The Dell Appraisal and the Business Judgment Rule

In 2013, Michael Dell and his private equity partner, Silver Lake, brought the previously publicly-held Dell Corporation private at a price of $13.75 per share, a price that was approved by Dell’s board and by a 57 percent majority vote of shareholders (70 percent of shares voted) on September 12. 2013. That price was arrived at after the board examined numerous estimates of the value of Dell by various outside experts and after an extensive, but ultimately unsuccessful, “go shop” canvassing of at least 60 other companies to explore their interest in making a higher offer.

Shareholders dissenting from the … Read more

How the Delaware Supreme Court May Help Michael Dell in his VMware Raid

VMware’s shareholders enjoyed gains of nearly 60 percent in 2017 as the company positioned itself as an appealing play on cloud computing with substantial growth potential and partnerships with industry leaders like Amazon Web Services. Indeed, in its most recent earnings period, VMware reported revenue growth of 14 percent and earnings growth of 17 percent, handily exceeding expectations for the period ending February 2. One analyst stated that “VMware is poised for its best growth trajectory since the 2008 recession.”

Investors should be celebrating, right? Wrong.

Despite the impressive performance, a dark cloud has hovered over the company since late … Read more

Gibson Dunn Discusses Delaware Courts’ Deferral to Deal Price in AOL and Aruba Appraisals

Two recent decisions confirm that, in the wake of the Delaware Supreme Court’s landmark decisions in Dell and DFC, Delaware courts are taking an increasingly skeptical view of claims in appraisal actions that the “fair value” of a company’s shares exceeds the deal price.[1]  However, as demonstrated by each of these recent Delaware Court of Chancery decisions—In re Appraisal of AOL Inc. and Verition Partners Master Fund Limited v. Aruba Networks, Inc.—several key issues are continuing to evolve in the Delaware courts.[2]  In particular, Delaware courts are refining the criteria in appraisal actions for determining … Read more

Columbia Law School to Hold 2018 M&A and Corporate Governance Conference in New York City

On April 20, 2018, Columbia Law School will hold its 2018 Mergers & Acquisitions and Corporate Governance Conference at Convene in midtown Manhattan. The event is co-sponsored by the law firms Gibson, Dunn & Crutcher and Wachtell, Lipton, Rosen & Katz.

The annual event brings together members of the federal and Delaware judiciary, government regulators, academics, institutional investors, and prominent M&A and corporate governance practitioners. This year’s panelists will include U.S. District Judge Jed S. Rakoff, Delaware Supreme Court Justice Karen L. Valihura, Delaware Chancellor Andre G. Bouchard, and SEC Commissioner Robert J. Jackson Jr. Below is the full agenda.… Read more

Davis Polk Discusses the Impact of European Data Protection Regulation on U.S. M&A

The winds of change will shortly sweep across the data privacy landscape in the European Union (“E.U.”) and the gale will be felt worldwide.  The European General Data Protection Regulation (“GDPR”) will come into force on May 25, 2018.[1]  Currently, some U.S. M&A practitioners prioritize U.S. law, absent a target with a strong business nexus with the E.U., but the GDPR’s extraterritorial scope, together with increased fines for non-compliance (up to the greater of 20,000,000 Euros or four percent of annual global revenue), will force its consideration into U.S. M&A activity.

We discuss below the … Read more

Davis Polk Discusses Greater Risk of Scrutiny for More UK Deals

The UK’s Competition and Markets Authority (CMA) has announced proposals to tighten its jurisdiction over mergers in the military, quantum technology and computing hardware industries. The changes, which are subject to a consultation period through April 12, 2018, would lower the thresholds at which the CMA and the Secretary of State can exercise their powers of review and intervention.

Specifically, the CMA is proposing to:

  • reduce the ‘target turnover threshold’ from £70 million to £1 million, and
  • broaden the ‘share of supply threshold’ to catch targets with 25% or more share of supply in the UK, even if the acquirer

Read more

Fried Frank Discusses When Appraisal Is Likely to Be Below the Deal Price

Since the Delaware Supreme Court issued its landmark Dell appraisal decision in December 2017, the Delaware courts have issued three appraisal decisions—Verition Partners v. Aruba Networks (Feb. 15, 2018), In re Appraisal of AOL Inc. (Feb. 23, 2018), and In re Appraisal of SWS Group (affirmed by the Delaware Supreme Court Feb. 23, 2018). In Dell, the Supreme Court held that, in the case of an arm’s-length merger with a “robust” sale process, the deal price is generally the best “proxy” for appraised fair value and should be given “heavy, if not determinative weight” in determining fair value. … Read more

Paul Weiss Offers M&A at a Glance for February 2018

Despite an increase in M&A activity over the past three months, deal trends in February 2018 retreated towards their 12-month averages, following banner months in November and December, both of which featured some of the largest deals we have seen in the last year. In the U.S., deal volume by dollar value decreased by 52.1% to $82.61 billion, the second-lowest level of the preceding 12‑month period, and the number of deals decreased by 21.5% to 716. Globally, deal volume decreased by 10.5% to $295.03 billion and the number of deals decreased by 20.1% to 2,639 (a 12-month low).

Strategic vs.

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How Property Rights Contributed to the Evolution of Takeover Auctions

Ronald Coase (1959, 1960)[1] [2] insightfully noted that with well-defined property rights, resources flow to their highest-valued use. In a recent paper, we apply this view of property rights to the corporate takeover market in the United States. Observers such as Jensen (1993)[3] argue that the major corporate-control activity beginning in the 1980s in the United States emanated from political, economic, and technological shocks that upset the existing structure of American industry. Indeed, innovations in junk bond financing and the relaxation of antitrust laws made large firms targets of corporate takeovers for the first time. In our analysis, … Read more

Skadden Discusses Novel Theories Emerging in Merger Enforcement

Antitrust merger enforcement historically has focused on horizontal mergers — consolidation of two firms that compete directly in the same space. This is especially true in the U.S., where antitrust authorities have challenged few vertical mergers — those of a firm with one of its customers or suppliers — and are even less prone to scrutinize conglomerate mergers that marry complementary assets, or transactions that may affect  innovation competition that isn’t tied to specific products or markets.

The European Union’s antitrust regulator, the European Commission, has been more apt to examine vertical issues, conglomer­ate effects and innovation competition, pushing the … Read more

Wachtell Lipton Discusses the New New Regime in Delaware Appraisal Law

A recent spate of appraisal decisions signals that the Delaware courts will be skeptical of claims that the “fair value” of a company’s stock, as determined in a judicial proceeding brought by a dissenter from the merger, will be higher than the price paid in the transaction.  To the contrary, in the context of strategic transactions—which may include synergy value to which dissenting stockholders are not entitled under the appraisal statute—Delaware has made clear that the appraised value may well be less than the deal price.

These decisions follow the important and welcome rulings of the Delaware Supreme Court in … Read more

Morrison & Foerster Discusses Delaware Chancery Ruling in Aruba Appraisal Case

In 2015, Hewlett Packard acquired Aruba for a negotiated price of $24.67 per share, or about $2.8 billion. Several stockholders sought appraisal. On February 15, the Delaware Court of Chancery found that, for purposes of appraisal, the fair value of the Aruba shares equaled the 30-day average unaffected market price of the shares, prior to announcement of the transaction, which was $17.13, about 30% less than the negotiated price.[1]

The court’s reasoning was driven largely by what the court believed to be directions from the Delaware Supreme Court’s decisions arising from the earlier DFC and Dell acquisitions,[2] including assumptions regarding … Read more

Paul Weiss Offers M&A at a Glance for January 2018

In U.S. and global M&A activity for January 2018, total deal volume by dollar value decreased, while the total number of deals increased. In the U.S., deal volume decreased by 29.3% to $170.57 billion, while the number of deals increased by 42.6% to 884. Globally, deal volume decreased by 31.2% to $324.45 billion, while the number of deals increased by 9.9% to 3,118. The sharp decreases in deal volumes are likely less reflective of any dramatic decline in deal flow, but rather due to the 12-month highs set in December 2017, especially given that January 2018 marked the third-highest global … Read more

Cleary Discusses 2017 Developments in Securities and M&A Litigation

The trend of increased securities class action filings in federal courts continued from 2016 to 2017.[1] Federal court filings of class actions related to M&A transactions again contributed to the increase.[2] Foreign issuers remained frequent targets of federal securities class actions.[3]

In 2017, the federal courts issued a number of important securities law decisions. Addressing the application of statutory time-bars applicable to securities law violations, the Supreme Court ruled in CalPERS that the Securities Act’s repose period is not subject to class action tolling and held in Kokesh that disgorgement in SEC proceedings is subject to the … Read more

How Changes in the Likelihood of Shareholder Litigation Affect M&A Decisions

Evidence shows shareholders’ wealth is protected from self-serving managers, who are often motivated to divert corporate resources, by both internal and external corporate governance mechanisms (Jensen and Meckling, 1976; Fama, 1980; Fama and Jensen, 1983). However, due to high monitoring costs, retail shareholders – unlike institutional investors – cannot prevent potential agency problems. Therefore, filing a securities class action is one of their few ex-post options for recovering loss of wealth (Gillian, 2006). Empirical evidence on agent-shareholder conflict indicates shareholders have used class action lawsuits to express dissatisfaction or to discipline inefficient management.

In 1995, the U.S. Congress passed the … Read more

Using the M&A Market to Study Innovation Problems

In an economic environment where technological disruption and regulatory upheaval are the norm, understanding innovation processes is essential to aggregate economic growth and individual companies’ survival.  As a result, how innovations are produced in a wide range of markets has attracted a massive amount of scholarly and popular attention.[1]  Yet, few have focused upon how the legal infrastructure, to use Gillian Hadfield’s term, underlying those innovations develops over time to meet new market needs.  We know more about how our iPhones were developed than how market institutions evolved to make the iPhone possible.

In a new … Read more

Paul Weiss Offers M&A at a Glance for 2017

2017 was an active year for M&A, though year-end results generally declined relative to 2016. Global deal volume for the year was $3.57 trillion and U.S. deal volume was $1.48 trillion (down 3.2% and 10.5%, respectively, from 2016). Sponsor-related deal volume for the year was $814.35 billion globally and $402.15 billion in the U.S. (up 5.0% and 0.6%, respectively, from 2016). Strategic deal volume was $2.75 trillion globally and $1.08 trillion in the U.S. (down 5.4% and 14.0%, respectively, from 2016). Figure 1. The average value of U.S. public mergers decreased by 21.7% from 2016 levels (from $4.11 billion … Read more

Wachtell Lipton Looks at Acquisition Financing in 2017 and the Year Ahead

The credit bull market charged through 2017, with many terrific outcomes for opportunistic borrowers. But even in the best of times, borrowers and their advisors should remain nimble and thoughtful, and 2018 brings much to consider, including the impact on the acquisition financing markets of the most significant business tax reform in a generation, and the continued rise of the net-short debt investor.

2017: A Good Year to Be a Borrower

2017 was another banner year for borrowers. Corporate debt yields were low, gross issuance of syndicated loans and investment grade bonds each hit new records, and high-yield bond issuance, … Read more

The Costs of M&A Antitrust Review and Acquirer Lobbying

The process of determining whether big mergers comply with antitrust laws is careful and intensive. The Federal Trade Commission and the Department of Justice reported that in 2011 they examined in detail 40 percent, and initiated second request investigations in 15 percent, of all deals over $1 billion.[1]   For example, after an extensive investigation that year, the Department of Justice blocked AT&T’s $39 billion acquisition of T-Mobile USA. AT&T had to pay a $4 billion reverse break fee, and its stock price dropped significantly.

The case shows how costly the antitrust review process can be for merging firms. Some … Read more

Wachtell Offers 2018 Checklist for Cross-Border M&A Involving U.S. Targets

Global M&A accelerated in the fourth quarter of 2017, driven in part by tech expansion and strong economies in several key markets, and there are many signals pointing to a continued strong pace of transactions, including in the U.S. Overall M&A volume in 2017 continued to be robust, reaching $3.6 trillion, approximately 35% of which involved cross-border deals. Four of the ten largest non-hostile deals announced in 2017 were cross-border transactions.

U.S. targets accounted for approximately $1.4 trillion (approximately 40%) of last year’s deal volume, with approximately 18% of U.S. deals involving non-U.S. acquirors. German, French, Canadian, Japanese and U.K. … Read more