For the last year, a heated ownership battle has been unfolding between Comcast and 20th Century Fox in their contest to acquire Sky PLC. Sky is Europe’s leading media company and the largest pay-TV broadcaster in the UK, with over 21 million subscribers and 30,000 employees (not to mention a mercilessly dominant professional cycling club). While many such battles are settled outside of the public eye, this one is destined for a different fate: Over the next two days, the Comcast/Fox contest will culminate in an old-school auction—one ordered by the UK Takeover Panel, which oversees and regulates all … Read more
M&A activity in August, like July, continued the recent downward trend in number of deals across most sectors while showing more mixed results as measured by total dollar value. The number of deals decreased in the U.S. by 39.4% to 274 and globally by 19.2% to 2,027 (the third consecutive month with the lowest levels since the beginning of this publication in 2012). However, deal volume by dollar value increased in the U.S. by 10.1% to $136.47 billion while it decreased globally by 6.6% to $275.93 billion.
Strategic vs. Sponsor Activity
The number of strategic deals decreased by 43.2% … Read more
There has recently been a pick-up in bank merger and acquisition activity that likely reflects both the increased importance of scale in the banking industry, particularly in the technology area, and regulatory and legislative developments that reduce certain obstacles to approval of bank merger transactions. Nonetheless, the immediate negative market reaction that has greeted the announcement of several recent mergers may discourage other banks from considering sensible consolidation transactions. Not only purchasers, but sellers, may be reluctant to engage in transactions, notwithstanding their strong business and financial merits, if concerns over the “day-one” market reaction play an outsized role in … Read more
During a speech delivered on July 25, 2018 at the American Conference Institute 9th Global Forum on Anti-Corruption Compliance in High Risk Markets, Deputy Assistant Attorney General Matthew Miner, who oversees the U.S. Department of Justice’s (“DOJ”) Fraud Section (which includes the DOJ’s Foreign Corrupt Practices Act (“FCPA”) Unit), announced that successor companies that identify potential FCPA violations in connection with a merger or acquisition and disclose that conduct to the DOJ will be treated in conformance with the DOJ’s FCPA Corporate Enforcement Policy (the “Policy”). The Policy, which went into effect in November 2017, created a presumption that … Read more
On July 11, 2018, the US Department of the Treasury (Treasury) and the Internal Revenue Service (the IRS) issued final regulations (the Regulations) continuing efforts aimed at curbing cross-border corporate expatriation transactions — commonly referred to as inversions — and diminishing the tax advantages associated with inversions.
The Regulations generally follow the guidance provided in notices and temporary and proposed regulations promulgated during the 2014-2016 period (the Prior Guidance), with certain clarifications and modifications. Differences between the Regulations and the relevant Prior Guidance are generally technical, and the Regulations do not change fundamental policy decisions reflected in such guidance.… Read more
M&A activity in June 2018 weakened from last month across most measures, although still generally strong for the first half of the year. The total number of deals decreased in the U.S. by 28.6% to 528 (the lowest level since the beginning of this publication in 2012) and globally by 17.5% to 2,457 (the lowest level since March 2014). However, while June deal volume by dollar value also decreased globally by 14.0% to $348.56 billion, deal volume increased in the U.S. by 27.6% to $184.30 billion.
Strategic vs. Sponsor Activity
The number of strategic deals decreased by 33.0% to … Read more
A fundamental question in corporate finance is how mergers and acquisitions create value. Possibilities include generating economies of scale or scope, increasing managerial efficiency, improving production techniques, or strengthening market power. Synergies are a leading motive for doing mergers, but direct empirical evidence on how they are created is lacking. In a new study, we investigate a potential source of synergies—improvements in management practices.
We use a novel survey dataset of plant-level management practices from the U.S. Census Bureau. Specifically, we use the 2010 Management and Organizational Practices Survey, the first large-scale management practices survey of manufacturing plants in the … Read more
In response to the growing practice of “appraisal arbitrage,” in 2016 Delaware’s General Assembly amended the state’s appraisal statute, Section 262 of the Delaware General Corporation Law. The amendment to Section 262(h) granted corporations the option to “prepay” appraisal claimants an amount of the corporation’s choosing in order to stop the accrual of interest. While corporations now have the option to pay, should they? Whether, when and how much to prepay is a complex and nuanced judgment that will vary depending on the particular facts and circumstances of a case.
Prior to the amendment, corporations in an appraisal action … Read more
In large part as a response to China’s national industrial goals and subsequent Chinese acquisitions of U.S. and European companies that are technology leaders in key industries, the U.S. government and a number of European governments are seeking to expand the scope of their national security reviews of foreign investments. Below, we outline ongoing developments affecting U.S. national security reviews of inbound foreign investment.1
FIRRMA Moves Ahead
The Senate and House have recently passed their respective versions of the Foreign Investment Risk Review Modernization Act (FIRRMA) legislation that was originally introduced in November 2017 with significant bipartisan support. FIRRMA … Read more
In a new cross-nation study, we discuss our findings on how the takeover market affects stock-price crash risk, defined as the likelihood of a sudden, drastic decline in the stock price of a firm. An important consideration for risk management and investment decisions, crash risk has received much interest in recent years from academics, regulators, and practitioners due to the series of high-profile corporate scandals (e.g., Enron, WorldCom, Satyam) and the financial crisis of the last decade.
Prior research suggests that the risk of security price crashes stems from agency problems (i.e., managers do not act in the best interests … Read more
Beginning at least as far back as Professor William Carey’s famously withering 1974 Yale Law Journal article about Delaware’s “enabling” of bad corporate actors, critics of the state’s corporate jurisprudence have alluded to a “race to the bottom” in which the state legislature and judiciary turn a blind eye to managerial agency costs in order to attract new business and maintain Delaware’s dominant franchise in corporate law.
But over the past two decades, a better metaphor for the state’s corporate oversight may be a pinball ricocheting from crisis to crisis, with jurisprudential vigilance varying according to the degree of exigency … Read more
M&A activity in May 2018 generally weakened from the prior month. The total number of deals decreased in the U.S. by 1.2% to 667 (the second-lowest level in the last 12-month period) and globally by 4.8% to 2,759 (the lowest level in the last 12-month period). May deal volume by dollar value decreased in the U.S. by 29.9% to $144.39 billion and globally by 21.9% to $401.76 billion.
Strategic vs. Sponsor Activity
The number of strategic deals increased by 2.4% to 564 in the U.S., but decreased by 5.0% to 2,456 globally, the second-lowest level in the last 12-month … Read more
The issue of directors serving on multiple corporate boards has come under increasing scrutiny from both academicians and practitioners. There are two types of arguments associated with the conflicting evidence of how multiple directorships affect firm value and performance. The first is a reputation hypothesis that contends individuals gain valuable experience, skills, and networks from serving on multiple boards. The competing argument, which we refer to as the busyness hypothesis, is that these individuals are over-committed and thus unable to provide the careful monitoring and diligence that their positions require. The literature has not yet established whether the reputation or … Read more
M&A activity in April 2018, as measured by number of deals, dipped from March 2018 levels in the U.S. and globally across every metric. The total number of deals decreased by 15.2% to 669 in the U.S. and 9.7% to 2,771 globally, each the second-lowest respective level in the last 12-month period. April volume by dollar value increased both in the U.S. and globally. In the U.S., deal volume increased by 17.6% to $206.28 billion. Globally, deal volume increased by 8.3% to $525.68 billion, a 12-month high.
Strategic vs. Sponsor Activity
The number of strategic deals decreased by 10.8% … Read more
It is an old maxim that “Hard cases make bad law.” But it may have a corollary: “Bad facts make hard law.” When a defendant clearly overreaches, the court may not let small details stand in its way. The decision in In re Xerox Corp. Consol. Shareholder Litigation by Justice Barry Ostrager of the New York Supreme Court may be such a case. Decided at the end of last month, the decision enjoined a shareholder vote on a merger-like transaction between Xerox Corporation and Fujifilm Holdings Corporation (“Fuji”) and required Xerox to waive its advance notice bylaw so that … Read more
Prior research has documented the existence of disclosure externalities, or information spillovers, between firms in a number of different settings. The idea is that when two firms are economically related, public disclosures by one firm can affect the stock price of the other firm. In a recent paper, we extend this idea by asking whether firms make disclosure decisions with the intention of affecting other firms’ stock prices. That is, we examine whether the presence of information spillovers influences firms’ disclosure decisions.
We investigate our question in the context of cash-based mergers and acquisitions. We test whether bidders disclose information … Read more
New Risk of Below-Deal-Price in Appraisal Results
Last quarter, the Delaware courts issued the first post-Dell appraisal decisions—Aruba and AOL (issued by the Court of Chancery) and SWS Group (issued by the Delaware Supreme Court, affirming the Court of Chancery decision below). In Dell, the Supreme Court had 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. The Supreme Court had also directed that, even if the … Read more
In mergers and acquisitions (M&A), one of the trickiest tasks is assessing the value of the company to be purchased or sold. While in some cases buyers and sellers come easily to an agreement, in others the information asymmetry between the two parties is too great or the target company is too opaque, and the deal can fall apart.
Earnouts are contractual agreements that link part of the acquisition price to the future performance of the target. One portion of the price is paid to the selling shareholders up front and the remaining portion is paid only if the target … Read more
The Corporate Council of the Corporation Law Section of the Delaware State Bar Association (the “Corporate Council”) has released proposed legislation to amend certain provisions of the Delaware General Corporation Law (“DGCL”) which if enacted would, among other things, (i) amend Section 262 to reduce the number of transactions that would be subject to appraisal claims by extending the “market out exception” to the availability of statutory appraisal rights in exchange offers followed by a merger under Section 251(h), (ii) amend Section 204 to clarify the situations in which that Section may be used to ratify defective corporate acts … Read more
In 2010, Roger Carr, then-chairman of British confectionery Cadbury, waged a grueling five-month battle before losing control of the company to Kraft Foods. “At the end of the day,” he said, “there were simply not enough shareholders prepared to take a long-term view of Cadbury and prepared to forgo short-term gain for longer-term prosperity.”
In response to the deal, the Guardian newspaper asked whether it was time to regulate hedge funds’ activities to protect premier UK companies from inefficient takeover bids. Hedge funds held 5 percent of Cadbury at the time of Kraft’s bid, and, according to Roger Carr, short-term … Read more