Posts Tagged ‘Shareholder suits’

Shareholder Activism in the M&A Context

Editor’s Note: David A. Katz is a partner at Wachtell, Lipton, Rosen & Katz specializing in the areas of mergers and acquisitions and complex securities transactions. This post is based on an article by Mr. Katz and Laura A. McIntosh that first appeared in the New York Law Journal; the full article, including footnotes, 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.

With M&A activity expected to increase in 2014, shareholder activism is an important factor to be considered in the planning, negotiation, and consummation of corporate transactions. In 2013, a year of relatively low deal activity, it became clear that activism in the M&A context was growing in scope and ambition. Last year activists were often successful in obtaining board seats and forcing increases in deal consideration, results that may fuel increased efforts going forward. A recent survey of M&A professionals and corporate executives found that the current environment is viewed as favorable for deal-making, with executives citing an improved economy, decreased economic uncertainty, and a backlogged appetite for transactions. There is no doubt that companies pursuing deals in 2014—whether as a buyer or as a seller—will have to contend with activism on a variety of fronts, and advance preparation will be important.

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Fixing Merger Litigation

Posted by Steven Davidoff, Ohio State University College of Law, Jill Fisch, University of Pennsylvania, and Sean Griffith, Fordham University, on Friday March 14, 2014 at 9:00 am
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Editor’s Note: Steven M. Davidoff is Professor of Law and Finance at Ohio State University College of Law. As of July 2014, Professor Davidoff will be Professor of Law at the University of California, Berkeley School of Law. Jill E. Fisch is Perry Golkin Professor of Law and Co-Director of the Institute for Law & Economics at the University of Pennsylvania Law School. Sean J. Griffith is T.J. Maloney Chair in Business Law at Fordham University School of Law. 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 the US, every M&A deal of any significant size generates litigation. The vast majority of these lawsuits settle, and the vast majority of these settlements are for non-pecuniary relief, most commonly supplemental disclosures in the merger proxy.

The engine that drives this litigation is the concept of “corporate benefit.” Under judge-made law, litigation that produces a corporate benefit allows the court to order plaintiffs’ attorneys’ fees to be paid directly by the defendants provided that the outcome of the litigation is beneficial to the corporation and its shareholders. In a negotiated settlement, plaintiffs will characterize supplemental disclosures in the merger proxy as producing a corporate benefit, and defendants will typically not oppose the characterization, as they are happy to pay off the plaintiffs’ lawyers and get on with the deal. The supposed benefits of these settlements thus are rarely tested in adversarial proceedings. Knowing this creates a strong incentive for plaintiffs’ attorneys to file claims, put in limited effort, and negotiate a settlement consisting exclusively of corrective disclosures. But is there any real value to these settlements?

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2013 Delaware Decisions and What They Mean For 2014

Posted by Noam Noked, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Thursday February 20, 2014 at 9:26 am
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Editor’s Note: The following post comes to us from John L. Reed, chair of the Wilmington Litigation group and a partner in the Corporate and Litigation groups at DLA Piper 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.

Delaware’s Leading Role in Business and Business Litigation

Delaware has long been known as the corporate capital of the world. It is the state of incorporation for 64 percent of the Fortune 500 and more than half of all companies whose securities trade on the NYSE, Nasdaq and other exchanges. Its preeminence in business law started with its corporate code—the Delaware General Corporation Law—and has been enhanced by business law innovations that have led to the creation of many new business entities designed to meet the expanding needs of corporate and financial America.

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Halliburton: The Morning After

Editor’s Note: Boris Feldman is a member of Wilson Sonsini Goodrich & Rosati, P.C. The views expressed in this post are those of Mr. Feldman and do not reflect those of his firm or clients. Doru Gavril also contributed to this post. The Supreme Court’s expected reconsideration of Basic is also discussed in a Harvard Law School Discussion Paper by Professors Lucian Bebchuk and Allen Ferrell, Rethinking Basic, discussed on the Forum here.

The blogosphere is abuzz over Halliburton. [1] Will the Supreme Court overturn
Basic
[2] and abolish the fraud-on-the-market presumption? Will the decision end shareholder class actions as we have known them? Presumably, by the Fourth of July, we will know.

The purpose of this post is not to predict the outcome of Halliburton. Rather, it is to begin thinking about ways in which the plaintiffs’ bar may respond if the Court does overturn Basic. Those who think that plaintiffs’ lawyers will go quiet into the night are, in my opinion, ignoring the lessons of history.

…continue reading: Halliburton: The Morning After

Delaware Court: Corporation’s Own Stock Purchases not a “Business Combination”

Posted by Allen M. Terrell, Jr., Richards, Layton & Finger, on Sunday December 22, 2013 at 9:00 am
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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 co-sponsored by the Forum and Corporation Service Company; links to other posts in the series are available here.

In Activision Blizzard, Inc. v. Hayes, No. 497, 2013 (Del. Nov. 15, 2013), the Delaware Supreme Court addressed the question of whether the purchase by Activision Blizzard, Inc. (“Activision”) of shares of its own stock, as well as net operating loss carryforwards (“NOLs”), from Vivendi, S.A. (“Vivendi”) constituted a “merger, business combination or similar transaction” under Activision’s amended certificate of incorporation and, as a result, required the approval of stockholders. The Court held that, despite its form as the combination of two entities, the transaction at issue did not require the approval of stockholders. “Indeed,” observed the Court, “it is the opposite of a business combination. Two companies will be separating their business connection.”

…continue reading: Delaware Court: Corporation’s Own Stock Purchases not a “Business Combination”

Law and History by Numbers: Use, But With Care

Posted by Brian R. Cheffins, University of Cambridge, on Tuesday December 17, 2013 at 9:13 am
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Editor’s Note: Brian Cheffins is a Professor of Corporate Law at the University of Cambridge. This post is based on a paper co-authored by Professor Cheffins, Steven A. Bank, Paul Hastings Professor of Business Law at UCLA School of Law, and Harwell Wells of Temple University Beasley School of Law.

“Leximetrics,” which involves quantitative measurement of law, has become a prominent feature in empirical work done on comparative corporate governance, with particular emphasis being placed on the contribution that robust shareholder protection can make to a nation’s financial and economic development. Using this literature as our departure point, we are currently engaging in a leximetric analysis of the historical development of U.S. corporate law. Our paper, Law and History by Numbers: Use, But With Care, prepared for a University of Illinois College of Law symposium honoring Prof. Larry Ribstein, is part of this project. We identify in this paper various reasons for undertaking a quantitative, historically-oriented analysis of U.S. corporate law. The paper focuses primarily, however, on the logistical challenges associated with such an inquiry.

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District Court Dismisses Claim that Potential Litigation Disclosure Was Required

Posted by Kobi Kastiel, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Tuesday November 19, 2013 at 9:20 am
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Editor’s Note: The following post comes to us from Eric M. Roth, partner in the litigation department at Wachtell, Lipton, Rosen & Katz, and is based on a Wachtell Lipton memorandum by Mr. Roth.

A recent decision of the Southern District of New York is noteworthy in its rejection of the plaintiffs’ argument that disclosure of a threatened suit in which the potential loss could have reached $10 billion was required under either the federal securities laws or Accounting Standards Codification 450. See In re Bank of America AIG Disclosure Sec. Litig., C.A. No. 11 Civ. 6678 (JGK) (S.D.N.Y. Nov. 1, 2013).

In January 2011, BofA and AIG entered into an agreement to toll the statute of limitations on fraud and securities claims arising out of BofA’s sale of mortgage-backed securities (“MBS”) to AIG. In February 2011, AIG provided BofA with a detailed analysis of its potential claims in which it claimed to have lost more than $10 billion. Later that month, BofA’s annual report disclosed that it faced “substantial potential legal liability” relating to sales of MBS, which “could have a material adverse effect on [its] cash flow, financial condition, and results of operations,” but cautioned that BofA “could not estimate a range of loss for all matters in which losses were probable or reasonably possible.” BofA did not disclose the tolling agreement with AIG or the magnitude of its potential exposure to AIG. On August 8, 2011, AIG had filed a complaint against BofA seeking damages of at least $10 billion. BofA’s stock price dropped 20% in a single day.

…continue reading: District Court Dismisses Claim that Potential Litigation Disclosure Was Required

Court of Chancery Reaffirms Validity of Forum Selection Charter Provision

Posted by Theodore Mirvis, Wachtell, Lipton, Rosen & Katz, on Friday November 15, 2013 at 9:13 am
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Editor’s Note: Theodore N. Mirvis is a partner in the Litigation Department at Wachtell, Lipton, Rosen & Katz. The following post is based on a Wachtell Lipton memorandum by Mr. Mirvis, David A. Katz, William Savitt, and Ryan A. McLeod. 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 Court of Chancery recently determined that forum selection provisions in corporate charters—much like forum selection bylaws—are presumptively valid, and provided guidance on the appropriate procedure to enforce such provisions against a stockholder who files suit in violation of them. Edgen Grp. Inc. v. Genoud, C.A. No. 9055-VCL (Del. Ch. Nov. 5, 2013) (Trans.).

The dispute arose after the Edgen Group announced that it had agreed to sell itself in a premium, all-cash, sales transaction to an unrelated third party. Edgen’s certificate of incorporation includes a provision that provides that any claim of breach of fiduciary duty by an Edgen stockholder must be filed in Delaware. Nevertheless, a putative class action challenging the merger was filed in Louisiana state court. In response, Edgen filed suit against the stockholder in Delaware, asking the Court of Chancery to enjoin him from proceeding in Louisiana.

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Exclusive Forum Provisions: Is Now the Time to Act?

Posted by Richard J. Sandler, Davis Polk & Wardwell LLP, on Thursday November 7, 2013 at 9:09 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 by Mr. Sandler, Arthur F. Golden, and William M. Kelly. 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.

Exclusive forum provisions in corporate bylaws and certificates of incorporation are back on the agenda for many companies. We reviewed the trend data in a June 2012 briefing and predicted that few companies would adopt exclusive forum provisions until there was guidance from then-pending litigation in the Delaware Court of Chancery. That guidance came this past June in the form of Chancellor Strine’s decision upholding the validity of board-adopted exclusive forum bylaw provisions at Chevron and FedEx. Most recently the plaintiffs in that litigation dropped their appeal, so for now Chancellor Strine’s decision stands in support of the proposition that, unsurprisingly, Delaware views the selection of a Delaware forum as at least facially valid.

In the wake of these developments the adoption of exclusive forum provisions has resumed, and by our count there are now about 120 companies, largely but not exclusively Delaware corporations, that have gotten on board since the Chevron decision. While these are still small numbers in the context of several thousand U.S. public companies, we expect the number to continue to grow in the coming months.

…continue reading: Exclusive Forum Provisions: Is Now the Time to Act?

Delaware Court Addresses Post-Merger Breach of Fiduciary Duty Claims

Posted by Kobi Kastiel, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Tuesday November 5, 2013 at 9:33 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 In re Bioclinica, Inc. Shareholder Litigation, the Delaware Court of Chancery (VC Glasscock) dismissed a stockholder suit alleging that the members of a board of directors breached their fiduciary duty of loyalty in a sale process for a transaction that had since closed, and where plaintiffs’ allegations previously had been found insufficient to support a pre-closing motion to expedite. Under those circumstances, the court found the chances of those same allegations surviving a post-closing motion to dismiss to be “vanishingly small.” Moreover, the court reaffirmed that reasonable deal protections, such as no-solicitation provisions, termination fees, information rights, top-up options, and stockholder rights plans, in the context of an otherwise reasonable sales process, are not preclusive and do not, in and of themselves, demonstrate a breach of the duty of care or loyalty. Finally, the court dismissed claims against the acquirer that it aided and abetted the directors’ breach of fiduciary duties because no breach of such duties was found.

As we previously detailed here, BioClinica engaged in an eight-month sale process, which led to a two step tender offer acquisition that closed on March 13, 2013. Before the closing of the tender offer, the court found that plaintiffs’ allegations that the board members had breached their fiduciary duties were not colorable, and the court declined to expedite the litigation (or enjoin the transaction). Such a finding typically leads to a voluntary dismissal by plaintiffs. Here, however, plaintiffs nonetheless chose to pursue this action, and, because the exculpation provisions in the company’s certificate of incorporation absolved the directors from monetary damages arising out of breaches of the duty of care, plaintiffs were forced to allege that the directors breached their duty of loyalty or acted in bad faith.

…continue reading: Delaware Court Addresses Post-Merger Breach of Fiduciary Duty Claims

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