Archive for the ‘Mergers & Acquisitions’ Category

2014′s Valuable Lessons For M&A Financial Advisers

Posted by Yaron Nili, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Wednesday January 28, 2015 at 9:04 am
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Editor’s Note: The following post comes to us from Jason M. Halper, partner in the Securities Litigation & Regulatory Enforcement Practice Group at Orrick, Herrington & Sutcliffe LLP, and is based on an article by Mr. Halper, Peter J. Rooney, and Colton M. Carothers that that first appeared in Law360. 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.

During the past year, Delaware and New York courts have issued a number of decisions that have important implications for financial advisers, as well as attorneys advising them, on mergers and acquisitions transactions. From the point of view of financial advisers and their legal counsel, the record is mixed. The two decisions by the Delaware Court of Chancery in In re Rural Metro Corp. Stockholders Litigation demonstrate the perils facing M&A financial advisers (especially financial advisers that are large, multifaceted financial institutions) in today’s litigation environment, where virtually all public deals are subject to shareholder litigation.

New York courts, on the other hand, in the case of S.A. de Obras Y Servicios v. The Bank of Nova Scotia, confirmed the protection that can be accorded to financial advisers by a well-crafted engagement letter governed by New York law and litigated in a New York forum. These and other decisions discussed below also provide useful guidance for counsel charged with protecting financial advisers providing M&A advisory services.

…continue reading: 2014′s Valuable Lessons For M&A Financial Advisers

New Decision Holds Some Post-Closing Purchase Price Adjustment Provisions Unenforceable

Posted by Yaron Nili, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Sunday January 25, 2015 at 9:00 am
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Editor’s Note: The following post comes to us from Lisa R. Stark and Jessica C. Pearlman, partners in the Corporate/Mergers & Acquisitions practice at K&L Gates LLP, and is based on a K&L Gates publication by Ms. Stark and Ms. Pearlman. 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.

In private company acquisitions, it is common for the buyer to require that a portion of the merger consideration be set aside in escrow as an accessible source of funds to cover the buyer’s post-closing indemnification claims relating to breaches of the target company’s representations and warranties and other specified contingencies. However, the buyer might demand additional protection if its losses under such claims exceed the escrow amount by insisting upon collection of the full loss from the target company’s stockholders. If the losses are significant and the indemnification obligations are uncapped or have a sufficiently high cap, this could require the target company’s stockholders to return their full pro rata share of the merger consideration to the buyer.

Although the Delaware courts have previously upheld post-closing purchase price adjustments, a recent decision found common provisions unenforceable in certain circumstances. Cigna Health and Life Insurance Co. v. Audax Health Solutions, Inc., C.A. No. 9405 (Del. Ch. Nov. 26, 2014) (V.C. Noble). In this case, the merger agreement and related Letter of Transmittal (the “LoT”) required the target company’s stockholders (1) to indemnify the buyer, up to their pro rata share of the merger consideration, for the target company’s breaches of its representations and warranties, and (2) to release the buyer and its affiliates from any and all claims relating to the merger. The Court found these common provisions unenforceable under the facts in Cigna; accordingly, this decision has significant implications for other private company acquisitions by merger.

…continue reading: New Decision Holds Some Post-Closing Purchase Price Adjustment Provisions Unenforceable

Delaware Supreme Court Holds That Revlon Does Not Require Active Market Check

Posted by Kobi Kastiel, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Saturday January 24, 2015 at 9:00 am
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Editor’s Note: The following post comes to us from Jason M. Halper, partner in the Securities Litigation & Regulatory Enforcement Practice Group at Orrick, Herrington & Sutcliffe LLP, and is based on an Orrick publication by Mr. Halper, Peter J. Rooney, Christin Joy Hill, and Christine M. Smith. 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 December 19, 2014, the Supreme Court of Delaware reversed the Delaware Court of Chancery’s November decision (discussed on the Forum here) to preliminarily enjoin for 30 days a vote by C&J Energy Services stockholders on a merger with Nabors Red Lion Limited, to allow time for C&J’s board of directors to explore alternative transactions. The Supreme Court decision clarifies that in a sale-of-control situation, Revlon and its progeny require an effective, but not necessarily active, market check, and there is no “specific route that a board must follow” in fulfilling fiduciary duties.

The decision also reaffirms the type of record that must be made to support a mandatory preliminary injunction, a type of injunction that requires parties to take affirmative actions as opposed to merely maintaining the status quo. The Court found that the Chancery Court “blue penciled” the merger agreement, and in the process stripped Nabors of its contractual rights, by effectively inserting a go-shop provision into the contract where the parties never agreed to one. Moreover, the Chancery Court improperly did so without finding that Nabors aided and abetted a fiduciary duty breach and based its holding only on disputed facts that were not adjudicated following a trial. While the decision does not break new ground, it is significant in better defining directors’ duties when selling control and articulating the limits of a court’s ability to issue mandatory preliminary injunctions.

…continue reading: Delaware Supreme Court Holds That Revlon Does Not Require Active Market Check

REIT and Real Estate M&A in 2015

Posted by Adam O. Emmerich, Wachtell Lipton Rosen & Katz, on Friday January 23, 2015 at 9:00 am
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Editor’s Note: Adam Emmerich is a partner in the corporate department at Wachtell, Lipton, Rosen & Katz focusing primarily on mergers and acquisitions and securities law matters. This post is based on a Wachtell Lipton firm memorandum by Mr. Emmerich and Robin Panovka.

Following a year in which REITs returned more than 30% and were involved in a wide variety of strategic transactions, we are keeping an eye on the following trends:

1. Based on the current pipeline, we expect REIT and real estate M&A and consolidation activity to continue at a steady pace, accelerating in a few sectors and with traditional public-to-public mergers likely to pick up. The potential for privatizations is increasing but we are not yet seeing meaningful action.

2. Unlocking the value of corporate real estate through OpCo-PropCo structures, REIT spins and conversions is set to continue as long as REIT multiples remain robust relative to corporates, but we are not expecting an avalanche—these transactions are complex and time consuming and need to be carefully measured against alternatives.

…continue reading: REIT and Real Estate M&A in 2015

Delaware Court Decisions on Appraisal Rights Highlight Need for Reform

Posted by Theodore Mirvis, Wachtell, Lipton, Rosen & Katz, on Wednesday January 21, 2015 at 9:02 am
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Editor’s Note: Theodore N. Mirvis is a partner in the Litigation Department at Wachtell, Lipton, Rosen & Katz. The following post is based on an article by Mr. Mirvis, Trevor S. Norwitz, Andrew J. Nussbaum, William Savitt, and Ryan A. McLeod. 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.

Recent developments in the once sleepy area of appraisal rights have woken folks up. It seems that deals are subjected to intense scrutiny even in non-Revlon Revlon cases, and then face the mill of appraisal where claim-buying has become virtually enshrined. Below is one suggestion for legislative reform.


Two recent decisions of the Delaware Court of Chancery highlight the troubling expansion of stockholder appraisal rights. Delaware’s appraisal statute prohibits stockholders who vote in favor of a transaction from seeking appraisal for their shares. Notwithstanding this requirement, the Court of Chancery permitted claims to be pursued by a petitioner who purchased its shares after public announcement of the merger for the purpose of bringing an appraisal lawsuit and who was unable to show that the shares for which it sought appraisal had not been voted in favor of the deal. In re Appraisal of Ancestry.com, Inc., C.A. No. 8173-VCG (Del. Ch. Jan. 5, 2015); Merion Capital LP v. BMC Software, Inc., C.A. No. 8900-VCG (Del. Ch. Jan. 5, 2015). (Wachtell Lipton represents the respondent in the Ancestry case.)

…continue reading: Delaware Court Decisions on Appraisal Rights Highlight Need for Reform

Do Takeover Laws Matter? Evidence from Five Decades of Hostile Takeovers

Posted by R. Christopher Small, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Friday January 16, 2015 at 1:00 pm
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Editor’s Note: The following post comes to us from Matthew Cain, Financial Economist at the U.S. Securities and Exchange Commission; Stephen McKeon of the Department of Finance at the University of Oregon; and Steven Davidoff Solomon, Professor of Law at the University of California, Berkeley.

The takeover battle for Erie Railroad is legend. In 1868, Cornelius Vanderbilt, the railroad baron, began to build an undisclosed equity position in Erie. When the group controlling Erie discovered this, they quickly acted to their own advantage, issuing a substantial number of additional shares of Erie stock for Vanderbilt to purchase. One of the managers, James Fisk, purportedly said at the time that “if this printing press don’t break down, I’ll be damned if I don’t give the old hog all he wants of Erie.” The parties then arranged for their own bought judges to issue dueling injunctions prohibiting the other from taking action at Erie. The battle climaxed when Erie’s management fled to New Jersey with over $7 million in Erie’s funds. By the time the dust settled, they were still in control and Vanderbilt was out over $1 million (details from Gordon, 2004; Markham, 2002).

The Erie story is apocryphal, but informative for any attempt to measure the effect of takeover laws. Takeover laws are enacted to regulate takeover activity, and they often take the form of anti-takeover laws intended to thwart hostile takeovers. However, these laws can have the opposite effect of their intended purpose. Although they provide protection to targets, they also implicitly rule out certain defensive tactics and therefore provide protection and increased certainty for prospective hostile bidders. In the case of Erie, it is the bidder that may have benefited from more legal structure, not the target.

…continue reading: Do Takeover Laws Matter? Evidence from Five Decades of Hostile Takeovers

The Threat to Shareholders and the Economy from Activist Hedge Funds

Posted by Martin Lipton, Wachtell, Lipton, Rosen & Katz, on Wednesday January 14, 2015 at 9:02 am
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Editor’s Note: Martin Lipton is a founding partner of Wachtell, Lipton, Rosen & Katz, specializing in mergers and acquisitions and matters affecting corporate policy and strategy. This post is based on a Wachtell Lipton memorandum by Mr. Lipton and Sara J. Lewis.

Again in 2014, as in the two previous years, there has been an increase in the number and intensity of attacks by activist hedge funds. Indeed, 2014 could well be called the “year of the wolf pack.”

With the increase in activist hedge fund attacks, particularly those aimed at achieving an immediate increase in the market value of the target by dismembering or overleveraging, there is a growing recognition of the adverse effect of these attacks on shareholders, employees, communities and the economy. Noted below are the most significant 2014 developments holding out a promise of turning the tide against activism and its proponents, including those in academia.

…continue reading: The Threat to Shareholders and the Economy from Activist Hedge Funds

Delaware Court Reverses Preliminary Injunction Requiring Go-Shop

Posted by Kobi Kastiel, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Tuesday January 13, 2015 at 9:13 am
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Editor’s Note: The following post comes to us from David L. Caplan, partner and global co-head of the mergers and acquisitions practice at Davis Polk & Wardwell LLP, and is based on a Davis Polk client memorandum. 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 Friday, December 19, 2014, the Delaware Supreme Court reversed a preliminary injunction entered by the Delaware Court of Chancery which had (a) barred, for 30 days, a stockholder vote to approve the combination of C&J Energy Services, Inc. and a division of Nabors Industries Ltd., (b) required C&J to conduct a “go-shop” during that period and (c) preemptively declared that such “go-shop” did not constitute a breach of the “no-shop” or other deal-protection provisions in the Nabors/C&J merger agreement. In reversing the injunction, the Supreme Court held that the C&J board likely satisfied its Revlon duties (to the extent such duties applied), notwithstanding the lack of a pre-signing market check, given that “[w]hen a board exercises its judgment in good faith, tests the transaction through a viable passive market check, and gives its stockholders a fully informed, uncoerced opportunity to vote to accept the deal, [Delaware courts] cannot conclude that the board likely violated its Revlon duties.”

…continue reading: Delaware Court Reverses Preliminary Injunction Requiring Go-Shop

A Strong Cautionary Note for M&A Practitioners and Professionals

Posted by Jack B. Jacobs, Sidley Austin LLP, on Thursday January 8, 2015 at 9:07 am
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Editor’s Note: Jack B. Jacobs is Senior Counsel at Sidley Austin LLP, and a former justice of the Delaware Supreme Court. The following post is based on a Sidley update, 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.

The volume of Court of Chancery decisions has been proceeding apace. We have culled out two that we believe are worthy of your attention:

Cigna Health & Life Ins. Co. v. Audax Health Solutions, 2014 WL 6784491 (Del. Ch.).

This is a “must read” for all M&A and Private Equity practitioners and professionals, given the use of certain of the deal devices found to be invalid in the specific circumstances of this case.

Cigna, a large stockholder of Audax, the acquired company, sued to invalidate certain conditions of an arm’s length negotiated cash-out merger of Audax into United. Essentially, the defendant merging corporations conditioned receipt of the merger consideration not only upon surrender of the (to-be-cancelled) shares, but also upon the execution of a Letter of Transmittal, wherein each surrendering stockholder agreed to the “Obligations” set forth therein. Cigna refused to execute a Letter of Transmittal, and in response the defendants refused to pay Cigna the merger consideration. Cigna sued in the Court of Chancery for a judgment declaring the Obligations invalid and mandating payment of the merger consideration to Cigna. The Court of Chancery (V.C. Parsons) held the obligations invalid under 8 Del. C. §251 and (relatedly) for lack of consideration.

…continue reading: A Strong Cautionary Note for M&A Practitioners and Professionals

M&A Communications Challenges Posed by Tax Inversion Deals

Posted by Charles Nathan, RLM Finsbury, on Tuesday January 6, 2015 at 8:35 am
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Editor’s Note: Charles Nathan is partner and head of the Corporate Governance Practice at RLM Finsbury. This post is based on an RLM Finsbury commentary by Mr. Nathan and Kal Goldberg.

Tax inversion deals are clearly the most talked about M&A deal structure we have seen for many years. Unlike other hot-topic M&A deal structures (think LBOs or activist investor campaigns), inversions involve a highly charged political controversy in the context of the global competitiveness of corporations and their home economies. Although the recent Treasury Department rules have significantly or, in some cases, fatally crimped the economics of some previously announced inversions, many tax advantages of inversions remain. As a result, the structure retains its appeal for a number of cross-border acquisitions by U.S. companies and will likely continue to create business and political headlines in the U.S. and abroad.

Depending on the friendly or hostile nature of the deal, the parties’ home countries and the constituencies being addressed, tax inversion can be a plus to be celebrated, a minus to be exploited or, all too often, a combination of both. The many facets of inversion deals and their shifting nature create far more complicated communications challenges than any other type of M&A deal structure.

…continue reading: M&A Communications Challenges Posed by Tax Inversion Deals

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