On July 9, President Biden signed a wide-ranging Executive Order on “Promoting Competition in the American Economy” which, among other things, encourages “the Attorney General and the Chair of the FTC . . . to review the horizontal and vertical merger guidelines and consider whether to revise those guidelines” in order “to address the consolidation of industry in many markets across the economy.”
In response, the Acting Assistant Attorney General for the Antitrust Division of the Department of Justice (DOJ) and the Chair of the Federal Trade Commission (FTC) issued a statement announcing that the agencies will undertake a review … Read more
Antitrust is in the news to an extent that it has not been for a generation. Senator Klobuchar (CALERA), senators Lee and Grassley (TEAMS Act), and, in a series of bi-partisan bills, various members of the House of Representatives all seek to rewrite antitrust law. In particular, these bills aim to limit merger activity that is focused on acquisitions of smaller companies by larger technology companies, with the proposals ranging from presumptions of anticompetitive effects to outright prohibitions.
In a new working paper, we focus on the often overlooked implications of a change in antitrust law for venture capital, start-ups, … Read more
In a new article, I consider two methods of valuing public companies in appraisal proceedings under Section 262 of the Delaware General Corporation Law: the unaffected market price of the company’s shares and the deal price (less synergies, as applicable) that the acquirer pays in the merger.
Following their decisions in the DFC, Dell, and Aruba cases, the Delaware courts have strongly favored market-based methods of valuation in appraisal proceedings, and they have used both the unaffected market price and the deal price in appropriate cases. To be sure, each of these methods is reliable only when certain assumptions … Read more
The complaint filed in Franchi v. Multiplan Corp. et al. in the Chancery Court of Delaware on April 9, 2021 , has received a fair amount of attention because it claims breaches of fiduciary duties of a SPAC’s Board of Directors and officers with respect to a de-SPAC transaction, requiring entire fairness judicial review, and because it essentially alleges that, as a general matter, conflicts of interest and flawed processes in approving mergers with targets is endemic to the nature of SPACs. Given the prevalence of SPACs and the recent SEC statement regarding the risks of conflicts of interest in … Read more
Mergers and acquisitions are considered an integral part of a well-functioning governance system, an effective device for transferring corporate control to more capable owners and executives who can manage firm assets more efficiently and create economic value for shareholders of target firms. Acquirers, meanwhile, aim to reap financial synergies by integrating their economic resources and operations with those of targets. All this takes time, though, which is why mergers are often considered long-term corporate investments. Nonetheless, in about $3.5 trillion worth of deals, representing 23 percent of U.S. M&A activity from 1980 to 2015, targets were resold. This phenomenon … Read more
On April 30, 2021, then Vice Chancellor (now Chancellor) Kathaleen McCormick of the Delaware Court of Chancery issued a post-trial decision in Snow Phipps Group, LLC v. KCAKE Acquisition, Inc. ordering specific performance of a private equity purchaser’s obligation to purchase a business. The Court rejected the buyer’s argument that COVID-19 was reasonably expected to cause a sales decline that would mature into a material adverse effect (“MAE”), noting that, although the company sustained a precipitous drop in sales at the outset of the COVID-19 pandemic, it rebounded in the two weeks prior to termination and was not projected … Read more
Acquisitions are at the core of corporate strategy, enabling companies to expand and reposition themselves in the market. In 2019 alone, they accounted for nearly $3.7 trillion of economic activity. Yet acquirers famously struggle to realize value from these transactions. In a new study, we find that this challenge may be explained, at least in part, by the difficulty in maintaining a clear and compelling corporate purpose in the aftermath of the deal.
Purpose can loosely be understood as the “why” behind an organization’s existence. A recent survey of nearly 500 executives by Harvard Business Review Analytics Services revealed that … Read more
In a new paper, we examine firms’ corporate venture capital (CVC) investing from a disclosure and financial reporting perspective. CVC refers to minority equity investments made by established, publicly-listed firms in privately-held entrepreneurial ventures. CVC investing differs from pure venture capital investing in that strategic gains rather than financial returns are the primary consideration. The investing firm gets access to new sources of innovation and potential acquisition targets, and the startup venture benefits from the established firm’s capital, expertise, and connections. While established firms in the technology, industrial, and healthcare sectors such as Google, General Electric, and Johnson & Johnson … Read more
Previous takeover studies document a puzzlingly skewed division of gains between target and acquirer firms. The targets gain a hefty bid premium, while acquirers’ returns are insignificant or slightly negative around bid announcement dates. Thus, the question arises, Why do acquirer managers undertake low-benefit or even value-destroying mergers? In a new paper, I reassess the notion that acquirers aim to create synergies and maximize value through mergers and acquisitions (M&A).
Prior studies typically assume that mergers are unpredictable during the pre-offer period. However, a growing literature documents that private information from merger negotiations leaks to the market, suggesting that some … Read more
Vertical mergers – those involving companies at different levels of the supply chain – are the subjects of increasing regulatory scrutiny by antitrust enforcement agencies. For much of the recent past, these acquisitions have largely been viewed as pro-competitive for various reasons and have rarely been subject to regulatory challenges in the United States (some non-US competition agencies have been more aggressive toward vertical mergers than US enforcers). Indeed, the US agencies’ current Vertical Merger Guidelines, adopted in mid-2020, recognize that “vertical mergers often benefit consumers” and state that vertically integrated firms may “be able to create innovative products … Read more
As commented on previously (here, here, and here), 2020 and the beginning of 2021 have seen an explosion in popularity of Special Purpose Acquisition Company (“SPAC”) deals. As readers know, SPACs have become one of the predominant vehicles for raising funds outside of the traditional IPO. Historically, SPACs have been the target of litigation relatively infrequently, but that trend is changing with the recent SPAC boom and the corresponding increase in public awareness and interest (including from regulators, short sellers, and the securities plaintiffs’ bar). Along with the increase in federal securities suits filed against pre- … Read more
The new Article 22 EU Merger Regulation (EUMR) Guidance released by the European Commission (EC) enables the EC to review any acquisition, even those that do not qualify for notification under national (or EU) merger control rules.
- The new guidance indicates that the EC will actively monitor deal activity to identify transactions that may be candidates for an Article 22 referral. While a formal referral request should be made by a national competition authority (NCA), the EC will “encourage and accept” referrals and may proactively “invite” NCAs to make referrals, even if national merger control thresholds are not met.
… 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
There’s reason to believe that M&A will rebound in 2021, according to Ernst & Young research. Nevertheless, the multifarious challenges created by the Covid-19 pandemic have significantly altered the climate for acquisitions. Even in normal times, getting a deal to close does not guarantee long-term success of any business combination. According to a 2019 study by Deloitte, business executives increasingly cite successful post-merger integration “as the single most important factor that leads to a successful transaction (23 percent this year, up from 21 percent last year).” Despite that acknowledged need to focus early on firm integration, many … Read more
Rumors are common in financial markets and often relate to mergers and acquisitions (M&A). While the majority of M&A rumors originate from speculation or opinion pieces (Jia et al., 2020) and never turn into deal announcements, academic research finds that they are associated with significant stock price reactions (e.g., Ahern and Sosyura, 2015; Betton, Davis, and Walker, 2018). Since M&A rumors are disruptive events that are associated with job loss and organizational change, it is worth examining their heretofore unknown operational consequences for the firms and people involved. In this study, we use thousends of M&A rumors between 1999 and … Read more
In 2020, the number of IPOs by a Special Purpose Acquisition Company (SPAC) set records: A total of 248 SPAC IPOs raised over $75 billion. The boom continues in 2021: Each of January and February has seen over 90 SPAC IPOs, an unprecedented pace.
In a new working paper, we examine the structure of SPACs and discuss the economic tensions surrounding them.
What Is a SPAC?
A SPAC, a blank-check company created by a sponsor, goes public to raise capital and then find a non-listed operating company to merge with, in the process taking the company public. Units, usually priced … Read more
In a recent study, we examine whether firms structure their mergers and acquisitions (M&A) to avoid scrutiny from antitrust regulators as well as whether such deals reduce product market competition.
While M&A deals are often triggered to create value, they are scrutinized for antitrust violations in all of the world’s major economies. We find robust evidence of bunching in M&A transaction values just below the threshold required for submitting premerger notification filings for assessment of antitrust concerns by U.S. agencies. These “stealth acquisitions” entail contractual terms with lower deal premiums that facilitate avoidance of antitrust review, payoff functions that allow … Read more
On Thursday, February 4, 2021, the Federal Trade Commission (FTC), with the concurrence of the Department of Justice’s Antitrust Division (DOJ), announced that it had suspended the process by which requests for early termination of Hart-Scott-Rodino Act (HSR Act) waiting periods are granted, potentially signaling a more aggressive approach to merger review.
- For the foreseeable future, filing parties must in all cases wait for the full 30-day waiting period to expire before closing.
- The rule applies to currently filed transactions and to any new filings.
- The shift in practice by the FTC and the DOJ may preview a
… Read more
Transactions by special purpose acquisition companies, or SPACs, exploded in 2020, resulting in a 320% increase in the number of SPAC initial public offerings (IPOs) compared to 2019. SPACs have been around for 15 years and now are established as a legitimate alternative to a traditional merger or IPO. This is due in part to an evolution of the SPAC vehicle, which now offers enhanced investor protections and positions sophisticated managers as “sponsor teams” that guide the company through both the SPAC IPO and the de-SPAC process, as further described below. SPAC prevalence is set to continue through 2021, with … Read more
Much has been reported in the media about the efforts of the Committee on Foreign Investment in the United States (CFIUS) to investigate — and, where appropriate, mitigate, or even divest — transactions that the parties did not submit to CFIUS for review before they were consummated (so-called “non-notified transactions”). A recent Wall Street Journal article called attention to this worrisome trend, noting the Committee’s growing sophistication, enhanced funding for this outreach, appetite for investigating years-old investments, and leveraging of both the intelligence community and publicly available resources.
Although CFIUS outreach has long been a risk factor for the investment … Read more