M & A

Remedies for M&A Breach of Contract – The Cineplex Case

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A remorseful acquirer wants to get out of a merger or acquisition agreement. It concocts a thin justification, which a court wisely rejects, finding unlawful breach. What is the appropriate remedy for harm done to the target?

While attention has focused on the controversy surrounding Elon Musk’s proposed acquisition of Twitter, this question arose in the recent Canadian decision of Cineplex v. Cineworld.[1] The Cineplex court rejected specific performance and instead, in a case of first impression, awarded the target CAD $1.24 billion in expectation damages for loss of anticipated synergies.

Our forthcoming paper takes a close look … Read more

How Accounting Comparability Between Bidders and Targets Affects Deal Outcomes

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How comparable are the financial statements of M&A bidders and acquirers in the same industry? And does financial statement comparability affect the outcome of a deal? In a recent paper, available here, we investigate these questions, using a sample of deals between U.S.-listed firms over the 1987-2021 period.

An accounting system maps economic transactions onto financial statements (Yip and Young, 2012). Accounting comparability reflects the tendency of two firms that have comparable accounting systems to produce similar (or dissimilar) financial statements for a given set of similar (or dissimilar) economic events (De Franco et al., 2011; Barth et al., … Read more

Skadden Discusses Executive Order on CFIUS Authority to Identify National Security Risks

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On September 15, 2022, President Joe Biden issued an executive order (EO) “on ensuring robust consideration of evolving national security risks” by the Committee on Foreign Investment in the United States (CFIUS or the Committee). The EO does not change CFIUS jurisdiction or process, nor does it, as a practical matter, materially change the factors CFIUS regularly considers (or has considered over the past several years) when reviewing a CFIUS filing for national security risk. Despite the EO’s modest changes to policy, its articulation of some specific areas of concern may have a marginal effect on CFIUS agencies’ future reviews … Read more

Wachtell Lipton Discusses M&A and the Book Minimum Tax

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On August 16, President Biden signed the Inflation Reduction Act of 2022 (the “IRA”) (see our prior memo), which imposes a new 15% corporate book minimum tax (the “BMT”).  The BMT is imposed, effective for taxable years beginning after December 31, 2022, on the “adjusted financial statement income” (“AFSI”) of large U.S. corporations (other than S‑corporations, REITs and regulated investment companies) with average AFSI in excess of $1 billion over the preceding three-year period.  Adjusted financial statement income is net income in a corporation’s audited GAAP financial statements filed with the SEC (or certain other specified financial statements) subject … Read more

Davis Polk Discusses Biden’s Executive Order on Competition, One Year Later

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Since President Biden issued his July 2021 Executive Order on Competition, the antitrust agencies have made broad policy statements promising more aggressive enforcement and have initiated a number of high-profile enforcement actions.  Rather than establishing a record of success, the primary effect has been to create uncertainty, as the agencies struggle with institutional constraints and have yet to achieve groundbreaking victories in court.  Still, the FTC and DOJ do not appear deterred.

Background on President Biden’s Executive Order on Promoting Competition in the American Economy

On July 9, 2021, President Biden issued a sweeping proclamation on competition in the American … Read more

Why Cybersecurity Is a Growing Concern in M&A

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The Fortune 500 CEO survey in 2021 found that two-thirds of interviewed CEOs consider cybersecurity risk their greatest concern, far greater than the risks presented by political instability or climate change.[1] They are right to be concerned, particularly in the context of mergers and acquisitions (M&A), where the process of migrating and integrating data between merging firms can make them particularly vulnerable to sophisticated cyber terrorists. (IBM, 2019). IT breaches during that process could significantly reduce the gains expected from a deal.

Furthermore, threats to successful deal completion may arise from past cybersecurity weaknesses, as highlighted in two recent … Read more

Twitter v. Musk: Where Are the Arbs?

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Every pundit and commentator has by now analyzed the ongoing battle between Elon Musk and Twitter over Musk’s attempt to walk away from their deal. Almost all of these evaluations have rated Twitter as having a considerably stronger case, because (among other reasons) Musk did no due diligence, was well aware of the “bot” (or fake user) problem, negotiated no contractual protections directly addressed to these risks, and generally behaved inequitably, disparaging Twitter and toying with the SEC’s rules. Okay, but that raises an interesting puzzle: If the facts favor Twitter, and if Musk’s offer was for $54.20 a share … Read more

Legal “Raincoat” Keeps Directors Dry in Going-Private Deals Outside Delaware

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Though Elon Musk’s controversy with Twitter has grabbed the headlines, another going-private legal development also merits attention: Meade v. Christie et al., an Iowa Supreme Court decision dismissing shareholder class action claims against directors who approved a going-private merger. The Meade dismissal was based on a director liability shield patterned on Model Business Corporation Act (“MBCA”) Section 2.02(b)(4).  As interpreted and applied in Meade, the MBCA shield is more protective than the comparable Delaware provision, DGCL Section 102(b)(7). Equally important, Meade answers procedural questions that aren’t fully resolved by the MBCA shield text, illustrating key pleading requirements for … Read more

How Do Boards Exercise Their Discretion to Resist Takeover Bids?

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If a U.S. firm is a takeover target, it is almost entirely up to its board to decide whether to offer resistance, i.e., to formally reject a specific bid, and potentially take financial or operational actions to defend against the bid. Such actions include standstill agreements, litigation, asset/liability restructurings, and targeted repurchases. In contrast, boards in the UK and most EU countries — those that have adopted Article 9 of the E.U. Takeover Directive — are largely prevented from taking any action that could frustrate the bid, unless it has been duly considered and approved by stockholders. There has long … Read more

Paul Hastings Discusses Japanese Poison Pills Without Shareholders’ Blessing

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In many jurisdictions, poison pills are devised and implemented by the board of directors without shareholders being involved. Since the 2007 Supreme Court case[1] (in re Bulldog Sauce) in Japan, however, courts have largely relied on the voice of shareholders in reviewing the legality of pills. This raises several issues: how realistic it is to rely on shareholders’ resolution as a matter of corporate governance, and whether it is practically appropriate to seek shareholders’ approval when in-market purchases can be achieved in Japan in a short period of time in large quantities. We discussed a similar issue … Read more

Debevoise Discusses FTC Focus on Private Equity

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On June 13, 2022, the Federal Trade Commission’s (“FTC”) five commissioners aired their ideological differences over the regulation of private equity-backed consolidation and the tools used to police such deals via a consent agreement settling the FTC’s challenge to a $1.1 billion merger of veterinary clinics. The Commission’s majority used the consent to impose potentially significant and unprecedented limitations on future acquisitions of related businesses.

The Commission’s statements and relief granted in the consent agreement could have far-reaching implications for future private equity acquisitions, particularly roll-up strategies.

FTC Settles with JAB on Veterinary Clinics Acquisition

Monday’s consent agreement settles an … Read more

Predicting the Unpredictable: What Will Musk Do Next?

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What did business journalists do before the arrival of Elon Musk? In those by-gone days, their page in the newspaper was gray, dull, and strewn with statistics. Now, it is filled with a continuing soap opera, as exciting as the sports page because it has drama, intrigue, and high emotion. The trash-talking that one hears in the NBA playoffs pales in comparison with Musk’s daily name-calling.

Currently, it appears that Musk wants to re-negotiate his $54.20 share price for Twitter because he offered a price well over Twitter’s peak value in an overheated market. That market is no longer overheated … Read more

Poison Pills in a World of Activism and ESG

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Since the creation of the poison pill in the 1980s as a response to hostile takeovers, the corporate world has seen the rise of stakeholder governance, ESG, and stockholder activism and a host of other dramatic developments. The stock market decline following the outbreak of COVID-19 prompted a resurgence of pills, and with the recent Williams decision, the structure and strength of pills have changed in meaningful ways. In a new paper, we examine modern poison pills and propose some new ground rules for pills. These rules, we believe, would effectively balance, on the one hand, a board’s interest in … Read more

Sullivan & Cromwell Discusses Changes to UK Takeover Code

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On May 5, 2022, the U.K.’s Panel on Takeovers and Mergers (the “Panel”) published the results of a consultation that started in December 2021 to review the City Code on Takeovers and Mergers (the “Code”), together with proposed amendments to the Code.  The amendments cover a broad range of topics, a number of which are of particular significance for prospective bidders.

In summary, the amendments:

  • require bidders to disclose in possible offer announcements whether they are obliged under the Code to offer a minimum level, or particular form, of consideration;
  • prevent bidders who have made a

… Read more

Wachtell Lipton Discusses Addressing Market Volatility and Risk in M&A Agreements

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Significant volatility continues to disrupt the equity markets, with the major stock indexes swinging multiple percentage points often on a daily basis.  Inflation, rising interest rates, the Ukraine crisis, continuing effects of Covid-19, lasting supply chain issues, a difficult regulatory environment, and uncertainty regarding the global and U.S. economies have had an undeniable impact on the pace of M&A activity so far in 2022.  While the opening months of 2022 have witnessed a number of significant transactions despite these headwinds, most have been all-cash deals, with only a handful of large stock or cash and stock mergers announced to date, … Read more

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