Posts Tagged ‘Bidders’

Chen v. Howard-Anderson: Delaware Court Issues Guidance Regarding M&A Transactions

Editor’s Note: The following post comes to us from Eduardo Gallardo and Robert B. Little, partners in the Mergers and Acquisitions practice at Gibson, Dunn & Crutcher LLP, and is based on a Gibson Dunn client alert by Mr. Little, Gregory A. Odegaard, and Chris Babcock. 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 April 8, 2014, Vice Chancellor Laster of the Delaware Court of Chancery issued an opinion addressing the reasonableness of a “market check” as well as required proxy disclosures to stockholders in M&A transactions. In Chen v. Howard-Anderson, [1] the Vice Chancellor held that (i) evidence suggesting that a board of directors favored a potential acquirer by, among other things, failing to engage in a robust market check precluded summary judgment against a non-exculpated director, and (ii) evidence that the board failed to disclose all material facts in its proxy statement precluded summary judgment against all directors. The opinion addresses the appropriate scope of a market check, the necessary disclosure when submitting a transaction to stockholders for approval, the effect of exculpatory provisions in a company’s certificate of incorporation, and the potential conflicts faced by directors who are also fiduciaries of one of the company’s stockholders.

…continue reading: Chen v. Howard-Anderson: Delaware Court Issues Guidance Regarding M&A Transactions

To-may-to To-mah-to: 10 Surprises for a US Bidder on a UK Takeover

Posted by Kobi Kastiel, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Friday April 4, 2014 at 9:02 am
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Editor’s Note: The following post comes to us from Stephen Cooke, partner and head of the Mergers and Acquisitions practice at Slaughter and May, and is based on a Slaughter and May publication by Mr. Cooke.

“You like to-may-to and I like to-mah-to…
Potato, potahto, tomayto, tomahto
Let’s call the whole thing off”

(“Let’s Call The Whole Thing Off” by George & Ira Gershwin, 1937)

Two nations divided by a common tongue. In M&A, as in so many spheres, common language and terminology often give rise to the assumption that the architecture is similarly homogenous. Although the US and the UK have a number of similarities in terms of capital markets and business practices, there are fundamental divergences in approach to public takeover practice and regulation.

Consistent with the title of this post, I have used the great American songbook as an entry point to this guide to the ten principal differences between takeover practice and regulation in the US and the UK.

…continue reading: To-may-to To-mah-to: 10 Surprises for a US Bidder on a UK Takeover

Do Mandatory ‘Auctions’ Increase Gains of Target Shareholders in M&A?

Posted by June Rhee, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Friday February 21, 2014 at 9:00 am
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Editor’s Note: The following post comes to us from Fernan Restrepo of Stanford Law School. 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.

Several years ago, the Delaware Supreme Court held, in Revlon v. MacAndrews & Forbes Holdings, that when a “sale” or “break-up” of a company becomes “inevitable,” the duty of the board of directors is not to maintain the independence of the company or otherwise give priority to long-term considerations, but rather to obtain the highest price possible for the shareholders in the transaction (that is, to maximize short-term value). To satisfy that duty, when confronted with these situations, the board is generally supposed to conduct an auction (or, as clarified in subsequent decisions, a “market check”) that ensures that the final buyer is, in fact, the best bidder available. In the words of the court, in this “inevitable” “break-up” or “sale” scenario (which, however, the court did not precisely define), the directors’ duties shift from “defenders of the corporate bastion to auctioneers charged with getting the best price for the stockholders.”

…continue reading: Do Mandatory ‘Auctions’ Increase Gains of Target Shareholders in M&A?

Merger Negotiations with Stock Market Feedback

Posted by R. Christopher Small, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Tuesday February 18, 2014 at 9:02 am
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Editor’s Note: The following post comes to us from Sandra Betton of the Department of Finance at Concordia University; B. Espen Eckbo, Professor of Finance at Dartmouth College; Rex Thompson, Professor of Finance at Southern Methodist University; and Karin Thorburn, Professor of Finance at the Norwegian School of Economics.

In our paper, Merger Negotiations with Stock Market Feedback, forthcoming in the Journal of Finance, we investigate whether pre-bid target stock price runups increase bidder takeover costs—an issue of first-order importance for the efficiency of the takeover mechanism. We base our predictions on a simple model with rational market participants and synergistic takeovers. Takeover signals (rumors) received by the market cause market anticipation of deal synergies that drive stock price runups. The model delivers the equilibrium pricing relation between the runup and the subsequent offer price markup (the surprise effect of the bid announcement) that should exist in a sample of observed bids.

…continue reading: Merger Negotiations with Stock Market Feedback

Are Stock-Financed Takeovers Opportunistic?

Posted by R. Christopher Small, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Friday February 14, 2014 at 9:00 am
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Editor’s Note: The following post comes to us from B. Espen Eckbo, Professor of Finance at Dartmouth College; Tanakorn Makaew of the Department of Finance at the University of South Carolina; and Karin Thorburn, Professor of Finance at the Norwegian School of Economics.

In our paper, Are Stock-Financed Takeovers Opportunistic?, which was recently made publicly available on SSRN, we present significant new empirical evidence relevant to the ongoing controversy over whether bidder shares in stock-financed mergers are overpriced. The extant literature is split on this issue, with some studies suggesting that investor misvaluation plays an important role in driving stock-financed mergers—especially during periods of high market valuations and merger waves. Others maintain the neoclassical view of merger activity where takeover synergies emanate from industry-specific productivity shocks. This debate is important because opportunities for selling overpriced bidder shares may result in the most overvalued rather than the most efficient bidder winning the target—distorting corporate resource allocation through the takeover market.

…continue reading: Are Stock-Financed Takeovers Opportunistic?

Delaware’s Choice

Posted by Guhan Subramanian, Harvard Law School, on Monday February 10, 2014 at 9:17 am
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Editor’s Note: Guhan Subramanian is the Joseph Flom Professor of Law and Business at the Harvard Law School and the H. Douglas Weaver Professor of Business Law at Harvard Business School. The following post is based on Professor Subramanian’s lecture delivered at the 29th Annual Francis G. Pileggi Distinguished Lecture in Law in Wilmington, Delaware. 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 November 2013 I delivered the 29th Annual Francis G. Pileggi Distinguished Lecture in Law in Wilmington, Delaware. My lecture, entitled “Delaware’s Choice,” presented four uncontested facts from my prior research: (1) in the 1980s, federal courts established the principle that Section 203 must give bidders a “meaningful opportunity for success” in order to withstand scrutiny under the Supremacy Clause of the U.S. Constitution; (2) federal courts upheld Section 203 at the time, based on empirical evidence from 1985-1988 purporting to show that Section 203 did in fact give bidders a meaningful opportunity for success; (3) between 1990 and 2010, not a single bidder was able to achieve the 85% threshold required by Section 203, thereby calling into question whether Section 203 has in fact given bidders a meaningful opportunity for success; and (4) perhaps most damning, the original evidence that the courts relied upon to conclude that Section 203 gave bidders a meaningful opportunity for success was seriously flawed—so flawed, in fact, that even this original evidence supports the opposite conclusion: that Section 203 did not give bidders a meaningful opportunity for success.

…continue reading: Delaware’s Choice

No Free Shop

Posted by R. Christopher Small, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Monday December 16, 2013 at 9:19 am
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Editor’s Note: The following post comes to us from Charles Calomiris, Professor of Finance at Columbia University.

In the paper, No Free Shop: Why Target Companies in MBOs and Private Equity Transactions Sometimes Choose Not to Buy ‘Go-Shop’ Options, which was recently made publicly available on SSRN, my co-authors (Adonis Antoniades and Donna Hitscherich) and I study the decisions by targets in private equity and MBO transactions whether to actively “shop” executed merger agreements prior to shareholder approval.

We construct a theoretical framework for explaining the choice of go-shop clauses by acquisition targets, which takes account of value-maximizing motivations, as well as agency problems related to conflicts of interest of management, investment bankers, and lawyers. On the basis of that framework, we empirically investigate the determinants of the go-shop decision, and the effects of the go-shop choice on acquisition premia and on target firm value, using a regression methodology that explicitly allows for the endogeneity of the go-shop decision. Our sample includes data on 306 cash acquisition deals for the period 2004-2011.

We allow many aspects of target firms to enter into their go-shop decision, including the nature of their legal counsel, their ownership structure, their size, and various other firm, and deal characteristics. We find that legal advisor characteristics, ownership structure, and the extent to which the transaction was widely marketed prior to the first accepted offer all matter for the go-shop decision.

…continue reading: No Free Shop

Central European Distribution Corporation’s Chapter 11 Plan Incorporates Dutch Auction

Posted by Noam Noked, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Tuesday August 20, 2013 at 9:10 am
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Editor’s Note: The following post comes to us from Mark S. Chehi, a partner in the Corporate Restructuring Group of Skadden, Arps, Slate, Meagher & Flom LLP, and is based on a Skadden memorandum by Mr. Chehi, Glenn S. Walter, Jay M. Goffman, and Mark A. McDermott.

On May 13, 2013, the U.S. Bankruptcy Court for the District of Delaware confirmed a prepackaged Chapter 11 plan of reorganization in the case of Central European Distribution Corporation (CEDC) [1] that incorporated an unmodified reverse Dutch auction. A reverse Dutch auction is a type of auction employed when a single buyer accepts bids from numerous sellers, and lowest-priced seller bids are accepted as winning bids.

The CEDC plan is perhaps the first instance of a Dutch auction process being incorporated successfully into a Chapter 11 reorganization plan. This precedent provides guidance for the use of Dutch auctions that may offer creditors distribution alternatives and maximize the utility of limited cash (or other limited property) available for distribution under a plan.

…continue reading: Central European Distribution Corporation’s Chapter 11 Plan Incorporates Dutch Auction

Delaware Court Addresses Revlon Duties in Single-Bidder Sale-of-Control Transaction

Posted by Noam Noked, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Tuesday July 9, 2013 at 9:24 am
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Editor’s Note: The following post comes to us from C.N. Franklin Reddick III, partner and co-head of the corporate practice group at Akin Gump Strauss Hauer & Feld LLP. This post is based on an Akin Gump corporate alert, 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 Delaware Court of Chancery recently addressed on two separate occasions—in In re Plains Exploration & Production Co. Stockholder Litigation [1] and Koehler v. NetSpend Holdings, Inc. [2]—whether a board of directors satisfied its Revlon duties in connection with a sale-of-control transaction involving negotiations with a single bidder. In both cases, the court found that the board’s initial decision to pursue a single-bidder process was reasonable. However, while the court in Plains found that the directors satisfied their fiduciary duties under the Revlon standard, the court in NetSpend, found that the directors would likely fail to meet their burden, under Revlon, of proving that they were fully informed and acted reasonably throughout the sale process. Specifically, in NetSpend, the court found that deficiencies in the fairness opinion and the combination of deal protection devices—which included a no-shop provision, a short preclosing period and a “don’t ask, don’t waive” provision that crystallized existing standstill agreements with parties that had previously expressed an interest in the company—did not pass muster under Revlon. These cases provide important lessons for companies considering whether to pursue, and how to conduct, a single-bidder sale-of-control transaction.

…continue reading: Delaware Court Addresses Revlon Duties in Single-Bidder Sale-of-Control Transaction

Delaware Court of Chancery Criticizes Board’s Sale Process

Posted by Kobi Kastiel, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Tuesday June 4, 2013 at 9:29 am
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Editor’s Note: The following post comes to us from Robert B. Schumer, chair of the Corporate Department at Paul, Weiss, Rifkind, Wharton & Garrison LLP, and is based on a Paul Weiss 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.

In Koehler v. NetSpend Holdings Inc., the Delaware Court of Chancery found that the directors of NetSpend likely breached their Revlon duty to obtain the highest price reasonably available for stockholders by pursuing a single-bidder strategy for selling the company. The board’s lack of knowledge as to the company’s value and related failure to contact potentially interested parties set it apart from other single bidder cases such as Plains Exploration, a recent case where the court found a single-bidder sale process to be reasonable. Nevertheless, the Court declined to enjoin the merger because an injunction could risk the stockholders’ opportunity to receive a substantial premium over the market price for their shares.

…continue reading: Delaware Court of Chancery Criticizes Board’s Sale Process

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