Posts Tagged ‘Controlling shareholders’

UK Proposed Register of Individuals with Significant Control over Non-Public Companies

Posted by Kobi Kastiel, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Saturday August 2, 2014 at 9:00 am
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Editor’s Note: The following post comes to us from Wayne P.J. McArdle, Partner in the London office of Gibson, Dunn & Crutcher LLP, and is based on a Gibson Dunn alert by Mr. McArdle, James Barabas, and Edward A. Tran.

On June 25, 2014, the UK Government published the Small Business, Enterprise and Employment Bill [1] which, among other things, proposes that all UK companies (other than publicly traded companies reporting under the Disclosure and Transparency Rules (DTR5)) be required to maintain a register of people who have significant control over the company. The Bill is part of the UK Government’s initiative to implement the G8 Action Plan to prevent the misuse of companies and legal arrangements agreed at the Lough Erne G8 Summit in June 2013, which we discussed in our client alert entitled “Through the Looking Glass: The Disclosure of Ultimate Ownership and the G8 Action Plan” (June 20, 2013). [2] In broad terms, the G8 Action Plan is designed to ensure the integrity of beneficial ownership and basic company information and the timely access to that information by law enforcement and tax authorities.

…continue reading: UK Proposed Register of Individuals with Significant Control over Non-Public Companies

Delaware Legislature Clarifies Section 251(h) Second-Step Merger Provisions

Posted by Yaron Nili, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Friday August 1, 2014 at 9:00 am
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Editor’s Note: The following post comes to us from Abigail Pickering Bomba, partner in the corporate practice at Fried, Frank, Harris, Shriver & Jacobson LLP, and is based on a Fried Frank publication by Ms.Bomba, David N. Shine, John E. Sorkin, and Gail Weinstein. 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.

The following amendments to Delaware General Corporation Law (“DGCL”) Section 251(h) have been passed by the Delaware legislature, clarifying a number of issues that have arisen since adoption of the law last year. If signed by the Governor (as is expected), the amendments will apply to merger agreements entered into on or after August 1, 2014. Under Section 251(h), a merger agreement can include a provision that eliminates the need for a target stockholder vote for a merger after a tender or exchange offer if, among other conditions, the acquiror then owns at least the number of shares that would be sufficient to approve the merger under the DGCL and the target’s charter. The amendments provide for the following:

…continue reading: Delaware Legislature Clarifies Section 251(h) Second-Step Merger Provisions

Delaware Court Declines to Dismiss Class Action Challenging Going-Private Transaction

Editor’s Note: Allen M. Terrell, Jr. is a director at Richards, Layton & Finger. This post is based on a Richards, Layton & Finger publication, 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 Hamilton Partners, L.P. v. Highland Capital Management, L.P., C.A. No. 6547-VCN, 2014 WL 1813340 (Del. Ch. May 7, 2014), the Court of Chancery, by Vice Chancellor Noble, in connection with a challenge to a going-private transaction whereby American HomePatient, Inc. (“AHP”) was acquired by an affiliate of one of its stockholders, Highland Capital Management, L.P. (“Highland”), refused to dismiss breach of fiduciary duty claims against Highland. The Court held that, for purposes of defendants’ motion to dismiss, plaintiff alleged facts sufficient to support an inference that Highland, which owned 48% of AHP’s stock and 82% of AHP’s debt, was the controlling stockholder of AHP and that the merger was not entirely fair.

…continue reading: Delaware Court Declines to Dismiss Class Action Challenging Going-Private Transaction

Enhancing the Effectiveness of the UK Listing Regime—Implementation

Posted by Kobi Kastiel, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Sunday June 1, 2014 at 9:00 am
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Editor’s Note: The following post comes to us from Simon Witty, partner in the corporate department at Davis Polk & Wardwell LLP, and is based on a Davis Polk client memorandum by Mr. Witty, Will Pearce, Dan Hirschovits, and Victoria Kershaw.

Significant new rules to strengthen the UK premium listing regime have come into force today (The Listing Rules (Listing Regime Enhancements) Instrument 2014). The rules have been the subject of two rounds of consultation by the UK Financial Conduct Authority (“FCA”) and are designed in particular to improve the governance of premium listed companies with a controlling shareholder. Feedback on the responses received has also been published today by the FCA (PS14/8: Response to CP13/15—Enhancing the effectiveness of the Listing Regime).

We summarise the main elements of the new regime below, which are largely as proposed by the FCA in its previous consultation document (see our Client Memorandum dated November 7, 2013). Companies contemplating a premium listing will need to consider the new rules as part of their IPO process and, over the coming months, existing premium listed companies with controlling shareholders will need to implement a number of new measures to comply with the new rules.

…continue reading: Enhancing the Effectiveness of the UK Listing Regime—Implementation

Regulation and Self-Regulation of Related Party Transactions in Italy

Editor’s Note: The following post comes to us from Luca Enriques, Professor of Business Law at LUISS University (Rome). The post is based on a paper co-authored by Professor Enriques, and Marcello Bianchi, Angela Ciavarella, Valerio Novembre and Rossella Signoretti of CONSOB (Commissione Nazionale per le Societa e la Borsa).

Agency problems and tunneling are traditional features of corporate governance in Italy. Where ownership is concentrated, dominant shareholders have both the incentives and the means to monitor managers but they may also extract private benefits through self-dealing transactions that favor the related party at the expense of minority shareholders. Pyramids and other control enhancing mechanisms (CEMs) make minorities more vulnerable to abusive self-dealing. The regulatory environment proved to be too lax. The late 1990s reforms failed to specifically address conflicts of interests in listed companies. Further, as a result of the 2003 corporate law reform, directors are allowed to vote even if their interests conflict with those of the firm and parent companies within integrated groups may legitimately force subsidiaries into possibly harmful transactions, provided some procedural and substantial requirements are met. With the exception of corporate governance codes, no specific new rule addressed the fairness of related party transactions (RPTs).

…continue reading: Regulation and Self-Regulation of Related Party Transactions in Italy

Do Freezeouts Affect the Performance of the Controlling Shareholder?

Posted by June Rhee, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Friday May 9, 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.

Some works in the literature on mergers and acquisitions suggest that mergers do not generate any efficiency for the acquirer and that, in fact, they have a negative effect on operating performance. This work examines whether freezeouts (that is, transactions in which a controlling shareholder acquires the remaining shares of a corporation for cash or stock) also produce a negative effect on the performance of the acquirer.

On a theoretical level, there are legitimate reasons to think that freezeouts should not generate any significant efficiency for the controlling shareholder, especially because, after completing the deal, he maintains control over the same assets he was already controlling before. From this perspective, the only gain arising from a freezeout is the savings in regulatory costs associated with the public status of the target, without much room for significant synergies. Moreover, it is possible that the reduction in public monitoring of the target that results from a freezeout could not only translate into long-term losses for that company, but also affect negatively the controlling shareholder in an indirect way. In this sense, a freezeout could actually be expected to lead to drops in the controlling shareholder’s operating performance.

…continue reading: Do Freezeouts Affect the Performance of the Controlling Shareholder?

Delaware Decision Reinforces Need for Proper Procedure in Squeeze-Out Merger

Posted by Noam Noked, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Thursday March 20, 2014 at 9:04 am
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Editor’s Note: The following post comes to us from David N. Shine, partner and co-head of the Mergers and Acquisitions Practice at Fried, Frank, Harris, Shriver & Jacobson LLP, and is based on a Fried Frank publication.

The private equity firm that was the controlling stockholder of Orchard Enterprises effected a squeeze-out merger of the minority public stockholders. Two years later, a Delaware appraisal proceeding determined that Orchard’s shares at the time of the merger were worth more than twice as much as was paid in the merger. Public shareholders then brought suit, claiming that the directors who had approved the merger and the controlling stockholder had breached their fiduciary duties and should be held liable for damages. The Orchard decision [1] issued by the Delaware Chancery Court this past Friday adjudicates the parties’ respective motions for summary judgment before trial.

…continue reading: Delaware Decision Reinforces Need for Proper Procedure in Squeeze-Out Merger

Delaware Court Endorses Business Judgment Review in Controlling Stockholder Mergers

Editor’s Note: Theodore N. Mirvis and Paul Rowe are partners in the Litigation Department at Wachtell, Lipton, Rosen & Katz. This post is based on a Wachtell Lipton memorandum by Mr. Mirvis, Mr. Rowe, Igor Kirman, and William Savitt. 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.

The Delaware Supreme Court today affirmed that a going-private transaction may be reviewed under the deferential business judgment rule when it is conditioned on the approval of both a well-functioning special committee and a majority of the minority stockholders. Kahn v. M&F Worldwide Corp., No. 334, 2013 (Del. Mar. 14, 2014).

As described in our previous memo, the case arose out of a stockholder challenge to a merger in which MacAndrews & Forbes acquired the 57% of M&F Worldwide it did not already own. Then-Chancellor Strine granted summary judgment in favor of the defendants, finding that the record established the transaction was approved by both an independent special committee that functioned effectively and had the power to say no and the fully-informed vote of a majority of the unaffiliated stockholders, thus entitling them to business judgment review.

…continue reading: Delaware Court Endorses Business Judgment Review in Controlling Stockholder Mergers

Creeping Takeovers and Fiduciary Duties—A Recap

Posted by Noam Noked, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Friday November 8, 2013 at 9:03 am
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Editor’s Note: The following post comes to us from Spencer D. Klein, partner in the Corporate Department and co-chair of the global Mergers & Acquisitions Group at Morrison & Foerster LLP, and is based on a Morrison & Foerster publication. 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 In re Sirius XM Shareholder Litigation, [1] Delaware Chancellor Strine dismissed a complaint that the Sirius board had breached its fiduciary duties by adhering to the provisions of an investment agreement with Liberty Media that precluded the Sirius board from blocking Liberty Media’s acquisition of majority control of Sirius through open-market purchases made by Liberty Media following a three-year standstill period. By holding the complaint to be time-barred under the equitable doctrine of laches the Delaware court did not address the merits of whether the Sirius board breached its fiduciary duties. However, In re Sirius still offers the opportunity to recap the guidance on “creeping takeovers” that can be derived from existing Delaware case law:

…continue reading: Creeping Takeovers and Fiduciary Duties—A Recap

Director Independence: Interplay Between Delaware Law and Exchange Rules

Posted by Noam Noked, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Monday October 7, 2013 at 9:17 am
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Editor’s Note: The following post comes to us from Jay P. Lefkowitz, senior litigation partner and member of the Global Management Executive Committee at Kirkland & Ellis LLP, and is based on a Kirkland publication by Mr. Lefkowitz, Andrew B. Clubok, Yosef J. Riemer, 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.

The MFW decision that was issued earlier this year by the Chancellor of the Delaware Chancery Court has been the subject of much discussion with respect to transactions involving controlling shareholders. [1] But the decision also addressed another important topic: the interplay between the exchange rules and Delaware law with respect to director independence. MFW seemed to align the Delaware law test for director independence with the specific, detailed independence requirements in the exchange rules, but Delaware decisions since MFW continue to reflect highly fact-intensive inquiries that look beyond the bright-line exchange rules. Accordingly, it is important to consider both the exchange rules and the latest guidance from Delaware courts when assessing director independence.

…continue reading: Director Independence: Interplay Between Delaware Law and Exchange Rules

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