Archive for the ‘Practitioner Publications’ Category

The Unintended Consequences of Proxy Access Elections

Editor’s Note: David A. Katz is a partner at Wachtell, Lipton, Rosen & Katz specializing in the areas of mergers and acquisitions and complex securities transactions. The following post is based on an article by Mr. Katz and Laura A. McIntosh that first appeared in the New York Law Journal; the full article, including footnotes, is available here.

It’s official: Proxy access is the darling of the 2015 season. Shareholder-sponsored proxy access proposals are on the ballots of more than 100 U.S. public companies this spring. These precatory proposals seek a shareholder vote on a binding bylaw that would enable shareholders who meet certain ownership requirements to nominate board candidates and have them included in the company’s own proxy materials. Powerful institutional investors have given the proxy access movement enormous momentum this spring, and blue chip firms such as GE, Bank of America, and Prudential have voluntarily adopted versions of proxy access in advance of their annual meetings. Companies such as Citigroup have agreed to support proxy access shareholder proposals in their definitive proxy materials. In the absence of regulatory guidance, proxy advisors such as ISS have stepped into the breach to define the terms and conditions of proxy access. As proxy access proposals proliferate—after years of controversy—the primary debate now seems to be whether a 3 percent or 5 percent ownership threshold is more appropriate.

…continue reading: The Unintended Consequences of Proxy Access Elections

Freeing Trapped Cash in Cross-Border Deals

Posted by John F. Olson, Gibson, Dunn & Crutcher LLP and Georgetown Law Center, on Friday March 27, 2015 at 9:00 am
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Editor’s Note: John Olson is a founding partner of Gibson, Dunn & Crutcher’s Washington, D.C. office and a visiting professor at the Georgetown Law Center. This post is based on a Gibson Dunn alert.

In private company transactions, dealmakers often spend significant amounts of time talking about how to treat the cash held by an acquisition target. For example, if the buyer and the seller are negotiating price on the assumption that the target will be sold on a cash-free, debt-free basis, how does the purchase price get adjusted for cash that the target continues to hold at the time of closing? If the deal includes a working capital adjustment, how will cash and cash equivalents be taken into account? What are the procedures for measuring how much cash the target holds at closing?

In cross-border deals, the issues about how to deal with target cash often become significantly more complex. Businesses that operate around the world may have cash in several different countries. Regulatory and tax concerns may limit both the seller’s and the buyer’s ability to transfer cash held by the target from one country to another. Questions about how to deal with the target’s cash must be answered with these constraints in mind.

The balance of this post discusses some of the solutions that buyers and sellers use to resolve trapped cash issues in cross-border deals.

…continue reading: Freeing Trapped Cash in Cross-Border Deals

Delaware Court: Fee-Shifting Bylaw Does Not Apply to Former Stockholder

Posted by Toby S. Myerson, Paul, Weiss, Rifkind, Wharton & Garrison LLP, on Thursday March 26, 2015 at 9:11 am
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Editor’s Note: Toby Myerson is a partner in the Corporate Department at Paul, Weiss, Rifkind, Wharton & Garrison LLP and co-head of the firm’s Global Mergers and Acquisitions Group. The following post is based on a Paul Weiss memorandum, and is part of the Delaware law series, which is cosponsored by the Forum and Corporation Service Company; links to other posts in the series are available here.

In Strougo v. Hollander, the Delaware Court of Chancery held that a fee-shifting bylaw did not apply to a former stockholder’s challenge to the fairness of a 10,000-to-1 reverse stock split that the corporation undertook in connection with a going-private transaction because (i) the bylaw was adopted after the stockholder’s interest in the corporation ceased to exist due to the reverse stock split and (ii) Delaware law does not authorize a bylaw that regulates the rights or powers of former stockholders. While the proposed 2015 amendments to the Delaware General Corporation Law, if adopted, would themselves invalidate fee-shifting provisions in corporate charters and bylaws, Delaware corporations should consider the implications of this opinion’s holding that former stockholders are not bound by bylaws (or, by implication, charter provisions) adopted after their interests as stockholders cease to exist.

…continue reading: Delaware Court: Fee-Shifting Bylaw Does Not Apply to Former Stockholder

Crossing State Lines Again—Appraisal Rights Outside of Delaware

Editor’s Note: Daniel Wolf is a partner at Kirkland & Ellis focusing on mergers and acquisitions. The following post is based on a Kirkland memorandum by Mr. Wolf, Matthew Solum, David B. Feirstein, and Laura A. Sullivan. This post is part of the Delaware law series, which is cosponsored by the Forum and Corporation Service Company; links to other posts in the series are available here.

Even as the Delaware appraisal rights landscape continues to evolve, dealmakers should not assume that the issues and outcomes will be the same in transactions involving companies incorporated in other states. Although once an afterthought on the M&A landscape, in recent years appraisal rights have become a prominent topic of discussion among dealmakers. In an earlier M&A Update (discussed on the Forum here) we discussed a number of factors driving the recent uptick in shareholders exercising statutory appraisal remedies available in cash-out mergers. With the recent Delaware Supreme Court decision in CKx and Chancery Court opinion in Ancestry.com, both determining that the deal price was the best measure of fair price for appraisal purposes, and the upcoming appraisal trials for the Dell and Dole going-private transactions, the contours of the modern appraisal remedy, and the future prospects of the appraisal arbitrage strategy, are being decided in real-time. These and almost all of the other recent high-profile appraisal claims have one thing in common—the targets in question were all Delaware corporations and the parties have the benefit of a well-known statutory scheme and experienced judges relying on extensive (but evolving) case law. But, what if the target is not in Delaware?

…continue reading: Crossing State Lines Again—Appraisal Rights Outside of Delaware

The Evolving Landscape of Shareholder Activism: Developments and Potential Actions

Posted by Yaron Nili, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Tuesday March 24, 2015 at 9:19 am
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Editor’s Note: The following post comes to us from Sullivan & Cromwell LLP, and is based on a Sullivan & Cromwell publication by Jay Clayton, Mitchell S. Eitel, Joseph B. Frumkin, and Glen T. Schleyer.

It is clear that shareholder activism continues to evolve, expand and increase in influence. There is a growing emphasis, in particular by large mutual funds and other institutional investors, on shareholder engagement and shareholder-friendly governance structures that, together with the increased activity of activist hedge funds and other “strategic” activist investors, make shareholder engagement and preparedness an essential focus for public companies and their boards.

Most recently, BlackRock Inc. and the Vanguard Group, the largest and third largest U.S. asset managers with more than $7 trillion in combined assets under management, have made public statements emphasizing that they are focused on corporate governance and board engagement. Vanguard recently sent a letter to many of its portfolio companies cautioning them not to confuse Vanguard’s “predominantly passive management style” with a “passive attitude toward corporate governance.” The letter goes on to emphasize numerous corporate governance principles and to highlight in detail (as discussed further below) the importance of direct shareholder-director interactions. BlackRock recently updated its voting policies to make clear that they are more than just guides to how BlackRock votes–they represent “our expectations of boards of directors.” The new policies continue an emphasis on direct interaction between investors and directors.

…continue reading: The Evolving Landscape of Shareholder Activism: Developments and Potential Actions

SEC Charges Schedule 13D Filers for Untimely Disclosure

Posted by David A. Katz, Wachtell, Lipton, Rosen & Katz, on Monday March 23, 2015 at 9:09 am
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Editor’s Note: David A. Katz is a partner at Wachtell, Lipton, Rosen & Katz specializing in the areas of mergers and acquisitions, corporate governance, and complex securities transactions. This post is based on a Wachtell Lipton memorandum by Mr. Katz and Alison Z. Preiss.

The Securities and Exchange Commission announced last week that it had charged eight directors, officers and major stockholders for failing to timely disclose steps taken to take their respective companies private in their beneficial ownership reports on Schedule 13D. The orders issued by the SEC indicate the SEC staff became aware of the violations in the course of their review of proxy and Schedule 13E-3 transaction statements, which described the steps taken in the required disclosures regarding the background of the transactions. The orders note that emails and other contemporaneous communications clearly indicate the steps taken that had not been properly disclosed. The orders issued by the SEC (to which the offending parties consented) resulted in cease-and-desist orders and payment of civil penalties.

…continue reading: SEC Charges Schedule 13D Filers for Untimely Disclosure

Key Points From the 2015 Comprehensive Capital Analysis and Review (CCAR)

Posted by Yaron Nili, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Sunday March 22, 2015 at 9:05 am
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Editor’s Note: The following post comes to us from Dan Ryan, Leader of the Financial Services Advisory Practice at PricewaterhouseCoopers LLP, and is based on a PwC publication by Mike Alix, Steve Pearson, and Armen Meyer.

The 2015 stress test results published on March 11th as part of the Federal Reserve’s (“Fed”) CCAR follow last week’s release of Dodd-Frank Act Stress Test (“DFAST”) results. [1] CCAR differs from DFAST by incorporating the 31 participating bank holding companies’ (“BHC” or “bank”) proposed capital actions and the Fed’s qualitative assessment of BHCs’ capital planning processes. The Fed objected to two foreign BHCs’ capital plans and one US BHC received a “conditional non-objection,” all due to qualitative issues.

…continue reading: Key Points From the 2015 Comprehensive Capital Analysis and Review (CCAR)

The Role of Academics and Industry in Improving Equity Market Structure

Posted by Michael S. Piwowar, Commissioner, U.S. Securities and Exchange Commission, on Saturday March 21, 2015 at 9:29 am
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Editor’s Note: Michael S. Piwowar is a Commissioner at the U.S. Securities and Exchange Commission. This post is based on Commissioner Piwowar’s recent remarks at the University of Notre Dame, Mendoza College of Business, Center for the Study of Financial Regulation; the full text, including footnotes, is available here. The views expressed in the post are those of Commissioner Piwowar and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

Today [March 13, 2015], I want to focus my remarks on the equities markets, and specifically equity market structure. Although it may be hard for some of you in this room to believe, in the 20 months since I began this job, some have suggested that I am a so-called “market structure expert.” While such comments are certainly flattering, I cannot accept the compliment. Of course, my academic research, my private and public sector experience, and my current role as a Commissioner at the Securities and Exchange Commission (“SEC” or the “Commission”) have all given me unique insights into the functioning of our equities markets. However, like many people in this room, I still consider myself a “student of markets.” With so many issues to examine and debate, and the continued evolution of the financial markets, I think we can agree there is more for all of us to observe and learn.

It has been fifteen months since I gave my first speech on equity market structure. Both before and since, my colleagues at the Commission have kept the issue of market structure in the forefront through their own public remarks. Congress also has been expressing keen interest in equity market structure, shining a bright light on the issue. And we have had some unsolicited prompting by a bestselling author, who, to put it lightly, does not have flattering things to say about the current state of the equity markets in what many refer to as simply “The Book.” Given all of this attention, I am frankly disappointed that we at the SEC have accomplished very little.

…continue reading: The Role of Academics and Industry in Improving Equity Market Structure

A Few Observations on Shareholders in 2015

Posted by Mary Jo White, Chair, U.S. Securities and Exchange Commission, on Friday March 20, 2015 at 9:03 am
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Editor’s Note: Mary Jo White is Chair of the U.S. Securities and Exchange Commission. This post is based on Chair White’s recent address at Tulane’s 27th Annual Corporate Law Institute; the full text, including footnotes, is available here. The views expressed in this post are those of Chair White and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

Today [March 19, 2015], I will share a few observations on three specific areas: the current state of shareholder activism; the shareholder proposal process; and fee-shifting bylaws. I know your next two panels take up aspects of these important topics, but I think the space is lively and big enough for all of us to comment.

The Current Activism Landscape

There are different views on what is meant by “shareholder activism,” but just the word “activism” triggers an adverse reaction from many companies. Reflexively painting all activism negatively is, in my view, using too broad a brush and indeed is counterproductive. To me, the term activism captures the range of efforts by investors to influence a company’s management or decision-making. Some of it is constructive. In certain situations, activism seeks to bring about important changes at companies that can increase shareholder value. Now, some of you may find the juxtaposition of the word “activism” with “shareholder value” does not comport with your sense of reality. Some of you also believe that activists are not interested in increasing long-term value for shareholders and other stakeholders. Still others will assert that activists are simply short-term traders looking to make a quick dollar. I did say this was a lively topic with many different views.

…continue reading: A Few Observations on Shareholders in 2015

Delaware Innovates to Create a World-Class Arbitration Regime

Posted by Yaron Nili, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Thursday March 19, 2015 at 9:08 am
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Editor’s Note: The following post comes to us from Greg Varallo, Director and Executive Vice President at Richards, Layton & Finger. This post is part of the Delaware law series, which is cosponsored by the Forum and Corporation Service Company; links to other posts in the series are available here.

On March 11, 2015, the Delaware State Bar Association gave its formal approval to HB 49, which was filed yesterday in the Delaware Legislature. If passed by the Legislature, the bill, which bears the title the Delaware Rapid Arbitration Act, will establish Delaware as a cutting-edge seat for business arbitrations. Building on the best of the state’s earlier experiment with judicially annexed arbitration, the new legislation was crafted with extensive consultation and input from constituencies around the US and internationally. One thing became clear as a result of those consultations: businesses and their advisors are alarmed at the marked drift in arbitration practice away from timely, efficient dispute resolution.

…continue reading: Delaware Innovates to Create a World-Class Arbitration Regime

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