Welfare Losses Associated with Fire Sales Are Smaller than Previously Documented

When companies in financial difficulty are forced to sell assets – especially real assets such as factories, business units, real estate, or the entire company – the news is often seen as negative all around. In these situations, often referred to as “fire sales,” companies are forced to sell assets below fair value (see Pulvino, 1998[1]), and the spillover effects can be costly as well. These spillover costs, or externalities, include plant closings and job losses that hurt employees, suppliers, customers, and competitors (see Goolsbee and Krueger, 2015[2]). Fire sales may also depress the values of … Read more

Cleary Gottlieb Discusses European Merger Control During the Pandemic

As the COVID-19 pandemic causes commercial and financial difficulties, many businesses will be considering M&A to address strategic issues, take advantage of market opportunities, and, in some cases, ensure their survival.  This memorandum considers the merger control implications of the pandemic for businesses contemplating transactions at this time.

First, this memorandum provides an overview of how European agencies are responding to the pandemic.  Second, it considers how the crisis may affect the substantive assessment of transactions, including the implications of changed competitive conditions, the availability of the “failing firm” defense, and agencies’ evaluation of the counterfactual.  Finally, we provide some … Read more

Paul Weiss Offers M&A at a Glance for April 2020

COVID-19 had a marked impact on M&A in April, extending the decline observed in March across all measures. Globally, the number of deals decreased by 24.2%, to 2,036, and total deal value[1] decreased by 44.3%, to $118.34 billion. U.S. M&A activity also declined, with the number of deals decreasing by 32.2%, to 473, and total deal value significantly decreasing by 69.6%, to $16.60 billion. Significantly, average deal value declined to $58.1 million globally and to $35.1 million in the U.S. (reductions of 26.5% and 55.1%, respectively). Figure 1.

In a marked departure from the norm, no U.S. public … Read more

Gibson Dunn Offers M&A Report – 2019 Year-End Activism Update

This Client Alert provides an update on shareholder activism activity involving NYSE- and Nasdaq-listed companies with equity market capitalizations in excess of $1 billion and below $100 billion (as of the last date of trading in 2019) during the second half of 2019. Announced shareholder activist activity declined relative to the second half of 2018. The number of public activist actions (24 vs. 40), activist investors taking actions (17 vs. 29) and companies targeted by such actions (23 vs. 34) each decreased substantially. The slowdown was in contrast to the first half of 2019, during which period shareholder activism activity … Read more

Skadden Discusses How Covid-19 Prompts EU Nations to Protect Against Foreign M&A

The coronavirus pandemic has weakened European economies and companies. EU and national governments have expressed concern that foreign investors may opportunistically take advantage of the crisis to acquire domestic companies regarded as strategic.

Acquirers should anticipate the risk that governments may review and challenge acquisitions of companies perceived as strategic national assets. Potential for foreign investment review should be considered in advance, in terms of both current legislative measures and prospects for future political intervention, by means of, for example, committee inquiries by national legislatures, state defensive stake-building or even nationalisation of vulnerable domestic companies. These concerns can extend well … Read more

Freshfields Discusses Compliance with Interim Operating Covenants in Signed M&A Deals

Against the backdrop of unexpected developments arising from the COVID-19 pandemic, parties with signed, but not yet closed, M&A transactions are taking a closer look at potential openings for claims of breaches and failures of closing conditions.  It seems the initial instinct has been to look for a “material adverse effect” (“MAE”), but given that most MAE definitions exclude effects resulting from macro- and industry-wide developments, as well as changes in law, that do not disproportionately impact the target company, those looking to rely on pandemic-induced MAEs may have their work cut out for them.

We suspect that … Read more

Will the Pandemic Sink Deals?

Almost everyone has experienced buyer’s remorse. It’s the feeling of purchasing, say, a big-screen TV at full price, only to see it on sale later for 50 percent off. Imagine, though, agreeing to pay $6 million for a chain of yoga studios just before the government shuts down exercise classes to slow the spread of a highly infectious disease. Or, more generally, agreeing to buy a company just before the stock market drops 30 percent, throwing the economic future of entire industries into turmoil.

That’s the kind of buyer’s remorse on steroids hitting scores of acquirers that committed to M&A … Read more

Paul Weiss Offers M&A at a Glance for March 2020

As would be expected given the current environment, M&A activity globally and in the U.S. declined across almost all measures in March. Globally, the number of deals decreased by 3.2%, to 2,527, and total deal value[1] decreased by 17.5%, to $210.25 billion. U.S. M&A activity also declined, with the number of deals decreasing by 17.2%, to 641, and total deal value decreasing by 48.4%, to $52.05 billion. Average deal value declined overall—falling by 37.7% in the U.S., to $82.1 million, and by 14.8% globally, to $83.2 million. Figure 1. The decline in dealmaking activity observed in February continues, … Read more

Stealth Takeovers: How Hidden Shareholders Are Buying Companies 

In 2014, luxury firms LVMH Moët Hennessy, Louis Vuitton, and Hermès signed a truce, ending a long and arduous battle popularly known as the “handbag war.” The melee erupted in October 2010, when the fashion giant controlled by Bernard Arnault disclosed it had amassed a 17 percent stake in Hermès, which would eventually grow to over 22 percent.

LVMH had acquired a significant percentage of Hermès with relatively few people noticing. Instead of buying shares outright, it opted for equity derivatives, which did not require a shareholder to declare its position. Such takeover strategies are known as creeping acquisitions or … Read more

Davis Polk Discusses Whether Companies Should Play Strong Defense in Hostile Times

Extreme dislocation and a major sell-off in global equity markets have led to many public companies finding their stock prices at severely depressed levels, often over 50% off last twelve month highs.

While most companies and investors are in crisis management mode, these markets may nevertheless present attractive opportunities for strategic or financial bidders. Moreover, we expect that campaigns from well-known activists will continue at a reasonable pace in the current market.

Many companies prepare for the possibility of a hostile campaign by having a shareholder rights plan (often called a “poison pill”) “on the shelf” and ready for adoption … Read more

A “Majeure” Update on COVID-19 and MAEs

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

Gibson Dunn Offers Checklist for M&A Amid the Coronavirus

The emergence and rapid escalation of COVID-19 continues to alter every facet of daily life across the globe. For businesses, challenges range from protecting and supporting employees and customers, to contributing to evolving efforts to battle COVID-19, to fighting for survival by preserving liquidity and adapting to new and dramatically different operating conditions. Against this backdrop, the outlook for M&A activity is—understandably—highly uncertain. Assessing value and marshaling necessary financial and human resources are already challenging, and ongoing market volatility may well exacerbate this. Nevertheless, for various reasons, including strategy, opportunity and necessity, both companies and financial sponsors will continue to … Read more

Coronavirus Is Becoming a “Majeure” Headache for Pending Corporate Deals

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

Paul Weiss Offers M&A at a Glance for February 2020

M&A activity globally and in the U.S. was mixed in February. Overall, the number of deals continued to decline in both the U.S. and the rest of the world, while total deal value[1] showed signs of recovery relative to the low levels recorded in January. Globally, the number of deals decreased by 14.5%, to 2,344, while the total deal value  increased by 44.6%, to $255.23 billion. U.S. M&A activity was also mixed, with the number of deals decreasing by 17.3%, to 688, while total deal value increased by 28.7%, to $100.53 billion. Average deal value increased overall—rising by 55.6% … Read more

Cleary Gottlieb Discusses UK Merger Control Enforcement Ahead of Brexit

The UK’s Competition and Markets Authority (CMA) is strengthening its approach to merger control as it prepares for its new status as a global enforcer with expanded jurisdiction.

Following the UK’s departure from the EU on 31 January 2020, the UK entered a transition period due to end on 31 December 2020.[1]  EU competition law continues to apply in the UK until the transition period ends (and to mergers notified to the European Commission before the end of that period), meaning that the European Commission continues to have exclusive jurisdiction over transactions with an EU dimension, including those impacting … Read more

Wachtell Lipton Discusses the Coming Impact of ESG on M&A

Recent months have seen institutional investors and other stakeholders, notably BlackRock and State Street, stressing the importance of comparable and decision-useful ESG disclosures by their portfolio companies.  Such calls follow in the wake of growing interest among investors and other stakeholders in understanding and assessing the performance of companies based on ESG metrics.  While the exact system by which companies will report on ESG issues remains to be determined by the market, it is clear that beginning in 2020, and in the years to follow, companies will be disclosing significant amounts of quantifiable information on a basis that will … Read more

Skadden Discusses Merger Reviews and Antitrust Investigations Under Brexit Agreement

The U.K. Competition and Markets Authority (CMA) has published “Guidance on the Functions of the CMA Under the Withdrawal Agreement” (Guidance), which sets out the regulator’s approach to merger and competition cases during the Brexit transition period that will run until at least through December 31, 2020 (Transition Period):

  • The Guidance confirms that during the Transition Period, the U.K. and the EU merger procedures will remain closely aligned. The EU competition and merger control rules will continue to apply as if the U.K. were still an EU member state.
  • The European Commission (EC) will have exclusive jurisdiction over

Read more

Sullivan & Cromwell Discusses Delaware Chancery Ruling in “Panera” Appraisal Case

The Delaware Court of Chancery ruled in In re Appraisal of Panera Bread Company,[1] following a six-day trial, in a 130-page decision issued on January 31, 2020, that the petitioners received more than fair value for each share of Panera Bread Company (“Panera”) in connection with its 2017 acquisition by JAB Holdings B.V. (“JAB”), with the Court relying on the deal price, minus synergies value, as the metric of fair value for the case.  Because Panera had paid the appraisal petitioners the full merger price as permitted by Delaware law, it sought a refund of the amount of … Read more

Tesla, SolarCity, and Inherent Coercion

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

Cleary Gottlieb Discusses Final CFIUS Regulations

On January 13, 2020, the U.S. Department of the Treasury (“Treasury”) released final regulations (the “Final Regulations”)[1] implementing the updates to the foreign investment review process of the Committee on Foreign Investment in the United States (“CFIUS”) contained in the Foreign Investment Risk Review Modernization Act of 2018 (“FIRRMA”).  The Final Regulations, effective February 13, 2020, largely track the September 2019 proposed regulations (the “Proposed Regulations”)[2] to implement FIRRMA’s expansion of CFIUS’s jurisdiction.  FIRRMA in turn codified existing CFIUS practice as it has evolved in recent years, particularly … Read more