Archive for the ‘Mergers & Acquisitions’ Category

New York Appeals Court Applies Business Judgment Rule to Going Private Transaction

Posted by Yaron Nili, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Wednesday November 26, 2014 at 9:02 am
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Editor’s Note: The following post comes to us from Tariq Mundiya, partner in the litigation department of Willkie Farr & Gallagher LLP, and is based on a Willkie client memorandum by Mr. Mundiya, Sameer Advani, and Benjamin McCallen.

On November 20, 2014, the New York Appellate Division, First Department, in a case of first impression under New York law, ruled in favor of Kenneth Cole in a litigation where minority shareholders had challenged the fashion designer’s transaction to take private Kenneth Cole Productions, Inc. Mr. Cole controlled approximately 89% of KCP’s voting power and owned a 46% economic interest in KCP. Willkie Farr & Gallagher LLP represented Mr. Cole in the transaction and the class action litigation.

The Appellate Division found that the business judgment standard of review—and not the heightened entire fairness standard—applied to judicial review of breach of fiduciary claims because the transaction had been structured at the outset with dual protections of an independent special committee review and the vote of a “majority of the minority” (that is, non-Cole) shareholders. The judicial standard of review can have important litigation consequences, as cases governed by the business judgment rule can be dismissed at an early stage, as occurred here, whereas transactions governed by the “entire fairness” standard generally require discovery and further proceedings, which can be burdensome and expensive.

…continue reading: New York Appeals Court Applies Business Judgment Rule to Going Private Transaction

Advantages of Board Actions on a “Clear Day”

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, Sarkis Jebejian, and Matthew Solum. 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 its landmark 1971 Chris-Craft decision, the Delaware Supreme Court observed that “inequitable action does not become permissible simply because it is legally possible.” This quote aptly captures the two-stage inquiry that Delaware courts will apply when reviewing a challenged board action—first determining the legality of the action, and second appraising the equity, or fairness, of the act and its application under the specific circumstances.

…continue reading: Advantages of Board Actions on a “Clear Day”

Are Securities Lawyers Stuck in a Time Warp?

Posted by Yaron Nili, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Friday November 21, 2014 at 9:00 am
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Editor’s Note: The following post comes to us from Phillip Goldstein of Bulldog Investors.

“[T]he fact that a federal statute has been violated and some person harmed does not automatically give rise to a private cause of action in favor of that person.”
Touche Ross & Co. v. Redington, 442 U.S. 560, 568, 99 S.Ct. 2479, 61 L.Ed.2d 82 (1979).

In June 2008, I posted a short piece on this website entitled A Different Perspective on CSX/TCI: Should Courts Reject a Private Right of Action Under Section 13(d)? In that posting, I questioned whether, after Alexander v. Sandoval, 532 U.S. 275 (2001), a private right of action existed to enforce the Williams Act, in that case, section 13(d) of the 1934 Securities and Exchange Act. It drew a grand total of zero comments.

Let’s fast forward to the lawsuit du jour. Allergan and one of its employees who was a shareholder that sold some shares while Bill Ackman was buying and before Valeant announced its intent to acquire Allergan have sued Ackman in the United States District Court for the Central District of California for allegedly violating Rule 14e-3. Judge David O. Carter concluded that Allergan did not have standing to sue Ackman but that that a selling shareholder did have standing and that there were “serious questions” that need to be decided by a jury to determine whether Ackman violated Rule 14e-3. A number of respected commentators have weighed in on the merits of the case and about a potential class action lawsuit to recoup Ackman’s “illegal” profits.

…continue reading: Are Securities Lawyers Stuck in a Time Warp?

Justice Department Fines Unsuccessful Merger Parties for “Gun Jumping”

Posted by Kobi Kastiel, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Wednesday November 19, 2014 at 9:02 am
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Editor’s Note: The following post comes to us from Nelson O. Fitts, partner in the Antitrust Department at Wachtell, Lipton, Rosen & Katz, and is based on a Wachtell Lipton memorandum by Mr. Fitts and Nathaniel L. Asker.

On November 7, 2014, the Antitrust Division of the U.S. Department of Justice brought a lawsuit against Flakeboard America Limited, its foreign parents, and SierraPine, charging that Flakeboard exercised operational control over SierraPine prior to expiration of the statutory pre-merger waiting period, prematurely assuming beneficial ownership of the target assets in violation of the Hart-Scott-Rodino Act and conspiring in violation of Section 1 of the Sherman Act. Flakeboard and SierraPine settled the case, with each agreeing to pay $1.9 million in HSR fines and Flakeboard disgorging an additional $1.15 million in unlawful profits.

…continue reading: Justice Department Fines Unsuccessful Merger Parties for “Gun Jumping”

Controlling Stockholders in Delaware—More Than a Number

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 and David B. Feirstein. 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.

Two recent Chancery Court decisions, Crimson Exploration and KKR Financial, confirm that Delaware takes a flexible and fact-specific approach to determining whether a stockholder is deemed to be “controlling” for purposes of judicial review of a transaction. It is important for dealmakers to understand when the courts may make a determination of control, both to properly craft a defensible process and to understand the prospects for resulting deal litigation.

…continue reading: Controlling Stockholders in Delaware—More Than a Number

Delaware Court Dismisses Action Against Seller’s Directors and Financial Advisor

Posted by Yaron Nili, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Friday November 7, 2014 at 9:02 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, and Natalie Nahabet. 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 October 24, 2014, the Delaware Court of Chancery issued a decision, In Re: Crimson Exploration Inc. Stockholder Litigation, addressing when: (i) a stockholder with less than majority voting power may be deemed a controlling stockholder, and (ii) the controlling stockholder’s actions trigger “entire fairness” review of a challenged merger. The court also rejected criticisms of the seller’s financial advisor based on supposed conflicts of interest and flawed valuation methodologies.

The decision provides important guidance for directors and their advisors in merger transactions where one stockholder or a cohesive group of stockholders holds a sizable share of company stock.

…continue reading: Delaware Court Dismisses Action Against Seller’s Directors and Financial Advisor

Federal Court Decision Undermines Legality of Valeant/Pershing Square Bid

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 William Savitt.

A federal district court today ruled that serious questions existed as to the legality of Pershing Square’s ploy to finance Valeant’s hostile bid for Allergan. Allergan v. Valeant Pharmaceuticals Int’l, Inc., Case No. SACV-1214 DOC (C.D. Cal. November 4, 2014).

As we wrote about in April, Pershing Square and Valeant hatched a plan early this year attempting to exploit loopholes in the federal securities laws to enable Pershing Square to trade on inside information of Valeant’s secret takeover plan, creating a billion dollar profit at the expense of former Allergan stockholders that could then be used to fund the hostile bid. Since then, Pershing Square and Valeant have trumpeted their maneuver as a new template for activist-driven hostile dealmaking.

…continue reading: Federal Court Decision Undermines Legality of Valeant/Pershing Square Bid

Creeping Acquisitions in Europe

Posted by June Rhee, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Wednesday November 5, 2014 at 9:00 am
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Editor’s Note: The following post comes to us from Luca Enriques, Allen & Overy Professor of Corporate Law at University of Oxford, Faculty of Law, and Matteo Gatti of Rutgers School of Law–Newark.

Creeping acquisitions—surreptitious grabs of a public company’s control without the prior launch of a formal tender offer—had long been considered a thing from the past in corporate America: poison pills kept this acquisition technique at bay. After Sotheby’s, Allergan and similar “wolf pack”-styled hedge fund activists’ campaigns, some fear creeping acquisitions might be back.

Other than in the U.S., becoming targets of a creeping acquisition has never ceased to be a real possibility for European companies with a dispersed ownership structure: without pills or analogue structural defenses available (or, at least, in place), they run the risk of being taken over through such an acquisition technique. Indeed, acquirers have made significant attempts to that effect over the last decade or so—sometimes successfully (Schaeffler’s takeover of Continental, Lactalis’ acquisitions of Parmalat), sometimes not (LVMH’s failed attack on Gucci, Nasdaq’s attempt at the London Stock Exchange Group). In our paper Creeping Acquisitions in Europe: Enabling Companies to Be Better Safe than Sorry, we analyze the level and type of protections European companies can find in the law (whether EU or national) and via private ordering (which of course is constrained by the law itself).

…continue reading: Creeping Acquisitions in Europe

Delaware Court Holds M&A Financial Advisor Liable For $76 Million

Posted by Yaron Nili, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Tuesday November 4, 2014 at 9:15 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 authored by Mr. Halper, Peter J. Rooney, and Louisa S. Irving. 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 October 10, 2014, the Delaware Court of Chancery issued a decision awarding nearly $76 million in damages against a seller’s financial advisor. In an earlier March 7, 2014 opinion in the case, In re Rural/Metro Corp. Stockholders Litigation, Vice Chancellor Laster found RBC Capital Markets, LLC liable for aiding and abetting the board’s breach of fiduciary duty in connection with Rural’s 2011 sale to private equity firm Warburg Pincus for $17.25 a share, a premium of 37% over the pre-announcement market price. The recent decision reinforces lessons from the March 7 decision and provides new guidance for directors and their advisors in M&A transactions and related litigation.

…continue reading: Delaware Court Holds M&A Financial Advisor Liable For $76 Million

Documenting The Deal

Posted by Kobi Kastiel, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Thursday October 30, 2014 at 8:54 am
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Editor’s Note: The following post is based on a recent article, forthcoming in The Business Lawyer, earlier issued as a working paper of the Harvard Law School Program on Corporate Governance, by Leo Strine, Chief Justice of the Delaware Supreme Court. The article, Documenting The Deal: How Quality Control And Candor Can Improve Boardroom Decision-making And Reduce The Litigation Target Zone, is available here. 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.

Leo Strine, Chief Justice of the Delaware Supreme Court, and the Austin Wakeman Scott Lecturer on Law and a Senior Fellow of the Harvard Law School Program on Corporate Governance, gave a lecture to a the Delaware Business Law Forum that will be published in The Business Lawyer in May, next year. The essay, titled Documenting The Deal: How Quality Control And Candor Can Improve Boardroom Decision-making And Reduce The Litigation Target Zone, is available here.

…continue reading: Documenting The Deal

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