Posts Tagged ‘Public firms’

Spin-Off Guide

Posted by Kobi Kastiel, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Tuesday April 1, 2014 at 9:02 am
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Editor’s Note: The following post comes to us from Gregory E. Ostling, partner in the Corporate Department at Wachtell, Lipton, Rosen & Katz, and is based on the introduction to a Wachtell Lipton memorandum by Mr. Ostling, Deborah L. Paul, Nelson O. Fitts, and Jeremy L. Goldstein; the complete publication, including annexes, is available here.

A spin-off involves the separation of a company’s businesses through the creation of one or more separate, publicly traded companies. Spin-offs have been popular because many investors, boards and managers believe that certain businesses may command higher valuations if owned and managed separately, rather than as part of the same enterprise. An added benefit is that a spin-off can often be accomplished in a manner that is tax-free to both the existing public company (referred to as the parent) and its shareholders. Moreover, recently, robust debt markets have enabled companies to lock in low borrowing costs for the business being separated and monetize a portion of its value. For example, in connection with its $55 billion spin-off from Abbott Laboratories in 2012, AbbVie conducted a $14.7 billion bond offering, which at the time was the largest ever investment-grade corporate bond deal in the United States, at a weighted average interest rate of approximately two percent. Other notable recent spin-offs include ConocoPhillips’ spin-off of its refining and marketing business, Penn National Gaming’s spin-off of its real estate assets into the first-ever casino REIT, Sears Holding Corporation’s planned spin-off of Lands’ End, FMC’s planned spin-off of its minerals division, Rayonier’s planned spin-off of its performance fibers division, Simon Property’s spin-off of its strip center business and smaller enclosed malls into a REIT, and Darden’s planned spin-off of Red Lobster. There were 201 spin-offs announced in 2013 and 176 in 2012, with an aggregate value of $33 billion and $41 billion, respectively.

…continue reading: Spin-Off Guide

The 2014 Board Practices Survey

Posted by Matteo Tonello, The Conference Board, on Friday March 21, 2014 at 9:02 am
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Editor’s Note: Matteo Tonello is Managing Director at The Conference Board. This post relates to The 2014 Board Practices Survey being led by Dr. Tonello; Bruce Aust, Executive Vice President, Global Corporate Client Group at NASDAQ OMX; and Scott Cutler, Executive Vice President and Head of Global Listings at NYSE Euronext. Board members, general counsel, corporate secretaries and corporate governance officers, and investor relations officers of U.S. public companies are invited to participate in the survey; the survey can be completed online by clicking here.

The Conference Board, NASDAQ OMX and NYSE Euronext announced last week the renewal of their research collaboration to document the state of corporate governance practices among publicly listed corporations in the United States.

The centerpiece of the collaboration is The 2014 Board Practice Survey, which the three organizations are disseminating to their respective memberships. Findings will constitute the basis for a benchmarking tool searchable by market index, company size (measured by revenue and asset value) and industry sectors. In addition, they will be described in Director Compensation and Board Practices: 2014 Edition, scheduled to be released jointly in the fall.

…continue reading: The 2014 Board Practices Survey

Motivating Innovation in Newly Public Firms

Posted by R. Christopher Small, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Wednesday February 12, 2014 at 9:00 am
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Editor’s Note: The following post comes to us from Nina Baranchuk and Robert Kieschnick, both of the Finance and Managerial Economics Area at the University of Texas at Dallas, and Rabih Moussawi of the Wharton School at the University of Pennsylvania.

How do shareholders motivate managers to pursue innovations that result in patents when substantial potential costs exist to managers who do so? This question has taken on special importance as promoting these kinds of innovations has become a critical element of not only the competition between companies, but also the competition between nations. In our paper, Motivating Innovation in Newly Public Firms, forthcoming in the Journal of Financial Economics, we address this question by providing empirical tests of predictions arising from recent theoretical studies of this issue.

…continue reading: Motivating Innovation in Newly Public Firms

Introduction to the SDX Protocol

Posted by James Woolery, Cadwalader, Wickersham & Taft LLP, on Wednesday February 5, 2014 at 11:44 am
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Editor’s Note: James Woolery is Deputy Chairman of Cadwalader, Wickersham & Taft LLP, Co-Chair of its Corporate Department and head of its Business Development Group. This post is based on an excerpt from the Shareholder Director Exchange (SDX) Protocol, a framework to guide engagement between directors, which is sponsored by Cadwalader, Wickersham & Taft LLP, Teneo Holdings, LLC, Tapestry Networks, Inc. and the participating directors and investor representatives of the SDX™. The complete publication is available here.

The Shareholder-Director Exchange (SDX™) [1] is a working group of leading independent directors and representatives from some of the largest and most influential long-term institutional investors. [2] SDX participants came together to discuss shareholder-director engagement and to use their collective experience to develop the SDX Protocol, a set of guidelines to provide a framework for shareholder-director engagements. While the decision to engage directly with investors should be made in consultation with or at the request of management, the 10-point SDX Protocol offers guidance to US public company boards and shareholders on when such engagement is appropriate and how to make these engagements valuable and effective.

…continue reading: Introduction to the SDX Protocol

Governance Practices for IPO Companies: A Davis Polk Survey

Posted by Richard J. Sandler, Davis Polk & Wardwell LLP, on Monday February 3, 2014 at 9:10 am
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Editor’s Note: Richard J. Sandler is a partner at Davis Polk & Wardwell LLP and co-head of the firm’s global corporate governance group. This post is based on a Davis Polk client memorandum.

Amid the recent uptick in U.S. IPO transactions to levels not seen since the heady days of 1999 and 2000, Davis Polk’s pipeline of deals remains robust, leading us to believe that strength in the U.S. IPO market will continue in the near future. With ongoing pressure on companies that are past the IPO stage to update or modify their corporate governance practices to align with the views of some shareholders and proxy advisory groups, we thought this would be a good time to review corporate governance practices of newly public companies to see if they have also shifted in recent years. Our survey is an update of our October 2011 survey and focuses on corporate governance at the time of the IPO for the 100 largest U.S. IPOs from September 2011 through October 2013. Results are presented separately for controlled companies and non-controlled companies in recognition of their different governance profiles.

…continue reading: Governance Practices for IPO Companies: A Davis Polk Survey

Is the Independent Director Model Broken?

Posted by June Rhee, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Thursday November 14, 2013 at 9:28 am
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Editor’s Note: The following post comes to us from Roberta S. Karmel, Centennial Professor of Law at Brooklyn Law School, and is based on Professor Karmel’s paper, forthcoming in the Seattle University Law Review.

At common law, an interested director was barred from participating in corporate decisions in which he had an interest, and therefore “disinterested” directors became desirable. This concept of the disinterested, director developed into the model of an “independent director” and was advocated by the Securities and Exchange Commission (SEC or Commission) and court decisions as a general ideal in a variety of situations. The SEC’s view of the need for independent directors should be understood in the context of Adolph Berle’s theory of the 1930s that shareholders had abdicated control of public corporations to corporate managers, and fiduciary duties needed to be imposed upon corporate boards in order to compensate for this loss of shareholder control. Berle’s writings laid the foundation for shareholder primacy as the theory of the firm, a theory embraced by the SEC, which viewed itself as a surrogate for investors.

The SEC has generally succeeded in imposing its corporate governance views in the wake of scandals. Following the sensitive payments enforcement program of the 1970s, the SEC embarked on an activist corporate governance reform program. During the merger and acquisition frenzy of the 1980s, the SEC used the Williams Act to foster the view that the market for corporate control constrained incompetent managers. After the bursting of the technology bubble in 2000, and the financial reporting scandals that ensued, the SEC was able to incorporate its views on independent directors into the Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley). Following the financial crisis of 2008, the SEC further enforced its views on the requirements for independent directors in the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank).

The composition and behavior of securities markets and investors has changed drastically since the SEC was established in 1934. Yet, the SEC has persisted in its path-dependent view that independent directors, ever more stringently defined, should dominate the boards of public companies.

…continue reading: Is the Independent Director Model Broken?

Focusing on Fundamentals: The Path to Address Equity Market Structure

Posted by Mary Jo White, Chair, U.S. Securities and Exchange Commission, on Wednesday October 16, 2013 at 9:15 am
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Editor’s Note: Mary Jo White is Chair of the U.S. Securities and Exchange Commission. This post is based on Chair White’s remarks to the Security Traders Association 80th Annual Market Structure Conference; the full text, including footnotes, is available here. The views expressed in this post are those of Chair White and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

As market professionals, you obviously live the U.S. equity markets first hand, day in and day out. As an association, you have used your voice to focus attention on the value of our equity markets—an all-important engine for capital formation, job creation, and economic growth.

Like you, I believe that we must constantly strive to ensure that the U.S. equity markets continue to serve the interests of all investors. That mutual challenge must come fully of age and address today’s, not yesterday’s, markets. And today, I will speak about the path forward.

…continue reading: Focusing on Fundamentals: The Path to Address Equity Market Structure

DGCL Amended to Authorize Public Benefit Corporations

Posted by Noam Noked, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Thursday August 15, 2013 at 9:13 am
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Editor’s Note: The following post comes to us from Frederick H. Alexander, partner in the Delaware Corporate Law Counseling Group at Morris, Nichols, Arsht & Tunnell LLP. 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.

Beginning on August 1, 2013, the Delaware General Corporation Law will authorize the formation of public benefit corporations. The new provisions will allow entrepreneurs and investors to create for-profit Delaware corporations that are charged with promoting public benefits. These provisions modify the fiduciary duties of directors of PBCs by requiring them to balance such benefits with the economic interests of stockholders. In addition, the new provisions will require public benefit corporations to report to their stockholders with respect to the advancement of such non-stockholder interests.

Below are a few of the more salient elements of Delaware’s public benefit corporation legislation:

…continue reading: DGCL Amended to Authorize Public Benefit Corporations

Golden Parachute Compensation Practice Pointers

Posted by Barbara Becker and Eduardo Gallardo, Gibson, Dunn & Crutcher LLP, on Friday August 2, 2013 at 9:05 am
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Editor’s Note: Barbara L. Becker is partner and co-chair of the Mergers and Acquisitions Practice Group at Gibson, Dunn & Crutcher LLP, and Eduardo Gallardo is a partner focusing on mergers and acquisitions, also at Gibson Dunn. The following post is based on a Gibson Dunn M&A report excerpt by Stephen W. Fackler and Michael Collins. The full publication is available here.

For a variety of practical and legal reasons, compensation to be paid in connection with the sale of a public company (which this article will refer to as “golden parachute compensation”) is best addressed well before an M&A transaction is being contemplated. There are a multitude of issues that are raised when designing these sorts of compensation arrangements, which generally focus on protecting a company’s executives if their employment is involuntarily terminated following a change in control, and below is a checklist to assist companies in approaching many of the important considerations.

…continue reading: Golden Parachute Compensation Practice Pointers

Communication Practices in CEO Succession

Posted by Matteo Tonello, The Conference Board, on Thursday July 25, 2013 at 10:22 am
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Editor’s Note: Matteo Tonello is managing director at The Conference Board. This post relates to an issue of The Conference Board’s Chart of the Week series authored by Dr. Tonello.

A review of the CEO succession announcements made by S&P 500 companies in 2012 showed that they typically included details on when the succession would take effect, why the departing CEO is leaving, and whether the incoming CEO will be named board chairman; a statement by the departing CEO on his/her belief that the board has selected a qualified replacement; a statement by the lead independent director that the incoming CEO is the right choice for the company, given its current position, and thanking the departing CEO for his/her service; a statement from the incoming CEO that the existing management team is strong, the company is well positioned for the future, and expressing appreciation that the board has selected him/her as chief executive; and a description of the incoming CEO’s professional qualifications, and, if necessary, details on other director or senior management changes that will take place.

…continue reading: Communication Practices in CEO Succession

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