Category Archives: Mergers & Acquisitions

Court of Chancery Upholds Customary Release in Spin-Off Transactions

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 a Wachtell Lipton publication by Mr. 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 last week validated a release of liability that extinguished certain claims a recently spun-off company may have had against its former parent and its directors. In re AbbVie Inc. Stockholder Derivative Litig., C.A. No. 9983-VCG (Del. Ch. July 21, 2015). The decision confirms that the mutual releases customary in spin-off arrangements are presumptively appropriate and enforceable.

Abbott Laboratories spun off AbbVie, its research-based pharmaceutical subsidiary, in January 2013. Before the spin, Abbott was a defendant in a False Claims Act action alleging unlawful off-label marketing of an AbbVie product. As part of the spin-off, AbbVie broadly released all claims it might have against Abbott or any Abbott affiliate relating to assets transferred to AbbVie, including liability for the False Claims Act claim.

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Delaware Court of Chancery Rejects M&A Litigation Settlement

Ariel J. Deckelbaum is a partner and deputy chair of the Corporate Department at Paul, Weiss, Rifkind, Wharton & Garrison LLP. This post 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 Acevedo v. Aeroflex Holding Corporation, in connection with a stockholder suit that challenged the sale of a company with a controlling stockholder to a third party, the Delaware Court of Chancery rejected a settlement which provided a global release of claims in exchange for a reduced termination fee and a shortening of the matching-rights period by one day, holding that these deal protections were not impediments to competing bidders and therefore were insufficient to support a global release.

In 2014, Aeroflex agreed to sell itself to a third-party and a class-action challenging the transaction was subsequently commenced. After engaging in discovery and consulting with third-party experts, the plaintiff concluded that the consideration offered to the Aeroflex stockholders fell within a range of reasonable value for Aeroflex’s shares, but that the proxy omitted certain material facts. The parties agreed to a settlement where the plaintiff granted the defendants a global release of all possible claims in exchange for modifying the deal protections by (i) reducing the termination fee by over 40% from $32 million to $18 million, and (ii) shortening the matching rights period from four business days to three business days. Additionally, the defendants agreed to make certain supplemental disclosures in the proxy.

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Appraisal Arbitrage—Is There a Delaware Advantage?

Gaurav Jetley is a Managing Principal and Xinyu Ji is a Vice President at Analysis Group, Inc. This post is based on a recent article authored by Mr. Jetley and Mr. Ji. The complete publication, 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.

Market observers have devoted a fair amount of attention to possible reasons underlying the recent increase in appraisal rights actions filed in the Delaware Chancery Court. A number of commentators have connected such an increase to recent rulings reaffirming appraisal rights of shares bought by appraisal arbitrageurs after the record date of the relevant transactions. Other reasons posited for the current increase in appraisal activity include the relatively high interest rate on the appraisal award and a belief that the Delaware Chancery Court may feel more comfortable finding fair values in excess of, rather than below, the transaction price.

In our paper Appraisal Arbitrage—Is There a Delaware Advantage?, we examine the extent to which economic incentives may have improved for appraisal arbitrageurs in recent years, which may help explain the increase in appraisal activity. We investigate three specific issues.

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Employment Protection and Takeovers

Andrey Golubov is Assistant Professor of Finance at Rotman School of Management, University of Toronto. This post is based on an article by Professor Golubov; Olivier Dessaint, Assistant Professor of Finance at Rotman School of Management, University of Toronto; and Paolo Volpin, Professor of Finance at Cass Business School, City University London.

Cost reductions in the pursuit of economies of scale and scope are commonly believed to be a major driver—and a key source of synergies—in corporate takeovers. Restructuring the workforce, largely in the form of layoffs, is presumed to be one of the primary channels through which such cost reductions are obtained. However, despite the central role of labor force issues in takeovers, there is no systematic empirical evidence on the importance of workforce restructuring as a driver of the market for corporate control and as a source of merger synergies. This is partly because labor regulations are largely uniform within countries, and any cross-country variation comes with a host of other pertinent differences. Our new paper, entitled Employment Protection and Takeovers, which was recently made publicly available on SSRN, fills this void and provides the first systematic evidence on the link between labor regulation and takeovers.

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Delaware Court Relies Exclusively on Merger Price in Appraisal Action

Toby Myerson is a partner in the Corporate Department at Paul, Weiss, Rifkind, Wharton & Garrison LLP and co-head of the firm’s Global Mergers and Acquisitions Group. The following post is based on a Paul Weiss memorandum authored by Matthew W. Abbott, Angelo Bonvino, Justin G. Hamill, and Jeffrey D. Marell. 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 a recent appraisal proceeding, the Delaware Court of Chancery concluded that the company had engaged in a thorough sales process, and therefore found that it was appropriate to determine fair value of the company’s stock by relying exclusively on the merger price less net synergies. The court found that a discounted cash flow (or “DCF”) analysis was an inappropriate method to value the company’s stock in this instance, as the DCF analyses relied upon by the parties were derived from unreliable management projections.

In Longpath Capital, LLC v. Ramtron International Corporation, Cypress Semiconductor Corporation (“Cypress”) issued a bear hug letter to acquire all of the shares of Ramtron International Corporation (“Ramtron”), a semiconductor company, for $2.48 per share. After the Ramtron board rejected this offer as inadequate, Cypress initiated a tender offer for Ramtron’s shares at $2.68 per share (which it later raised to $2.88 per share). During the time that Cypress pursued its tender offer, Ramtron authorized its financial advisor to market the company. The advisor contacted twenty-four potential buyers and Ramtron executed nondisclosure agreements with six of those potential buyers. Ultimately, however, none of the potential buyers made a firm bid for Ramtron. Eventually, Ramtron and Cypress engaged in active negotiations, which resulted in Cypress raising its offer price twice before the parties settled on a final transaction price of $3.10 per share. Approximately two months following the signing of the merger agreement, the merger was approved by a vote of Ramtron’s stockholders. Longpath Capital, LLC (“Longpath”), a Ramtron stockholder, properly demanded appraisal of the fair value of its Ramtron stock under Section 262 of the General Corporation Law of the State of Delaware and filed an appraisal action in the Court of Chancery against Ramtron.

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Custodial Bank’s Technical Failure Results in Dell Stockholders Losing Appraisal Rights

Steven Epstein is a partner and Co-Head of the Mergers & Acquisitions practice at Fried, Frank, Harris, Shriver & Jacobson LLP. This post is based on a Fried Frank publication authored by Mr. Epstein, Robert C. Schwenkel, 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.

In In re Appraisal of Dell (July 13, 2015), Vice Chancellor Laster, stating that he was compelled by Delaware Supreme Court precedent, applied a “strict” interpretation of the “Continuous Holder Requirement” of the Delaware appraisal statute. The Vice Chancellor, granting summary judgment in favor of Dell, Inc., held that the funds seeking appraisal of almost one million Dell shares (acquired by them after announcement of the Dell going-private transaction) had not met the Continuous Holder Requirement and so had lost their right to appraisal.

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Federal Reserve Provides Guidance on Bank M&A

Edward D. Herlihy is a partner and co-chairman of the Executive Committee at Wachtell, Lipton, Rosen & Katz. The following post is based on a Wachtell Lipton memorandum by Mr. Herlihy, Richard K. Kim, and Matthew M. Guest.

The Federal Reserve Board approved BB&T’s application to acquire Susquehanna Bancshares earlier this week and set the stage for an August 1 closing—just over eight months from the date of announcement. The BB&T/Susquehanna transaction will be the largest U.S. bank merger in recent years to close within this timeframe. This acquisition follows closely after the timely approval of two other smaller acquisitions by BB&T, of Bank of Kentucky in June and of former Citibank branches in Texas in February. The series of promptly completed transactions reflects well on BB&T’s M&A and regulatory approach and continues its long history of successful deal-making.

Also very recently, another successful and acquisitive bank, Sterling Bancorp, completed its acquisition of Hudson Valley Holding Corp. This transaction was transformative in taking Sterling above $10 billion in assets—an important threshold for regulatory purposes which triggers requirements for annual stress tests, caps on debit card interchange fees and other new requirements. Again, the transaction was completed within 8 months of announcement and in line with market expectations, despite protests by community groups pursuant to the Community Reinvestment Act (“CRA”).

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Merger Price and Process Win the Day Yet Again In Delaware Appraisal Action

Jason M. Halper is partner in the Securities Litigation & Regulatory Enforcement Practice Group at Orrick, Herrington & Sutcliffe LLP. This post is based on an Orrick publication by Mr. Halper and Gregory Beaman. 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.

On June 30, 2015, the Delaware Court of Chancery issued a post-trial opinion in which it yet again rejected a dissenting shareholder’s attempt to extract consideration for its shares above the merger price through appraisal rights. See LongPath Capital, LLC v. Ramtron Int’l Corp., Slip. Op. June 30, 2015, C.A. No. 8094-VCP (Del. Ch. June 30, 2015). LongPath is just the latest decision in which the Chancery Court has upheld merger price as the most reliable indicator of fair value where it was the result of a fair and adequate process. Vice Chancellor Parsons’ opinion reaffirms the importance of merger price and process in Delaware appraisal actions, and offers helpful guidance to companies, directors and their counsel in defending against claims that the company was sold at too low a price.

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SPAC-and-Span: A Clean Exit?

Carol Anne Huff is a partner at Kirkland & Ellis who practices corporate and securities laws, with an emphasis on the representation of private equity firms and public companies in capital markets transactions and in mergers, acquisitions and divestitures. The following post is based on a Kirkland memorandum by Ms. Huff and Daniel Wolf.

While robust M&A and IPO markets have given investors solid liquidity options, in some cases selling a company to a publicly traded special purpose acquisition company, or SPAC, can be an appealing alternative. Recent examples in the United States include the $500 million acquisition by Levy Acquisition Corp. of Del Taco in June 2015 and the pending $879 million acquisition by Boulevard Acquisition Corp. of AgroFresh Inc., a subsidiary of The Dow Chemical Company. In the UK, notable examples include Burger King going public in 2012 through a $1.4 billion merger with a UK SPAC.

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Delaware LLC and Partnership Law

Gregory P. Williams is chair of the Corporate Department 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.

Delaware has recently adopted legislation amending the Delaware Limited Liability Company Act (LLC Act), the Delaware Revised Uniform Limited Partnership Act (LP Act) and the Delaware Revised Uniform Partnership Act (GP Act) (collectively, the LLC and Partnership Acts). The following is a brief summary of some of the more significant amendments that affect Delaware limited liability companies (Delaware LLCs), Delaware limited partnerships (Delaware LPs) and Delaware general partnerships (Delaware GPs).

Default Class or Group Voting Requirements Eliminated

The LLC Act and the LP Act have been amended to eliminate the default class or group voting requirements in connection with the merger or consolidation, transfer or continuance, conversion, dissolution and winding up of a Delaware LLC or Delaware LP and the termination and winding up of a series of a Delaware LLC or Delaware LP. The recent amendments provide that, in connection with the foregoing matters, the default class or group voting requirements under the LLC Act and the LP Act, as in effect on July 31, 2015, will continue to apply to a Delaware LLC or Delaware LP whose original certificate of formation or certificate of limited partnership was filed with the Delaware Secretary of State and is effective on or before July 31, 2015, unless otherwise provided in a limited liability company agreement or partnership agreement.

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