Monthly Archives: February 2014

Securities Class Action Filings—2013 Year in Review

John Gould is senior vice president at Cornerstone Research. This post discusses a Cornerstone Research report by Cornerstone Research and the Stanford Law School Securities Class Action Clearinghouse, titled “Securities Class Action Filings—2013 Year in Review,” available here.

Plaintiffs filed 166 new federal securities class actions in 2013, a 9 percent increase over 2012, according to Securities Class Action Filings—2013 Year in Review, an annual report prepared by Cornerstone Research and the Stanford Law School Securities Class Action Clearinghouse. The 2013 filings, although boosted by a second-half surge, are still 13 percent below the historical average from 1997 to 2012.

One possible explanation for filings remaining below the historical average in recent years is the decline in the number of unique companies listed on the NYSE and NASDAQ. A new analysis in the report shows that the number of companies on these exchanges has decreased 46 percent since 1998, providing fewer companies for plaintiffs to target as the subject of federal securities class actions.


Delaware Chancery Emphasizes Materiality as Key in Disclosure-Based M&A Settlements

The following post comes to us from Bradley W. Voss, partner in the Commercial Litigation Practice Group of Pepper Hamilton LLP, and is based on a Pepper Hamilton publication. This post 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.

Some corporate practitioners could have the impression that significant fee awards are granted as a matter of course in M&A class action litigation, even where the results obtained by class counsel were supplemental (and arguably routine) disclosures regarding the proposed transaction. Recent comments by the judges of the Delaware Court of Chancery, however, may suggest an increasing concern over what might be perceived as “default” fee awards in this context, as well as the value of purely supplemental, as opposed to remedial, disclosures.

In 2011, Vice Chancellor J. Travis Laster analyzed M&A fee awards in a published case titled In re Sauer-Danfoss Inc. Shareholders Litigation, 65 A.3d 1116 (Del. Ch. 2011). This undertaking, it reasonably could be hoped, would serve to promote consistency and establish reasonable expectations, especially in an area where precedent frequently lies in transcripts and unpublished orders. Of particular note, Vice Chancellor Laster wrote:


Do Mandatory ‘Auctions’ Increase Gains of Target Shareholders in M&A?

The following post comes to us from Fernan Restrepo of Stanford Law School. 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.

Several years ago, the Delaware Supreme Court held, in Revlon v. MacAndrews & Forbes Holdings, that when a “sale” or “break-up” of a company becomes “inevitable,” the duty of the board of directors is not to maintain the independence of the company or otherwise give priority to long-term considerations, but rather to obtain the highest price possible for the shareholders in the transaction (that is, to maximize short-term value). To satisfy that duty, when confronted with these situations, the board is generally supposed to conduct an auction (or, as clarified in subsequent decisions, a “market check”) that ensures that the final buyer is, in fact, the best bidder available. In the words of the court, in this “inevitable” “break-up” or “sale” scenario (which, however, the court did not precisely define), the directors’ duties shift from “defenders of the corporate bastion to auctioneers charged with getting the best price for the stockholders.”


Berkeley Transactional Practice Survey

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.


2013 Delaware Decisions and What They Mean For 2014

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.


Corporate Governance and Great Recession: Germany’s Success in the Post-2008 World

The following post comes to us from Pavlos E. Masouros of Leiden University, Leiden Law School.

Capitalism is abundant in contradictions that result in the production of crises. During such crises capital goes through devaluations that give rise to unemployment, bankruptcies and income inequality. The ability of a nation to resist the forces of devaluation depends on the array of institutional or spatio-temporal fixes it possesses, which can buffer the effects of the crisis, switch the crisis to other nations or defer its effects to the future. Corporate governance configurations in a given social order can function as institutional or spatio-temporal fixes provided they are positioned within an appropriate institutional environment that can give rise to beneficial complementarities.


Majority Voting Finally Arrives in Canada

The following post comes to us from Stephen Erlichman, securities law partner at Canadian law firm Fasken Martineau and Executive Director at the Canadian Coalition for Good Governance, a nonprofit corporation whose members are most of the largest pension funds, mutual fund managers and other money managers across Canada.

Thursday February 13, 2014 was an important day for shareholder democracy in Canada. We know that athletes train many years in order to reach the Olympics, but the Canadian Coalition for Good Governance (CCGG) also has worked publicly and behind the scenes for many years to bring majority voting to Canada. Finally, last week the Toronto Stock Exchange (TSX) agreed to adopt a listing requirement effective June 30, 2014 pursuant to which TSX listed companies (other than those which are majority controlled) must adopt a majority voting policy which requires each director of a TSX listed issuer to be elected by a majority of the votes cast with respect to his or her election other than at contested meetings.


The Foundations of Corporate Social Responsibility

The following post comes to us from Hao Liang and Luc Renneboog, both of the Department of Finance at Tilburg University.

A fundamental issue in business and economics is the sustainability—and not merely the growth—of economic development, which crucially hinges on the socially responsible operational and investment behavior of modern corporations (Porter, 1991). There is a widespread recognition, as well as growing empirical evidence, that corporate social responsibility (CSR) can substantially contribute to social progress and stakeholder wealth, including the wealth of shareholders (e.g., Dimson, Karakas, and Li, 2012; Deng, Kang, and Low, 2013). In our paper, The Foundations of Corporate Social Responsibility, which was recently made publicly available on SSRN, we examine the forces that fundamentally steer companies to behave as good citizens in society.


Bleeders and Leaders: Redefining the 2014 M&A Banking Market

The following post comes to us from Kamal Mustafa, Chairman and CEO of Invictus Consulting Group, and is based on an Invictus white paper by Mr. Mustafa, Malcolm Clark, and Roderick Guerin.

Many factors drive banks toward acquisitions, including increasing efficiency due to size, loan/deposit growth opportunities, or expansion of geographical footprints. However, one consideration is always dominant—improving return on investment, or ROI. Whether short, intermediate, or long-term, ROI is the most critical factor in the M&A decision.

Prior to the recession, bank M&A had settled into a well-established, time-proven approach. Bank management established targets and criteria, while investment bankers, lawyers, and accountants facilitated the M&A structure and process, weighing tax and accounting issues. Accretive to earnings gained acceptance as one of the primary justifications for a transaction.


Merger Negotiations with Stock Market Feedback

The following post comes to us from Sandra Betton of the Department of Finance at Concordia University; B. Espen Eckbo, Professor of Finance at Dartmouth College; Rex Thompson, Professor of Finance at Southern Methodist University; and Karin Thorburn, Professor of Finance at the Norwegian School of Economics.

In our paper, Merger Negotiations with Stock Market Feedback, forthcoming in the Journal of Finance, we investigate whether pre-bid target stock price runups increase bidder takeover costs—an issue of first-order importance for the efficiency of the takeover mechanism. We base our predictions on a simple model with rational market participants and synergistic takeovers. Takeover signals (rumors) received by the market cause market anticipation of deal synergies that drive stock price runups. The model delivers the equilibrium pricing relation between the runup and the subsequent offer price markup (the surprise effect of the bid announcement) that should exist in a sample of observed bids.


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