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

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

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

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

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

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

SPACs and Forward-Looking Disclosure: Hype or Information?

In 2021, 359 SPACs have raised $95 billion, surpassing the $74 billion raised by 254 SPACs in 2020. The growth in this market might mean that sophisticated investors are using a regulatory loophole to avoid IPO disclosure regulations in taking firms public and hyping their shares. It could also mean that IPO disclosure regulations are preventing small companies with scant performance history from raising money in public markets. Either way, it’s time to reconsider disclosure regulations related to IPO. With that in mind, we examine the extent of forecasting by SPACs and its relation to transaction outcomes.

SPACs are blank … Read more

Cadwalader Discusses FTC’s About Face on Debt for Hart-Scott-Rodino Purposes

In a recent blog post, the Acting Director of the Federal Trade Commission Bureau of Competition announced the reversal of the Federal Trade Commission’s (“FTC”) decades-long position regarding the treatment of debt repayment when determining whether a premerger notification filing under the Hart-Scott-Rodino (“HSR”) Act is required. Effective September 27, 2021, companies and individuals that do not file HSR based on excluding retired debt from the transaction value may face enforcement action. Perhaps even more concerning, the FTC also cast doubt in general on whether HSR practitioners may rely on past informal guidance from the FTC’s Premerger Notification Office … Read more

The Anti-Activist Pill in The Williams Companies Stockholder Litigation: A Response to Professor Gordon

Editor’s Note: A counter-response immediately follows this post.

In a recent post, Professor Jeffrey N. Gordon argued that the Delaware Supreme Court should upend over three decades of precedents and apply Blasius, rather than Unocal, to invalidate a corporate board’s adoption and implementation of a poison pill.[1]  I disagree.  Doing so is neither necessary, nor justified, to uphold the Chancery Court’s determination that a particularly aggressive poison pill, adopted by The Williams Companies in March 2020, was not a reasonable response to potential activist threats under Unocal.[2]  Gordon’s post also misinterprets some of the history … Read more

Corporate Vote Suppression: A Counter-Response to Eric Robinson

I appreciate the engagement by long-term pill observer Eric Robinson with my Corporate Vote Suppression piece. I am also glad that he agrees that the pill in The Williams Companies Shareholder Litigation ought to be struck down, though he narrowly confines his ground for supporting the Delaware Chancery Court’s decision to do so.  His invitation to re-examine Moran v. Household International shows how far the anti-activist pill has strayed from its initial justification (and limitation).  Moran sustained a “flip-over pill” against the threat of a front-loaded two-tier hostile bid and countenanced a 20 percent pill trigger because it represented the … Read more

Corporate Vote Suppression: The Anti-Activist Pill in The Williams Companies Stockholder Litigation

The Delaware Supreme Court has before it a case that could dramatically reshape corporate governance in the United States.  The case, The Williams Companies Stockholder Litigation, addresses the legitimacy of an “anti-activist pill” whose particularly aggressive features would severely limit both an activist’s economic incentives and its capacity to organize other shareholders.  The implications reach well beyond the hedge-fund wolf packs purportedly roaming the corporate landscape. The validation of such an anti-activist pill would throttle the incipient ESG activist movement that recently illustrated its potential in successful challenges at Exxon-Mobil. It would also require the Delaware courts to come … Read more

How Much Do Various Advisers Affect the Success of M&A?

Companies that engage in M&A regularly employ a variety of financial, legal, and other advisers to enhance the chances of success for a deal. Though research has extensively examined the impact of financial advisers, and particularly investment bankers, on a deal’s outcome, the influence of strategy advisers such as management consulting firms (and legal advisers) has rarely been studied. Overall, based on a global questionnaire of over 100 M&A professionals, we find that strategy consultants contribute significantly to the perceived M&A success of firms.

Dataset

Between December 19, 2019 and February 28, 2020, companies worldwide were surveyed regarding their M&A … Read more

The Choice Between Various Freeze-Out Procedures and Its Consequences

Over the past two decades, delisting from an exchange has become a popular choice for many public companies. Several studies attribute this trend to a number of factors, including the increased concentration of U.S. markets, which made many small and medium size public firms less viable; tightening of regulatory requirements (SOX, for example); and emergence of capital-raising alternatives for small and medium size private firms (for example, private equity funds). In sum, the net benefit of staying an exchange-listed firm has diminished, and various going private legal procedures have become popular.

The most common delisting method in the U.S. is … Read more

Arnold & Porter Discusses Criminal Antitrust Risks in Mergers & Acquisitions

On July 9, President Biden issued an Executive Order that announced a policy of increased antitrust enforcement across many industries. The DOJ Antitrust Division and the Federal Trade Commission quickly followed with an announcement that they would jointly launch a review of merger guidelines with an eye towards a more aggressive enforcement approach.

These announcements serve as an important reminder that the risks resulting from more vigorous merger review are not limited to getting the deal through. Companies and their investors should also consider the risks posed by criminal antitrust investigations that can follow merger review. One need look no … Read more

Paul Weiss Discusses DOJ and FTC Plan to Review Merger Guidelines

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

Mergers, Antitrust, and the Interplay of Entrepreneurial Activity and the Investments That Fund It

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

Stock Market Value and Deal Value in Appraisal Proceedings

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

Arnold & Porter Discusses Delaware Case on SPACs and Breaches of Fiduciary Duties

The complaint filed in Franchi v. Multiplan Corp. et al. in the Chancery Court of Delaware on April 9, 2021 [1], 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

Acquisition Flippers and Earnings Management

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.[1] This phenomenon … Read more

Sullivan & Cromwell Discusses Delaware Chancery’s Rejection of MAE Claim for Covid Effects

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.[1] 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

Corporate Purpose and Acquisitions

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