M & A

The Twitter Board Bears Personal Responsibility for a Bad Outcome in the Twitter Sale

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Let’s be clear about this: The Twitter board was under no legal compulsion to accept Elon Musk’s offer for the company and, from a corporate governance structural point of view, was in an unassailable position until the 2024 shareholders meeting.  The single motivating factor in its decision, apparently, was that the deal was a good one for Twitter shareholders, without apparent regard for how Musk might run the company and the consequence for the social media infrastructure that Twitter had created, much less the public welfare.  In my opinion, the board’s conduct was shockingly near-sighted, and the predictable adverse consequences … Read more

How Takeovers Affect  Firms’ Voluntary Disclosure

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How does the possibility of being taken over affect the disclosure of information by the management of the target firm? This has been a question of considerable interest in the accounting and finance literature because transparency is very important for a well-functioning takeover market. Whereas some argue that a target firm’s management will withhold information to increase the acquirer’s uncertainty about firm value and deter the takeover, others argue that the management will increase disclosures to inform existing shareholders about the firm’s fair value and prevent value-decreasing or opportunistic takeovers. The empirical evidence is mixed. In my recent article, I … Read more

Davis Polk Discusses Robust Antitrust Agenda of DOJ and FTC

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At a recent Enforcers Summit, leaders of various U.S. and international antitrust enforcement agencies set forth their enforcement priorities. The new heads of the U.S. antitrust agencies emphasized that the agencies are primed to litigate more cases, challenge more mergers, and use all enforcement tools at their disposal. Both U.S. and global enforcement agencies also emphasized their belief that antitrust law must evolve to police anticompetitive conduct in digital and labor markets.

Enforcers emphasized trials, criminal antitrust penalties, and using all the tools at their disposal to combat anticompetitive conduct

The U.S. Department of Justice’s (DOJ’s) Assistant Attorney General for … Read more

Going Private Outside Delaware: Holes in the Director Raincoat and Other Concerns

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Meade v. Christie et al., an interlocutory appeal in a shareholder class action challenging a going private merger, is currently pending before the Iowa Supreme Court.[1] The appeal will test the strength of a director-liability shield law patterned on the Model Business Corporation Act template. It also presents questions of corporate law that pertain to going private transactions and are largely unsettled outside of Delaware.

A key question in Meade (and one of first impression in Iowa and other MBCA states) is whether the MBCA director shield exception for “intentional infliction of harm on the corporation or the shareholders”… Read more

How FinTech Affects Corporate Takeover Markets

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Investment in financial technology, or FinTech, has increased dramatically over the past decade – from a total value of $9 billion worldwide in 2010 to well above $100 billion in recent years, with a peak of $215 billion in 2019. In addition to investments from venture capital, private equity, and public equity firms, companies have spent substantial amounts on acquiring disruptive technologies through mergers and acquisitions. For example, digital-payments platform Square, founded by Twitter co-founder Jack Dorsey, acquired the FinTech firm Afterpay in August 2021, resulting in Australia’s biggest-ever takeover. Goldman Sachs acquired FinTech firms United Capital in 2019 and … Read more

Skadden Discusses Agency Perspectives on the Merger Guidelines Review

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On Jan. 18, 2022, the Federal Trade Commission (FTC) and the Department of Justice’s (DOJ) Antitrust Division announced a joint public inquiry related to the federal merger guidelines, with the goal of “strengthening enforcement against illegal mergers.” Members of the public are encouraged to provide comments pursuant to the joint request for information through March 21, 2022. After considering these public comments and other available evidence, including their own research, the agencies are expected to publish revised proposed guidelines for public comment. In announcing the joint inquiry, the agency heads identified and explained some of their concerns with current antitrust … Read more

Reviving Bank Antitrust

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Antitrust is back. The Chicago School relegated antitrust policy to obscurity during the latter half of the 20th century, but a new cohort of antimonopoly scholars has recently rekindled concerns about industrial consolidation and corporate “bigness.” This antitrust revival has spurred an unlikely coalition of ideologically diverse policymakers to pursue aggressive merger enforcement and de-concentration strategies in technology, pharmaceuticals, transportation, and healthcare. Harnessing this momentum, President Joe Biden issued an executive order shortly after his inauguration, directing his administration to “combat the excessive concentration of industry” and “promote competition” throughout the economy.

To date, however, the new antitrust movement … Read more

Learning by Doing in Mergers and Acquisitions

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In his classic 1962 paper, “The Economic Implications of Learning by Doing,” Nobel laureate Kenneth J. Arrow argued that firms can gain proficiency through the repetition of activity. Since then, learning by doing, or LBD, has been widely studied across business and economics disciplines. Researchers have come to realize that firms can obtain significant cumulative experience and achieve efficiency in operations, production, and innovations using LBD (e.g., Irwin and Klenow, 1994; Jovanovic and Nyarko, 1996; Beck and Wu, 2006).

In a new study, we revisit the LBD hypothesis in the context of mergers and acquisitions (M&A). We argue that firms … Read more

Cleary Gottlieb Discusses Delaware Ruling on Appraisal Petitioners’ Discovery Demand

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In Wei v. Zoox, Inc., the Delaware Court of Chancery found that an appraisal petition had been filed for the sole purpose of gathering discovery to be used in drafting a fiduciary duty complaint challenging a merger where the former stockholders had lost standing to seek books and records under Section 220 due to the rapid closing of the merger.  Nonetheless, in a novel ruling, the court permitted the appraisal petitioners to pursue some discovery in the appraisal action, limited to what would have been available to them under Section 220 had they not lost standing to seek such … Read more

Cleary Gottlieb Discusses Delaware Ruling on Post-Signing Value Changes in M&A Appraisals

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In a noteworthy new post-sale appraisal ruling, the Delaware Court of Chancery in BCIM Strategic Value Master Fund, LP v. HFF, Inc.[1] awarded the petitioner additional consideration based on an increase in the value of the target company that arose between signing and closing.  The unique facts of this case, and particularly the sustained outperformance of the target in the interim period before closing, are worth keeping in mind in evaluating the risk that a successful appraisal proceeding can increase the amount of consideration payable in a public company acquisition.  Below we break down the Court’s analysis in determining … Read more

(Un)Intended Consequences of Regulatory Enforcement in M&A

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A growing literature highlights the important effect of economic and political policies on mergers and acquisitions (M&A). M&A often involves major issues of corporate investment and resource allocation, and so inefficient interference in the M&A market can have significant and long-lasting economic impact. In a new paper, we investigate whether antitrust enforcement by the Department of Justice (DOJ) or the Federal Trade Commission (FTC) has the substantive and lasting effect of deterring U.S. mergers and acquisitions.

The DOJ and the FTC follow strict procedures for regulatory interventions, as described in the Horizontal Merger Guidelines[1], updated in 2010. These … Read more

Cleary Gottlieb Discusses Delaware Chancery Decision on SPAC Merger Challenge

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In one of the first opinions addressing fiduciary duty claims in the context of a transaction involving a special purpose acquisition company (“SPAC”), the Delaware Court of Chancery determined that the SPAC shareholders’ right to redeem can be undermined by insufficient disclosures regarding the transaction and allowed class-action claims to continue against a SPAC’s controlling shareholder and directors.[1]  This decision is important because it addresses some of the unique features of SPACs designed to mitigate inherent conflicts of interest in the SPAC structure, particularly the redemption feature.  While this opinion leaves open that the redemption feature of SPACs may … Read more

Skadden Discusses Waiver of Appraisal Rights Upheld by Split Delaware Supreme Court

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In Manti Holdings, LLC v. Authentix Acquisition Co., Inc., the Delaware Supreme Court affirmed the Court of Chancery’s decision to enforce a waiver of appraisal rights included in a stockholders agreement executed by “sophisticated parties” who owned 100% of the company.1

This 4-1 decision reinforces Delaware’s longstanding public policy favoring private ordering, but has resulted in speculation (including from the strong dissent in the case) about what rights under the Delaware General Corporation Law (DGCL) are truly non-waivable. Delaware corporations, investors and practitioners should pay close attention to Manti’s guidance on contractual waiver of statutory rights.

Background

In connection with … Read more

Why Exit via Acquisition Is Essential to Entrepreneurial Investment

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Antitrust regulators around the world, including in the UK, have recently proposed changes to merger review policies and enforcement strategies that have implications for how acquisitions of start-ups are investigated and evaluated.  These changes will likely lead to heightened scrutiny—and increased costs and longer reviews—for many acquisitions, including horizontal and vertical mergers. In evaluating the merits of such changes, it is critical to take into account the important role that exit via acquisition plays in providing incentives for venture capital (VC) investment and entrepreneurship, and more broadly in driving dynamic innovation—one of the stated goals of the UK’s Competition and … Read more

Misconduct Synergies from Mergers

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Like many sectors in the U.S. economy, the registered investment advisory (RIA) industry has seen a recent increase in consolidation through mergers and acquisitions (M&A). The RIA industry has also experienced widespread and well-documented misconduct among employees.  For example, Egan, Matvos and Seru (2019) report that 7 percent of financial advisors have misconduct records.  Beyond the traditional cost and revenue synergies, what is the potential impact of M&A transactions on employee behavior? Mergers can increase value if they improve monitoring and disciplinary mechanisms that reduce employee wrongdoing at the combined firm.

In a new paper, we use the RIA industry … Read more

What Do Stockholders Own? The Rise of the Trading Price Paradigm in Corporate Law

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In a spate of recent decisions, the Delaware Supreme Court has embraced a shift in its approach to stockholder appraisal rights, a development that has attracted considerable comment. The greatest impact of these decisions, however, may lie beyond appraisal and still be to come.  The decisions present a new conception of how trading prices relate to the stockholder’s entitlement, one that would alter basic ideas surrounding mergers, stock ownership, and the nature of the corporation as a vehicle for co-ownership. Delaware corporate law appears to be on the verge of a paradigm shift.

At the heart of the shift is … Read more

Raiders, Activists, and the Risk of Mistargeting

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For decades, Delaware and federal law governing contests for corporate control have focused on building walls to keep corporate raiders outside the gates, while doing relatively little to stop activist hedge funds. The prevailing academic view has been similar: Scholars frequently support measures that make life more difficult for raiders, while taking a more skeptical stance toward measures that target activists. In both cases, the conventional wisdom rests on an assumption that raiders pose a greater threat than activists to corporations and their stockholders.

In a recent article, Raiders, Activists, and the Risk of Mistargeting, we argue that this … Read more

Private Equity in the Hospital Industry

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Private equity (PE) firms have in recent years been spending more money on purchasing more hospitals than ever before, with such deals accounting for a sizeable chunk of the roughly $340 billion that PE firms have put into the U.S. healthcare industry over the last decade.[1] Hospitals are economically very significant, not only because they are among the 10 largest employers in all U.S. states, but also because they provide important jobs to women and critical healthcare services to local communities.

The role of PE firms in the hospital industry is, however, controversial. Proponents claim that PE firms can … Read more

Chair Lina Khan Discusses Vision and Priorities for the Federal Trade Commission

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Thank you [commissioners and staff] for the grace and patience you’ve displayed the last few months as my team and I have gotten up to speed on the agency’s work and processes. Navigating a leadership transition during a pandemic has
posed a host of challenges, and I am so grateful for the warm welcome and support from across the Commission. The past 18 months have involved significant hardship and loss for many of us, and I want to thank everyone for their hard work and dedication during these difficult times.

It’s been great to meet and speak with many of … Read more

Paul Weiss Discusses FTC Withdrawal of Vertical Merger Guidelines

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At its public meeting on September 15, the Federal Trade Commission (FTC) rescinded its Vertical Merger Guidelines. These guidelines were issued jointly by the Department of Justice (DOJ) and FTC in June 2020, and served to “outline the principal analytical techniques, practices, and enforcement policies of the” DOJ and FTC “with respect to a range of transactions often described as vertical mergers and acquisitions.” The FTC also rescinded its related Commentary on Vertical Merger Enforcement issued in December 2020. The FTC did not issue replacement guidelines. Instead, the majority statement said that sometime in the future the FTC “will … Read more