Engaged shareholder voting is often perceived as the linchpin of sound corporate governance. That reputation is well deserved: Even as corporate governance has broadened its sights of late to accommodate a wider set of stakeholders, the pivotal role of shareholders in corporate decision making remains very much at the core of corporate law. Particularly within public companies, the shareholder voting franchise is a signature vehicle through which informed investors voice their approval, their concerns, and even their repudiation of managerial decisions. Highly diversified shareholders and institutional investors frequently engage the services of proxy advisers to help them become informed about … Read more
First-year law students typically learn that the terms of a contract represent a snapshot of the parties’ mutual intent, captured at the “magic moment” of contract formation. In reality, however, contractual sausage making is far messier than this idealized account admits. Even sophisticated negotiators can (and do) fall prey to inattention, bad planning, poor information, slothful mimicry, bad negotiating or decision-making skills, and more. And when they do, the contract terms they adopt may diverge from shared intent – sometimes substantially. In short, contracts are often the products of their environments, including political constraints, economic exigencies, and the inherent limitations … Read more
The transactional plumbing of corporate debt payment systems is hardly where one expects to find watershed legal moments; and it usually lives up to that mundane reputation. But every so often, real disputes emerge, and they are often doozies. Such was the case with a $1.8 billion loan facility that Revlon Inc. entered into with a syndicate of lenders half a decade ago. This particular loan, in fact, had the honor of being embroiled in controversy not once, but twice within a single year. And the second of these imbroglios seems destined to cast a long shadow on the law, … Read more
Changes in the global climate are having profound impacts on business operations, governance, and organizational management around the world. Boards of directors are searching for ways to account for these changes as they help guide their organizations, and investors are increasingly concerned about how these changes might impact their portfolios. According to some, climate change is “on the top of investors’ 2020 sustainability agendas for engaging with boards of the companies they invest in.” A key component of this competency, likely to be a significant question of corporate governance in the coming years, is climate risk management. Companies, investors, … Read more
Corporate governance is historically perceived as a specialized, idiosyncratic and somewhat arcane field. But increasingly, it has come to serve as a lightning rod for broader public debates. Perhaps no moment underscores this trend more sharply than the 2020 calendar year: Not only did the world face twin crises of unprecedented global pandemic and an invigorated public debate about racial equity and inclusion, but those events accelerated nothing short of a seismic shift in how we think about corporate governance.
Beyond the extraordinary human toll it continues to exact, the coronavirus has thrown a pall of uncertainty over hundreds of corporate transactions that were signed and waiting to close at the pandemic’s onset. As we noted in our previous Blue Sky Blog post, an important factor for understanding the fate of these deals is the structure and scope of their force majeure provisions, known in transactional jargon as MAC/MAEs (henceforth ‘MAEs’). Our analysis utilized text analysis tools to evaluate historical data of MAEs in a population of M&A deals spanning more than a decade and a half (January 2003 … Read more
A folk proverb from the American West teaches that the most important ingredient of a successful rain dance is timing. And the timing couldn’t be worse for signed corporate deals hanging in the balance at the onset of the novel coronavirus pandemic. As of this week, we estimate that there are just under 150 significant mergers and acquisitions (M&A) transactions signed and waiting to close, representing over half a trillion U.S. dollars in economic value. The fate of these deals has been thrown into considerable doubt by the COVID-19 crisis. And, in an uncanny resemblance to the onset of the … Read more
Tesla notched a trifecta of (legal) headlines this week, with three inter-related developments coming out of the shareholder challenge to the firm’s 2016 purchase of SolarCity: a settlement, a summary judgment decision, and an almost-certain trial featuring testimony by none other than Elon Musk. When originally announced, Tesla’s $2.6 billion acquisition of SolarCity was hailed as a “no brainer,” and it was eventually approved by a majority of Tesla’s independent shareholders. That said, it was Musk himself who was doing much of the aforementioned hailing – and observers couldn’t help but take note of the appreciable ownership stake he held … Read more
We write as legal scholars and economists who conduct research and teach in areas of corporate law, securities law, and administrative law. In addition, one of us has previously worked at the Securities and Exchange Commission (“Commission”) as a financial economist and an attorney advisor between 2007 and 2012, in what is now called the Division of Economic & Risk Analysis. None of us is being compensated or otherwise assisted in developing the opinions articulated below. Every word is our own, drafted solely by the three of us.
We submit this letter pursuant to the notice-and-comment request issued by the … Read more
Of all the conjured hazards faced by the teenage gladiators in the dystopian novel The Hunger Games, the Tracker Jacker (a genetically engineered wasp) was the most deadly and unpredictable when provoked. Dell Technologies Inc. may soon have to contend with its own species of Tracker Jacker, as speculation mounts around the company’s pending offer to its public Class V tracking stock shareholders (NYSE: DVMT)—a cash-and-stock transaction with a claimed valuation of $109 per share. Several activist hedge funds with substantial DVMT positions have vigorously opposed the proposed deal, and their burgeoning resistance has evidently induced Dell to hint … Read more
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
On December 14, the Delaware Supreme Court issued its much-anticipated opinion in the appraisal proceeding from the 2013 acquisition of Dell Inc. Along with August’s DFC Global opinion, the court’s pronouncements in Dell will have lasting effects on the way that appraisal valuations play out for years to come. In particular, the case(s) will have a durable impact on (a) how courts weigh competing financial methodologies for assessing fair value, (b) how to scrutinize the bidding process and procedures, and (c) whether courts should distinguish among strategic bidders, financial bidders, and management bidders in making fair-value assessments.
The … Read more
Post-merger appraisal rights have attracted more than their fair share of controversy in recent years. When activated, appraisal rights give the shareholders of a Delaware target corporation the option to eschew the consideration of the proposed deal, pursuing instead a judicial determination of the “fair value” of their shares. By statutory requirement, this judicially-crafted valuation imposes no explicit burden of proof on the parties, and it must be based on all relevant factors (excluding buyer side synergies).
Although historically a sleepy corner of mergers and acquisitions litigation, appraisal proceedings have awoken dramatically in the last decade. An important … Read more
Few research topics over the last two decades have proven as alluring and elusive as corporate governance. Its allure is self-evident: Since the turn of the 21st century, a growing number of pundits, commentators, and scholars have argued that high quality corporate governance matters in creating and preserving firm value. And accordingly, various courts, legislatures, regulators, and boards of directors have introduced a host of governance reforms in response. Yet the topic is also elusive, largely because corporate governance operates through a wide variety of means, including the financial structure of a company, economic incentives, monitoring, formal authority, real authority, … Read more
Tax regulators and acquisition sponsors have long been embroiled in a cat and mouse game in the context of corporate inversions—cross-border transactions in which a U.S.-incorporated public corporation is “acquired” by a foreign entity, and the survivor’s locus of incorporation moved out of the United States. If done in compliance with applicable tax regulations, inversions typically allow American targets to avoid high U.S. corporate tax rates on worldwide income, and make use instead of far lower tax rates applied only to income generated within the survivor’s destination jurisdiction.
As tax inversions grew in popularity, federal authorities responded with a gauntlet … Read more
Some legal rights and obligations are so venerated and longstanding that they have become virtual absolutes—categorical imperatives that trump other less urgent considerations. But what happens when two such absolutes collide? This was a question that the US District Court of the Northern District of California had to wrestle with recently, in a case pitting directors’ fiduciary duties against their entrepreneurial rights to innovate.
The case concerned a medical device company’s complaint against its former director for breach of fiduciary duty. His offense? Secretly developing a new technology that competed with (and arguably improved upon) the corporation’s core product … Read more
The following post comes to us from Eric L. Talley, The Rosalinde and Arthur Gilbert Foundation Professor of Law at the University of California, Berkeley, School of Law. It is based on a recent working paper, “Corporate Inversions and the Unbundling of Regulatory Competition,” which is available here.
Several prominent public corporations have recently embraced a noteworthy (and newsworthy) type of transaction known as a “tax inversion.” In a typical inversion, a US multinational corporation (MNC) merges with an operating foreign company. The entity that ultimately emerges from this transactional cocoon is invariably incorporated abroad, yet typically remains listed … Read more
The following post reproduces the text of a letter written by a group of corporate law professors at the University of California, Berkeley, School of Law in response to the U.S. Department of Health & Human Services’ request for comments on the definition of “eligible organization” in light of Burwell v. Hobby Lobby.
Dear Sir or Madam:
We are all professors of law at the University of California, Berkeley, School of Law, as well as specialists in the study and teaching of corporate law. This letter responds to the request published in the Federal Register on August 27, 2014 (the … Read more