Monthly Archives: April 2014

SEC Upholds Rule 14a-8’s One-Year Holding Period for Newly-Public Company

The following post comes to us from Bradley P. Goldberg, Counsel in the Corporate Department and member of the Public Company Advisory Practice at Simpson Thacher & Bartlett LLP, and is based on a Simpson Thacher memorandum by Mr. Goldberg and Yafit Cohn.

On March 10, 2014, in a no-action letter to SeaWorld Entertainment, Inc. (the “Company”), the Securities and Exchange Commission (“SEC”) signaled its position that shareholders seeking to submit proposals for inclusion in the proxy materials of newly-public companies are not exempt from the requirement in Rule 14a-8(b)(1) that proponents must hold the requisite amount of stock in the company for at least one year by the date on which they have submitted their proposal.

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Spin-Off Guide

The following post comes to us from Gregory E. Ostling, partner in the Corporate Department at Wachtell, Lipton, Rosen & Katz, and is based on the introduction to a Wachtell Lipton memorandum by Mr. Ostling, Deborah L. Paul, Nelson O. Fitts, and Jeremy L. Goldstein; the complete publication, including annexes, is available here.

A spin-off involves the separation of a company’s businesses through the creation of one or more separate, publicly traded companies. Spin-offs have been popular because many investors, boards and managers believe that certain businesses may command higher valuations if owned and managed separately, rather than as part of the same enterprise. An added benefit is that a spin-off can often be accomplished in a manner that is tax-free to both the existing public company (referred to as the parent) and its shareholders. Moreover, recently, robust debt markets have enabled companies to lock in low borrowing costs for the business being separated and monetize a portion of its value. For example, in connection with its $55 billion spin-off from Abbott Laboratories in 2012, AbbVie conducted a $14.7 billion bond offering, which at the time was the largest ever investment-grade corporate bond deal in the United States, at a weighted average interest rate of approximately two percent. Other notable recent spin-offs include ConocoPhillips’ spin-off of its refining and marketing business, Penn National Gaming’s spin-off of its real estate assets into the first-ever casino REIT, Sears Holding Corporation’s planned spin-off of Lands’ End, FMC’s planned spin-off of its minerals division, Rayonier’s planned spin-off of its performance fibers division, Simon Property’s spin-off of its strip center business and smaller enclosed malls into a REIT, and Darden’s planned spin-off of Red Lobster. There were 201 spin-offs announced in 2013 and 176 in 2012, with an aggregate value of $33 billion and $41 billion, respectively.

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Corporate Scandals and Household Stock Market Participation

The following post comes to us from Mariassunta Giannetti, Professor of Finance at the Stockholm School of Economics, and Tracy Yue Wang of the Department of Finance at the University of Minnesota.

Corporate scandals have large negative effects on the value of the firms that are discovered having committed fraud (Karpoff, Lee, and Martin, 2008; Dyck, Morse, and Zingales, 2013). Besides inflicting direct losses to shareholders, corporate fraud may also have indirect effects on households’ willingness to participate in the stock market, which may generate even larger losses by increasing the cost of capital for other firms. Evidence of the externalities generated by corporate fraud, however, is quite limited.

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