Posts Tagged ‘Steven Davidoff’

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
  • Print
  • email
  • Twitter
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?

…continue reading: Fixing Merger Litigation

Disappearing Small IPO and Lifecycle of Small Firm

Posted by Steven Davidoff, Ohio State University College of Law, on Thursday March 6, 2014 at 9:12 am
  • Print
  • email
  • Twitter
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. The following post is based on a paper by Professor Davidoff and Paul Rose of Ohio State University College of Law.

The small company initial public offering (IPO) is dead. In 1997, there were 168 exchange-listed IPOs for companies with an initial market capitalization of less than $75 million. In 2012, there were seven such IPOs, the same number as in 2003.

While there is no doubt that the small company IPO has disappeared, the cause of this decline is uncertain and disputed.

A number of theories have been offered for this decline, but the most prominent theory attributes the decline to increased federal regulation and market structure changes also driven by federal regulation. The explanation for this decline is important, because it has driven passage of the JumpStart Our Business Start-ups Act (the JOBS Act) as well as recently introduced Congressional legislation to mandate decimalization for a five-year period for all companies with a market capitalization of $750 million or below.

…continue reading: Disappearing Small IPO and Lifecycle of Small Firm

Berkeley Transactional Practice Survey

Posted by Steven Davidoff, Ohio State University College of Law, on Thursday February 20, 2014 at 9:27 am
  • Print
  • email
  • Twitter
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.

It is hard to gainsay the observation that business law practice has evolved significantly over the last three decades. Fields as distinct as corporate, securities and mergers and acquisitions law have substantially merged with a host of traditional “business school” topics, such as accounting, finance, strategy, project management and risk analysis. Although some law schools have endeavored to keep up with these changes in business law practice, their reaction has been somewhat sluggish. Indeed, many major law firms with sophisticated business law practices have expended significant resources on training their junior associates (or retraining their experienced attorneys) through “mini-MBA” courses, business boot camps, and similar programs offered either through third parties, partnerships or in-house expertise. Nevertheless, it is our view that law schools can and should continue to work to provide this type of training to students in partnership with efforts already under way at law firms. Such efforts are certainly key components to creating sophisticated lawyers for the next century.

…continue reading: Berkeley Transactional Practice Survey

Lock-Up Creep

Posted by Steven Davidoff, Ohio State University College of Law, on Wednesday August 28, 2013 at 8:52 am
  • Print
  • email
  • Twitter
Editor’s Note: Steven M. Davidoff is Professor of Law and Finance at Ohio State University College of Law. The post is based on a paper co-authored by Professor Davidoff and Christina M. Sautter, Cynthia Felder Fayard Associate Professor of Law at Louisiana State University Paul M. Hebert Law Center.

If you have regularly read merger agreements over the past decade, you may have had a creeping feeling. You also may not be alone. Over the past decade the number and type of merger agreement lock-ups have materially increased. We examine this phenomenon in our article Lock-Up Creep, prepared for the Journal of Corporation Law symposium: Ten Years After Omnicare: The Evolving Market for Deal Protection Devices held at University of Iowa College of Law. Not only have new lock-ups arisen, but the terms of these lock-ups have become more varied as attorneys negotiate ever more intricate terms.

In our article we examine lock-up creep in detail. Lock-ups existed in many forms for decades, but in recent years, new lock-ups have appeared or been widely adopted, such as matching rights, which give a bidder the right to match a competing offer, as well as don’t ask, don’t waive standstills, which prevent losing bidders from making a competing bid or even requesting that a target waive such a requirement. The end result is that merger agreements contain increasingly scripted procedures for how and when a board should deal with competing bids.

…continue reading: Lock-Up Creep

Takeover Litigation in 2012

Posted by Steven Davidoff, Ohio State University College of Law, on Tuesday March 26, 2013 at 9:16 am
  • Print
  • email
  • Twitter
Editor’s Note: Steven M. Davidoff is an Associate Professor of Law and Finance at Ohio State University College of Law, and Matthew D. Cain is an Assistant Professor of the University of Notre Dame.

Takeover litigation continued unabated in 2012 according to our just released annual report Takeover Litigation in 2012.

We find that 91.7% of transactions in 2012 experienced litigation almost at an almost identical rate as 2011 when 91.4% of transactions experienced litigation. This figure continues the increasing trend of takeover litigation which is now brought at a rate almost 2.5 times that of 2005.

The number of complaints brought per transaction remained about constant in 2012 at 5.0 lawsuits per transaction – identical to the rate in 2011. While the number of lawsuits (and rough approximation of law firms) remained steady from 2011 to 2012, this still represents a more than doubling from the mean number in 2005 of 2.2 lawsuits.

Multi-jurisdictional litigation also remained similar in 2012 with 50.6% of transactions with litigation experiencing litigation in multiple states. This compares to 53.0% of transactions with multi-state litigation in 2011. This rate continues what has been described as the biggest phenomena in takeover litigation. Multi-state litigation has gone from 8.3% of litigations in 2005 to half of all transactions in 2012.

…continue reading: Takeover Litigation in 2012

Do Outside Directors Face Labor Market Consequences?

Posted by Steven Davidoff, Ohio State University College of Law, on Friday February 1, 2013 at 10:10 am
  • Print
  • email
  • Twitter
Editor’s Note: Steven M. Davidoff is an Associate Professor of Law and Finance at Ohio State University College of Law, Andrew Lund is an Associate Professor of Law at Pace University School of Law and Robert J. Schonlau is an Assistant Professor of Finance at Brigham Young University.

Do directors face consequences for their poor performance?  We examine this question in Do Outside Directors Face Labor Market Consequences? A Natural Experiment from the Financial Crisis, a draft of which we recently posted to the SSRN.

We theorize that the exogenous shock of the financial crisis made shareholders and regulators particularly attuned to financial firm performance. We thus use the financial crisis as a natural experiment to study labor market consequences for outside directors at banks and other financial companies. In particular, we explore the question of whether shareholders and regulators acted to penalize directors for poor firm performance during the financial crisis.
…continue reading: Do Outside Directors Face Labor Market Consequences?

Limits of Disclosure

Posted by Steven Davidoff, Ohio State University College of Law, on Wednesday November 21, 2012 at 8:43 am
  • Print
  • email
  • Twitter
Editor’s Note: Steven M. Davidoff is an Associate Professor of Law and Finance at Ohio State University College of Law.

In Limits of Disclosure recently posted to the SSRN we examine the shortcomings of disclosure. Claire Hill and I do so by exploring two areas where disclosure arguably failed, albeit for very different reasons: synthetic collateralized debt obligations (CDOs), such as Abacus and Timberwolf, sold in the years immediately leading up to the financial crisis, and executive compensation.

One big focus of attention, criticism, and proposals for reform in the aftermath of the 2008 financial crisis has been securities disclosure. Many commentators have emphasized the complexity of the securities being sold; some have noted that disclosures were sometimes false or incomplete. What follows, to some commentators, is that whatever other lessons we may learn from the crisis, we need to improve disclosure. How should it be improved? Commentators often lament the frailties of human understanding, notably including those of everyday (retail) investors: people do not understand or even read disclosure. This leads, naturally and unsurprisingly, to prescriptions for yet more disclosure, simpler disclosure, and financial literacy education.

…continue reading: Limits of Disclosure

Computerization and the Abacus: Reputation, Trust, and Fiduciary Duties in Investment Banking

Posted by Steven Davidoff, Ohio State University College of Law, on Sunday February 6, 2011 at 9:34 am
  • Print
  • email
  • Twitter
Editor’s Note: Steven Davidoff is a Professor of Law at the University of Connecticut. This post is based on a paper by Mr. Davidoff, William J. Wilhelm, Jr. of the University of Virginia, and Alan D. Morrison of the University of Oxford.

In our essay Computerization and the Abacus: Reputation, Trust, and Fiduciary Duties in Investment Banking, recently posted to the SSRN, we analyze the 2007 synthetic collateralized debt obligation transaction, ABACUS 2007-AC1 SPV (ABACUS) and the subsequent SEC civil complaint against Goldman Sachs in connection with the ABACUS transaction. We use this analysis as a touchstone to examine the debate over whether to impose fiduciary duties or other heightened regulation upon investment bank/counter-party transactions, the subject of a recently released SEC study (available here).

…continue reading: Computerization and the Abacus: Reputation, Trust, and Fiduciary Duties in Investment Banking

Delaware Dominant in Choice of Law for Merger Agreements

Posted by Steven Davidoff, Ohio State University College of Law, on Thursday September 3, 2009 at 9:17 am
  • Print
  • email
  • Twitter
Editor’s Note: This post is by Steven Davidoff of the University of Connecticut 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 our paper “Delaware’s Competitive Reach:  An Empirical Analysis of Public Company Merger Agreements” recently posted to the SSRN (and available here) my co-author Matthew Cain of the Notre Dame Mendoza College of Business and I evaluate the selection of governing law and forum clauses in merger agreements between public firms from 2004-2008.

In contrast to prior research, we find that Delaware is the dominant choice among merging parties. During the sample period approximately 66.4% of agreements select Delaware for their governing law and 60% of agreements select Delaware as their choice of forum. This compares to 61.8% of targets during this time that are incorporated in Delaware, and 54.8% of acquirers that are similarly incorporated.

We find that Delaware’s attractiveness has increased in recent years in response to exogenous events, namely the financial crisis and the Second Circuit’s decision in Consolidated Edison, Inc. v. Northeast Utilities.  The latter court ruling was perceived by practitioners as creating an unfriendly merger precedent under New York law.  We find that the opinion made the Delaware forum a more attractive one vis-à-vis New York.

Delaware’s attractiveness is also evidenced by the fact that top-tier legal advisors, foreign acquirers, transactions surrounded by greater financial uncertainty, and larger transactions tend to select Delaware’s forum over other venues.  Our results are robust to controls for simultaneity and endogeneity.

Our results also provide support for the theory that Delaware competes by providing quality governing law, and particularly, adjudicative services. They also highlight the contestability of Delaware’s dominance; parties adjust their choices of law and forum during our sample time period in response to legal and other events.

Prior empirical work on the race-to-the-bottom/race-to-the-top debate has focused on Delaware’s primary product, the public company charter.  We posit that Delaware is more than a single-product provider but rather a supermarket offering complementary and differentiated products beyond the public company charter.  For example, the law governing, and adjudication of, merger agreements is one such complementary product while the law governing real estate investment trusts is a differentiated one (and one where Delaware does not compete).   By studying this former product we hope to further inform the debate over how and when Delaware competes.

Our results ultimately support the conclusion that Delaware competes strongly in other legal products beyond its primary one, the public company charter.  They also show that attorneys and their clients are responsive to unfavorable legal rulings and the quality of adjudication.

Puzzled by the government’s response to the financial crisis?

Posted by Steven Davidoff, Ohio State University College of Law, on Saturday December 6, 2008 at 12:42 pm
  • Print
  • email
  • Twitter
Editor’s Note: This post is by Steven Davidoff of the University of Connecticut School of Law.

David Zaring and I attempt to provide an explanation for the government’s seemingly haphazard actions in our latest paper Big Deal: the Government’s Response to the Financial Crisis. Professor Zaring and I posit that the government’s team, staffed and led by a team of investment bankers, has been taking a “deal-approach” to the bail-out. The government has pushed the limits of its statutory authority to authorize an ad hoc series of deals designed to mitigate that crisis. The result has not been particularly coherent, but it has married transactional practice to administrative law. We call the result regulation by deal, and think it provides a loose process consistency upon the government’s actions.

A week before we posted our paper to the SSRN, Professors Eric Posner and Adrian Vermeule also posted Crisis Governance in the Administrative State: 9/11 and the Financial Meltdown of 2008. The good professors offer an alternative explanation. As Posner wrote on the Volokh Conspiracy where Prof. Zaring and I “see legal constraints . . . . Adrian Vermeule and I see black and gray holes exploited by the executive branch and the Fed.” For administrative law geeks, Professor Vermeule talks about this topic in more detail in his forthcoming Harvard Law Review article: Our Schmittian Administrative Law.

For those who study corporate governance, our article also details and explores the mind-boggling stretching of Delaware law that the government has either fostered or facilitated in these bail-outs. From Bear to AIG to Wachovia, dealmakers have been pushing and testing the limits of deal protection devices to lock-up these government sponsored deals safe in the assumption that Delaware is unlikely to intervene. Much of these new-found devices are likely justifiable on insolvency grounds – a still being explored area of Delaware law. But, it remains to be seen how this stretching will affect how deals are done outside the government sphere, and how Delaware’s jurisprudence will respond to the use of more circumscribing lock-ups in ordinary course deals. For those who subscribe to the theory that Delaware’s jurisprudence is a thaumatrope – oscillating between strictness and laxity depending upon the times – Delaware is likely to tolerate these lock-ups for the time being as necessary to the preservation of our capital markets system. The truth remains to be seen.

 
  •  » A "Web Winner" by The Philadelphia Inquirer
  •  » A "Top Blog" by LexisNexis
  •  » A "10 out of 10" by the American Association of Law Librarians Blog
  •  » A source for "insight into the latest developments" by Directorship Magazine