the requisite degree of care. This reluctance remains evident in the recent decisions of Delaware courts, holding, in two lines of cases, that the presumption of the business judgment rule should apply both to certain transactions involving conflicted controlling stockholders and to transactions not involving conflicted controlling stockholders, that would otherwise be subject … Read more
On February 3, 2017, the Federal Trade Commission (“FTC”) released a report on an internal staff study examining the success of the Commission’s merger remedies from 2006 to 2012. The report, which also focuses on the remedy process more generally, is a follow up to the Commission’s first remedy study, released in 1999.
The FTC has received some criticism in the recent past about the perceived lack of success of a few of its merger consent decree remedies. But the report found that the remedy process was generally effective and that most remedies proposed by the FTC succeeded in … Read more
The Delaware Chancery Court’s vice chancellor speaks with Reynolds Holding about Dell, DFC Global and appraisal actions, which allow holdout shareholders who didn’t vote for a deal to ask the court to set a higher price for their stock. The big issue: Why isn’t the merger price necessarily fair value? Click on “read more” to hear the conversation — the inaugural edition of the Blue Sky Banter podcast.… Read more
Mergers and acquisitions (“M&A”) of bank holding companies (“BHCs”) and banks are subject to lengthy and sometimes unpredictable regulatory scrutiny and application processing between signing and closing. Bank M&A applications are subject to numerous regulatory risks, including preexisting conditions that are unknown or whose importance to the process is underestimated when the deal is signed, changes in the merging parties’ businesses, changes in regulatory views or policies, and new regulatory examinations or findings. Market, economic, and credit conditions, as well as the parties’ balance sheets, performance, and people can change materially while regulatory applications are being processed. All risks, including … Read more
On January 22, 2016, the Delaware Court of Chancery signaled the demise of “disclosure-only” settlements in M&A stockholder lawsuits with its decision in In re Trulia, Inc. Stockholder Litigation. Arguing that the “optimal means by which disclosure claims in deal litigation” should be through adjudication rather than the settlement process, the Chancery Court cautioned that it would “continue to be increasingly vigilant in applying its independent judgment to its case-by-case assessment of the reasonableness of the ‘give’ and ‘get’” of disclosure-only settlements. The Chancery Court offered its “hope and trust that [its] sister courts will reach the same … Read more
M&A activity in January 2017 showed mixed results, with the global M&A market generally down and the U.S. M&A market generally up. Total deal volume as measured by dollar value decreased globally by 26.9% to $280.97 billion, but increased in the U.S. by 36.0% to $108.11 billion. The number of deals followed similar trends, decreasing globally by 0.4% to 2,832 and increasing in the U.S. by 21.6% to 789.
Globally, both strategic and sponsor-related M&A activities were down, with deal volume, as measured by dollar value, decreasing by 22.4% to $235.77 billion and 43.9% to $45.20 billion, respectively. The number … Read more
On February 3, 2017, the U.S. Federal Trade Commission (FTC or Commission) released the findings of its “Merger Remedy Study” (the FTC Study) which examined the effectiveness of Commission-required remedies in transactions from 2006 to 2012. The FTC Study—its first on merger remedies in over 16 years—provides an important window into the FTC’s current thinking about merger remedies that may help businesses plan and position transactions for FTC approval. Moreover, it also provides several key insights that potential divestiture buyers should consider during and after completion of the divestiture to ensure the remedy is successful.
The FTC Study concluded … Read more
An M&A appraisal case before the Delaware Supreme Court has drawn amicus briefs from two groups of esteemed professors — including three from Columbia Law School — with opposing views on how a company should be valued.
The case involves the sale in 2014 of payday lender DFC Global to private equity firm Lone Star Funds for $9.50 a share, or about $1.3 billion. Muirfield Value Partners and three other DFC investors argued that the price was too low and filed an appraisal action, which allows shareholders that did not vote for the buyout to ask a judge to determine … Read more
On January 13, 2017, the Internal Revenue Service (the “IRS”) and the Treasury Department (the “Treasury”) published new final and temporary regulations (the “New Regulations”) and issued a notice of proposed rulemaking by cross-reference to the temporary regulations that address inversion transactions. The New Regulations generally finalize the previous temporary and proposed regulations while making a few technical changes. Most notably, the New Regulations:
- expand the application of the “associated obligations” rule and exclude intercompany obligations from “nonqualified property” that gives rise to disqualified stock,
- retain the distinction between stock and asset reorganizations,
- leave undisturbed pre-IPO buyout transactions and
2016 was an active year for M&A, though year-end results did not surpass record-levels set in 2015. Global deal volume for the year was $3.7l trillion and U.S. deal volume was $1.66 trillion (14.8% and 16.4% lower than their respective record levels in 2015). Sponsor-related deal volume for the year was $776.52 billion globally and $396.69 billion in the U.S. (down 22.6% and 32.9%, respectively, from 2015 levels and 12.5% and 6.5%, respectively, from 2014 levels). Strategic deal volume was $2.93 trillion globally and $1.26 trillion in the U.S., surpassing 2014 levels though falling short of 2015 record levels by … Read more
While 2016 was strong overall (see our annual review here), M&A activity in the last month was mixed. Total deal volume in December 2016 rose globally by 31.2% to $376.14 billion but declined in the U.S. by 49.4% to $78.58 billion. The number of deals reached 12-month lows both globally and in the U.S., with decreases of 24.2% to 2,505 and 28.8% to 591, respectively, with a more pronounced drop in the number of sponsor-related deals. Global strategic deal volume increased by 38.8% to $296.59 billion, while deal volume in the U.S. decreased by 58.5% to $48.54 billion. The … Read more
If 2008 through 2010 were years of tumult and recession in U.S. financing markets, and 2011 through 2015 years of recovery and growth, marked by ever-lower yields and record-setting financing activity even in the face of new compliance regimes, 2016 felt like a tipping point. After hitting record lows in the first half of the year, interest rates at last experienced a sustained rise, and the U.S. election results opened the door to major regulatory and legislative changes, including the potential roll-back of portions of Dodd-Frank and the potential roll-out of consensus-fueled fiscal stimulus.
During the course of a year … Read more
In common law countries such as the U.S., corporate governance aims primarily to protect shareholders from managers’ self-dealing. Post-Enron reforms such as the Sarbanes-Oxley Act of 2002 and various Securities and Exchange Commission rules are examples of this shareholder-oriented approach. However, to the extent that the interests of shareholders and debtholders are not entirely aligned, governance reforms that beneﬁt shareholders may harm debtholders. Similarly, some public polices such as state anti-takeover laws (ATLs) may entrench management and harm shareholders but benefit debtholders by reducing both the variance of cash flow from operations and the firm’s risk of default.
In our … Read more