Tag: Jurisdiction

Regulatory Approvals for 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 and Richard K. Kim.

The Federal Reserve’s approval last week of M&T’s pending acquisition of Hudson City has prompted a great deal of speculation as to the current state of the regulatory approval process for bank mergers and acquisitions. Announced over three years ago, on August 27, 2012, the M&T/Hudson City transaction has taken longer to receive Federal Reserve approval than any other bank merger. Many in the industry have interpreted the delay in receiving approval for the merger as representing a policy change by the Federal Reserve. As discussed below, we view the transaction as largely an idiosyncratic event that is a result as much of timing as any policy shifts by the Federal Reserve. With this approval, taken together with the others that the Federal Reserve has issued over the past several months, there is now more clarity and certainty to the regulatory approval process for bank M&A. With the exception of the largest systemically important banks, there is no regulatory policy impeding bank mergers.


England and Germany Limit Bank Resolution Obligations

Solomon J. Noh and Fredric Sosnick are partners in the Financial Restructuring & Insolvency Group at Shearman & Sterling LLP. This post is based on a Shearman & Sterling client publication.

In two recent decisions, European national courts have taken a narrow view of their obligations under the Bank Recovery and Resolution Directive (BRRD)—the new European framework for dealing with distressed banks. The message from both the English and the German courts was that resolution authorities must adhere strictly to the terms of the BRRD; otherwise, measures that they take in relation to distressed banks may not be given effect in other Member States.

Goldman Sachs International v Novo Banco SA

In August 2014, the Bank of Portugal announced the resolution of Banco Espírito Santo (BES), what at the time was Portugal’s second largest bank. That announcement followed the July disclosure of massive losses at BES, which compounded a picture of serious irregularities within the bank that had been developing for several months. As part of the resolution, BES’s healthy assets and most of its liabilities were transferred to a new bridge bank, Novo Banco (the so-called “good bank”), which received €4.9 billion of rescue funds—while troubled assets and “Excluded Liabilities,” categories specifically identified in the BRRD, remained at BES (the “bad bank”). Amongst those liabilities initially deemed to have transferred to Novo Banco in August was a USD $835 million loan made to BES via a Goldman Sachs-formed vehicle, Oak Finance.


Federal Court Injunction Against SEC Prosecution

John J. Falvey, Jr. and Daniel J. Tyukody are partners in the Securities Litigation & White Collar Defense Group at Goodwin Procter LLP. This post is based on a Goodwin Procter Financial Services Alert.

A federal judge in Manhattan recently granted a preliminary injunction against the Securities and Exchange Commission in the latest of a series of rulings raising issues with the SEC’s use of in-house proceedings before its administrative law judges (“ALJs”) rather than proceed with its charges in federal court. The SEC has prevailed more frequently in its administrative proceedings than it has in federal court, where defendants have more robust procedural rights. This ruling by a judge in the Southern District of New York indicates the federal courts’ ongoing concerns with the SEC’s increased preference for administrative proceedings before its own ALJs. But the SEC has the ability to correct the constitutional flaw that the court found to exist with its appointments of ALJs, suggesting that this and similar rulings will likely only raise a short-term disruption of the SEC’s use of its in-house courts.


Court Strikes NYC’s “Responsible Banking Act”

Robert J. Giuffra, Jr. is a partner in the Litigation Group at Sullivan & Cromwell LLP. This post is based on a Sullivan & Cromwell publication by Mr. Giuffra, H. Rodgin Cohen, Matthew A. Schwartz, and Marc Trevino.

On August 7, 2015, in a 71-page opinion, Judge Katherine Polk Failla of the United States District Court for the Southern District of New York struck down New York City Local Law 38 of 2012, entitled the “Responsible Banking Act” (“RBA”), as preempted by federal and state banking law. The RBA—enacted by the City Council on June 28, 2012, over Mayor Bloomberg’s veto—established an eight-member Community Investment Advisory Board (“CIAB”), charged with collecting data at the census-tract level from the 21 banks eligible to receive some of the City’s $150 billion in annual deposits. This data, which went beyond data required by federal and state banking regulators and would be disclosed publicly, covered a variety of categories ranging from the maintenance of foreclosed properties, to investment in affordable housing, to product and service offerings. Based on the data collected and feedback from public hearings, the CIAB was to develop “benchmarks and best practices” against which the deposit banks were to be evaluated, including against each other, in a publicly filed annual report. The report was to identify deposit banks that refused to provide the requested data. Finally, the RBA provided that the City’s Banking Commission—responsible for designating eligible deposit banks—“may” consider the CIAB’s annual report in making its designation decisions.


Crossing State Lines Again—Appraisal Rights Outside of Delaware

Daniel Wolf is a partner at Kirkland & Ellis focusing on mergers and acquisitions. The following post is based on a Kirkland memorandum by Mr. Wolf, Matthew Solum, David B. Feirstein, and Laura A. Sullivan. 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.

Even as the Delaware appraisal rights landscape continues to evolve, dealmakers should not assume that the issues and outcomes will be the same in transactions involving companies incorporated in other states. Although once an afterthought on the M&A landscape, in recent years appraisal rights have become a prominent topic of discussion among dealmakers. In an earlier M&A Update (discussed on the Forum here) we discussed a number of factors driving the recent uptick in shareholders exercising statutory appraisal remedies available in cash-out mergers. With the recent Delaware Supreme Court decision in CKx and Chancery Court opinion in Ancestry.com, both determining that the deal price was the best measure of fair price for appraisal purposes, and the upcoming appraisal trials for the Dell and Dole going-private transactions, the contours of the modern appraisal remedy, and the future prospects of the appraisal arbitrage strategy, are being decided in real-time. These and almost all of the other recent high-profile appraisal claims have one thing in common—the targets in question were all Delaware corporations and the parties have the benefit of a well-known statutory scheme and experienced judges relying on extensive (but evolving) case law. But, what if the target is not in Delaware?


Jurisdiction Shifting—Creative Structuring Opportunities

Daniel Wolf is a partner at Kirkland & Ellis focusing on mergers and acquisitions. The following post is based on a Kirkland memorandum by Mr. Wolf, Sarkis Jebejian, and David B. Feirstein.

As we have noted in prior M&A Updates, when dealmakers face a transaction where one or both of the parties are incorporated outside the Delaware comfort zone, they often confront unexpected structuring issues unique to entities or deals undertaken in that state or country. These may include corporate law, tax, accounting or structuring concerns and, most often, the deal teams will have to adjust the transaction terms to accommodate these issues.

But a recent decision from the Virginia Supreme Court is a timely reminder that, on occasion, these issues can be managed using some resourceful and creative structuring involving shifting jurisdictions. In the case, a Virginia corporation planned to sell its assets which, under Virginia law, would trigger appraisal rights for minority stockholders. Seemingly to avoid this result, the seller undertook a multi-step restructuring ahead of the sale which began with a “domestication” under Virginia law that shifted its jurisdiction of incorporation to Delaware. Under the Virginia statute, no appraisal rights apply to such a reincorporation. Once reincorporated in Delaware, the seller continued its restructuring, ultimately selling its assets to the buyer. Notably, Delaware does not provide for appraisal rights in an asset sale. The Virginia court dismissed the minority stockholders’ argument that they were entitled to appraisal rights. It rejected a “steps transaction” argument that looked to collapse the multiple steps and focus on the substance of the transaction (i.e., a sale of the company’s assets to the buyer), favoring instead the seller’s assertion that the first-stage move to Delaware had independent legal significance and therefore was effective to shift the appraisal rights analysis to Delaware law.


Race to the Bottom Recalculated: Scoring Corporate Law Over Time

Brian Cheffins is Professor of Corporate Law at the University of Cambridge. The following post is based on an article co-authored by Professor Cheffins, Steven A. Bank, Paul Hastings Professor of Business Law at UCLA School of Law, and Harwell Wells, Associate Professor of Law at Temple University Beasley School of Law.

In The Race to the Bottom Recalculated: Scoring Corporate Law Over Time we undertake a pioneering historically-oriented leximetric analysis of U.S. corporate law to provide insights concerning the evolution of shareholder rights. There have previously been studies seeking to measure the pace of change with U.S. corporate law. Our study, which covers from 1900 to the present, is the first to quantify systematically the level of protection afforded to shareholders.


Exclusive Forum Provisions: A New Item for Corporate Governance and M&A Checklists

The following post comes to us from Michael O’Bryan, partner in the Corporate Department at Morrison & Foerster LLP, and is based on a Morrison & Foerster Client Alert by Mr. O’Bryan, Kevin Calia, and James Beha. 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.

Public companies increasingly are adopting “exclusive forum” bylaws and charter provisions that require their stockholders to go to specified courts if they want to make fiduciary duty or other intra-corporate claims against the company and its directors.

Exclusive forum provisions can help companies respond to such litigation more efficiently. Following most public M&A announcements, for example, stockholders file nearly identical claims in multiple jurisdictions, raising the costs required to respond. Buyers also feel the pain, since they typically bear the costs and may even be named in some of the proceedings. Exclusive forum provisions help address the increased costs, while allowing stockholders to bring claims in the specified forum.


California Superior Court Enforces Exclusive Forum Bylaw

The following post comes to us from Sullivan & Cromwell LLP, and is based on a Sullivan & Cromwell publication by Glen T. Schleyer, Joseph B. Frumkin, John L. Hardiman, and Alexandra D. Korry. The complete publication, including footnotes and annex, 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.

Following the Delaware Court of Chancery’s decision in July 2013 upholding the validity of exclusive forum bylaws, a number of corporations, including over two dozen S&P 500 companies, amended their bylaws to include these provisions, and the provisions were commonly included in the charters or bylaws of companies in initial public offerings. Many public companies, however, determined to take a wait-and-see approach, in order to assess whether non-Delaware courts would enforce the bylaw and whether companies that adopted the bylaw received negative investor feedback in the 2014 proxy season or otherwise.


An Upturn in “Inversion” Transactions

Adam Emmerich is a partner in the corporate department at Wachtell, Lipton, Rosen & Katz focusing primarily on mergers and acquisitions and securities law matters. This post is based on a Wachtell Lipton firm memorandum by Mr. Emmerich, Jodi J. Schwartz, and Igor Kirman.

Recently, there have been a growing number of large “inversion” transactions involving the migration of a U.S. corporation to a foreign jurisdiction through an M&A transaction. Inversion transactions come in several varieties, with the most common involving a U.S. company merging with a foreign target and redomiciling the combined company to the jurisdiction of the target.

While inversion transactions tend to have strong strategic rationales independent of tax considerations, the tax benefits can be significant. These benefits are varied but start with relatively high U.S. corporate tax rates and U.S. taxation of foreign earnings when repatriated to the U.S. Among other things, an inverted company may achieve a lower effective tax rate on future earnings, be able to access its non-U.S. cash reserves in a tax-efficient way, and have a more favorable profile for future acquisition activity.


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