Posts Tagged ‘Neil Whoriskey’

Be Wary of the Path to the Business Judgment Rule

Posted by Victor I. Lewkow, Cleary Gottlieb Steen & Hamilton LLP, on Thursday July 11, 2013 at 9:00 am
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Editor’s Note: Victor Lewkow is a partner at Cleary Gottlieb Steen & Hamilton LLP. This post is based on a Cleary Gottlieb memorandum by Mr. Lewkow, Ethan Klingsberg, and Neil Whoriskey, and is part of the Delaware law series, which is co-sponsored by the Forum and Corporation Service Company; links to other posts in the series are available here.

Chancellor Leo Strine’s opinion in In re MFW Shareholders Litigation (Del Ch. May 29, 2013) marks the culmination of an effort by the Chancellor, going back to his lengthy dicta in In re Cox Communications Shareholders Litigation (Del Ch. 2005), to arrive at a more unified standard for review of buy-outs of a company’s public float by a controlling stockholder. The headline conclusion is that, assuming this decision is not reversed by the Delaware Supreme Court on appeal, controlling stockholder buyouts structured as negotiated mergers may now join controlling stockholder buyouts that take the form of unilateral tender offers in having available a theoretical path that permits challenges to be dismissed on pre-trial motions.

About ten years ago, a series of Chancery Court opinions, the most prominent of which was then-Vice Chancellor Strine’s opinion in In re Pure Resources Shareholders Litigation (Del. Ch. 2002), laid out safeguards that would qualify a unilateral tender offer by a controlling stockholder as non-coercive and entitled to dismissal of challenges based on pleadings prior to a trial or an evidentiary hearing. The most important of these safeguards were the presence of both:

…continue reading: Be Wary of the Path to the Business Judgment Rule

Should Your Company Adopt A Forum Selection Bylaw?

Posted by Victor I. Lewkow, Cleary Gottlieb Steen & Hamilton LLP, on Tuesday July 2, 2013 at 9:15 am
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Editor’s Note: Victor Lewkow is a partner at Cleary Gottlieb Steen & Hamilton LLP. This post is based on a Cleary Gottlieb memorandum by Mr. Lewkow, Neil Whoriskey, and Julie Yip-Williams, and is part of the Delaware law series, which is co-sponsored by the Forum and Corporation Service Company; links to other posts in the series are available here. Additional reading about Boilermakers Local 154 Retirement Fund, et al. v. Chevron Corp., et al., and Iclub Inv. P’ship v. FedEx Corp. is available here.

In a much anticipated decision, the Delaware Chancery Court upheld on June 25, 2013 the validity of the forum selection bylaws adopted by the boards of directors of FedEx Corporation (“FedEx”) and Chevron Corporation (“Chevron”). Such bylaws provide that stockholders bringing derivative claims or claims alleging breaches of fiduciary duties, arising from the Delaware General Corporate Law (the “DGCL”) or otherwise implicating the internal affairs of the corporation be brought exclusively in Delaware state or federal courts. In rendering his opinion, Chancellor Leo Strine found that specifying the forum for litigating such matters is well within the statutorily permitted scope of bylaw provisions under Section 109(b) of the DGCL. Further, the Court found that these unilateral board actions to adopt such bylaws without the consent of stockholders were nonetheless contractually binding on stockholders because Section 109(b) of the DGCL allows a corporation, through its certificate of incorporation, to grant directors the power to adopt and amend bylaws unilaterally (which was the case here). When FedEx and Chevron stockholders invested in the respective corporations, they were deemed under Delaware law to be put on notice that the board could amend the bylaws to include provisions such as the one at issue.

…continue reading: Should Your Company Adopt A Forum Selection Bylaw?

Incentive Schemes for Nominees of Activist Investors

Posted by Noam Noked, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Wednesday June 5, 2013 at 9:34 am
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Editor’s Note: The following post comes to us from Neil Whoriskey, partner focusing on mergers and acquisitions at Cleary Gottlieb Steen & Hamilton LLP. This post is based on a Cleary Gottlieb memorandum by Mr. Whoriskey, titled “Golden Leashes, Honest Brokers, Risk Tolerances and Market Imperfections: Incentive Schemes for Nominees of Activist Investors.”

Golden leashes – compensation arrangements between activists and their nominees to target boards – have emerged as the latest advance (or atrocity, depending on your point of view) in the long running battle between activists and defenders of the long-term investor faith. Just exactly what are we worried about?

With average holding periods for U.S. equity investors having shriveled from five years in the 1980s to nine months or less today, the defenders of “long-termism” would seem to have lost the war, though perhaps not the argument. After all, if the average shareholder is only sticking around for nine months, and if directors owe their duties to their shareholders (average or otherwise), then at best a director on average will have nine months to maximize the value of those shares. Starting now. Or maybe starting nine months ago.

But this assumes that the directors of any particular company have a real idea of just how long their particular set of “average” shareholders will stick around, and it also assumes that the directors owe duties primarily to their average shareholders, and not to their Warren Buffett investors (on one hand) or their high speed traders (on the other). So, in the absence of any real information about how long any then-current set of shareholders will invest for on average, and in the absence of any rational analytical framework to decide which subset(s) of shareholders they should be acting for, what is a director to do?

Here is what I think directors do, in one form or fashion or another:

…continue reading: Incentive Schemes for Nominees of Activist Investors

Runaway MAC Carve-outs

Posted by Noam Noked, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Monday January 14, 2013 at 8:59 am
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Editor’s Note: The following post comes to us from Neil Whoriskey, partner focusing on mergers and acquisitions at Cleary Gottlieb Steen & Hamilton LLP. This post is based on a Cleary Gottlieb memorandum by Mr. Whoriskey.

The definition of “material adverse change” plays a critical role in public company merger agreements, effectively defining the situations in which a buyer may walk away from the transaction. There is significant case law defining what is (or, much more commonly, what is not) a material adverse change, but the case law only serves to interpret the agreed definitions. The agreed definitions, in turn, are typically very vague in defining what is a material adverse change (leaving lots of scope for judges), but explicit in listing the types of changes that may not be considered in evaluating whether a material adverse change has occurred. The use of these carve-outs to limit what may be considered a material adverse change has expanded significantly in recent years — arguably to a point where it may make sense for the pendulum to start to swing back.

It has been traditional for adverse effects attributable to changes in general economic conditions to be excluded in considering whether a material adverse effect has occurred, such that e.g., a loss of sales attributable to the great recession, no matter how severe, would not give buyer the right to terminate a merger agreement. This carve-out from the material adverse change definition can be grouped with others, such as carve-outs for downturns in the target industry, changes in law or accounting policies, acts of war, etc. — all of which shift to buyer the risks associated with the environment in which the target operates. What is notable is that over the last several years, not only has the percentage of deals that shift these “environmental” risks to buyer increased significantly, but MAC carve-outs that shift to buyer the risk of the deal, and (anecdotally at least) even the risk of running the business, have also increased markedly.

…continue reading: Runaway MAC Carve-outs

Using Confidential Information in a Hostile Offer

Posted by Victor I. Lewkow, Cleary Gottlieb Steen & Hamilton LLP, on Tuesday June 5, 2012 at 9:23 am
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Editor’s Note: Victor Lewkow is a partner at Cleary Gottlieb Steen & Hamilton LLP. This post is based on a Cleary Gottlieb memorandum by Neil Whoriskey. 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.

“But, upon a close review of these model [confidentiality] agreements and other leading treatises, I cannot conclude that the use of a standard structure has led to a corresponding lack of ambiguity about important issues.” Martin Marietta Materials, Inc., v. Vulcan Materials Company. [1]

On December 12, 2011, Martin Marietta Materials, Inc. sued Vulcan Materials Company in Delaware Chancery Court, seeking declaratory judgment that the non-disclosure agreement between them (the “NDA”) did not prohibit Martin Marietta from making a hostile offer for the shares of Vulcan. The initial reaction of many deal professionals at the time was – well, if the parties wanted to agree to a standstill preventing a hostile offer, the firms involved certainly knew how to draft one. [2] However, it seems as if the idea of a standstill was not even discussed by the parties – leading perhaps to the several ambiguities found by the court in its opinion. The ambiguities, of course, required that the court resort to extrinsic evidence to determine the intent of the contracting parties. The court found that virtually all of the extrinsic evidence supported Vulcan’s contention that the parties intended the NDA to serve as a back-door standstill.

The two most significant questions examined by the court, both resulting from contractual ambiguities, were the following:

  • 1. Whether restricting the use of confidential information to evaluation of a “Transaction” effectively prohibited the use of the confidential information for the purpose of evaluating an unsolicited transaction?
  • 2. Whether the exception to confidentiality, permitting the disclosure of confidential information as “legally required,” permitted disclosure of confidential information “legally required” to be disclosed solely as a result of Martin Marietta’s own decision to launch a hostile offer?

…continue reading: Using Confidential Information in a Hostile Offer

 
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