Monthly Archives: December 2007

Hedge Fund Investor Activism and Takeovers

Recently, in the Law, Economics, and Organization Seminar here at the Law School, Robin Greenwood presented his paper, co-authored with Michael Schor, entitled Hedge Fund Investor Activism and Takeovers. Using data derived from 13D filings following stock purchases by shareholder activists, the study examines the effect of activist investors on performance. The abstract of the Article follows:

We examine long-horizon stock returns around investor activism in a comprehensive sample of 13D filings by portfolio investors between 1993 and 2006. Announcement returns and long-term abnormal returns surrounding investor activism are high for the subset of targets that are acquired ex-post, but not detectably different from zero for firms that remain independent a year after the initial filing. Firms that are targeted by activists are more likely to get acquired than those in a control sample. The results suggest that hedge funds’ short investment horizons make them better suited to identifying undervalued targets and prompting a takeover than at fixing corporate strategy or tackling long-term corporate governance issues.

The full Article is available for download here.

Some Thoughts for Boards of Directors in 2008

This post is from Theodore Mirvis, Wachtell of Lipton, Rosen & Katz.

Marty Lipton‘s Some Thoughts for Boards of Directors in 2008 is a wide-ranging view of the challenges facing boards of directors in the post-Enron world. The principal focus is on the implications of the attack on the director-centric model and the pressures for short-term performance. The Memo’s first page states rather bluntly what is at stake:

“The need to critically evaluate these trends, rather than passively adhering to the shareholder rights and other activist mantras of the post-Enron period, has become grave. The demonstrated genius of the large public corporation has been its ability to harness equity, debt and human resources to invest in large projects with long-term investment horizons, and the success of such ventures has been integral to the remarkable flourishing of the U.S. economy over time. To the extent that boards are increasingly vulnerable to demands for short-term gains, these trends promise to have repercussions not just for the role of the corporate board but for American business more generally.”

The full Memorandum is available here.

Update on the SEC’s Proxy Access Amendment

This post is from Steven M. Haas of Hunton & Williams LLP. We have posted on the SEC’s recent vote on proxy access here and here. Previously we hosted several competing views on the vote, including this post by Lynn Stout on her Wall Street Journal op-ed and this post by Lucian Bebchuk on a comment letter submitted to the SEC by thirty-nine law professors.

Hunton & Williams has recently released this client alert on the SEC’s recent amendment to the proxy access rules. The alert provides a quick background on the SEC’s decision to reaffirm its longstanding interpretation of Rule 14a-8(i)(8). As we note, however, “[t]he battle over shareholder access to company proxy materials may not be over,” as the SEC’s express willingness to continue its analysis will probably keep it a hot issue in 2008.

The client alert is available for download here.

Chancery Weighs in on Disclosure of Projections in Merger Votes

This post is from Robert S. Saunders of Skadden, Arps, Slate, Meagher & Flom 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.

With his November 30 opinion in Globis Partners v. Plumtree Software, Vice Chancellor Parsons weighs in on the evolving standards for merger-related disclosure of projections, as well as investment bankers’ work and compensation. The opinion also importantly confirms that, even where a complaint invokes Revlon‘s reasonableness standard by challenging the directors’ approval of a cash-out merger, it can still be dismissed at the pleading stage if it fails to allege facts sufficient to rebut the presumptions of the business-judgment rule.

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Brownstein, Mirvis, and Rowe on the Case against Shareholder Interference

Three senior partners at Wachtell, Lipton, Rosen and KatzAndrew Brownstein, Theodore N. Mirvis, and Paul K. Rowe–spoke last week at the Law School’s Law and Finance Seminar on the case against shareholder interference. The speakers began by posing a series of questions and challenges to those seeking governance reforms–and warned against making significant changes to a governance system that, in their view, has performed remarkably well over a long period of time.

The talk built on several articles and memoranda the speakers have published on corporate governance along with their partners William Savitt, Martin Lipton, Eric S. Robinson, and Mark Gordon. Those pieces include Bebchuk’s “Case For Increasing Shareholder Power”: An Opposition; Private Equity and the Board of Directors; Classified Boards Once Again Prove Their Value to Shareholders in Recent Takeover Battle; Deconstructing American Business, and Deconstructing American Business II.

A video of the panel discussion is available online here. (video no longer available) The questions and challenges the speakers set forth at the outset of their talk can be found here.

Panel Discussion on Private Equity Buyouts

Recently, the Mergers, Acquisitions, and Split-Ups course here at Harvard Law School, co-taught by Professor Robert Clark and Vice Chancellor Leo Strine, Jr., hosted a panel discussion entitled Private Equity Buyouts.  The candid discussion among the expert practitioners on the panel provided rare insights into the internal dynamics of private equity deals.

The panelists included Louis D’Ambrosio, Chief Executive Officer of Avaya, which was recently taken private by the Texas Pacific Group; Robert L. Friedman, Chief Legal Officer of Blackstone; and Eileen Nugent of Skadden, a leading corporate practitioner with extensive experience in leveraged buyout transactions.  In response to questions from Professor Clark, Vice Chancellor Strine, and the audience, the panel shared its insights on matters including the current deal environment for private equity, a board’s fiduciary duties when evaluating a private equity firm’s buyout offer, and the emergence and relevance of “go-shop” provisions in private equity transactions.

A video of the panel discussion is available for download here.

Strategic Buyer/Public Target Deal Points Study

This post is from Keith A. Flaum of Cooley Godward Kronish LLP.

The Committee on Negotiated Acquisitions of the American Bar Association’s Section of Business Law recently released the 2007 Strategic Buyer/Public Target M&A Deal Points Study. I am the Chair of the Committee’s M&A Market Trends Subcommittee, which compiled the Study.

The Study examines key deal points in acquisitions of publicly traded companies by strategic buyers announced in 2005 and 2006. Among the many interesting findings of the Study is that almost 50% of the acquisition agreements in the sample contained provisions precluding the Board of Directors from changing its recommendation in favor of the acquisition absent a topping bid. (Those provisions are described on pages 47 and 48 of the Study.) This would seem to cut against the views of many practitioners (supported, to some extent, by language in Chancery’s 2005 decision in Frontier Oil v. Holly Corp., as well as comments made publicly in early 2006 by a leading Delaware jurist) that such a limitation could violate the fiduciary duties of the Board of Directors under Delaware law.

My colleague, Rick Climan, former Chair of the Committee on Negotiated Acquisitions, acted as special advisor on this project. Wilson Chu and Larry Glasgow, the former Co-Chairs of the M&A Market Trends Subcommittee, and more than 20 M&A lawyers from major law firms across North America, assisted in its compilation.

The full Study is available for download here.

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