Monthly Archives: March 2016

Cross-Ownership by Institutional Investors

Barry A. Nigro Jr., is a partner in the Antitrust and Competition and Corporate Practices and chair of the Antitrust Department at Fried, Frank, Harris, Shriver & Jacobson LLP. This post is based on a Fried Frank publication by Mr. Nigro, Nathaniel L. Asker, and Matthew E. Joseph.

On Capitol Hill last week, the Assistant Attorney General for the Antitrust Division of the Department of Justice, William J. Baer, confirmed that the DOJ is investigating potential antitrust issues arising from investors’ “cross-ownership,” or minority shareholdings, in firms that compete against each other in concentrated industries. Baer’s statement follows two recent academic papers suggesting that institutional investors’ minority interests in major U.S. airlines may reduce competition among the carriers. Baer told a Senate subcommittee that the DOJ is investigating cross-ownership “in more than one industry,” and press reports indicate that the airlines industry is one of these. [1] Notably, Baer acknowledged that it was unclear whether cross-ownership alone would violate the existing antitrust laws, absent evidence of collusion. [2]


Mergers and Acquisitions: Law, Theory, and Practice

Steven Davidoff Solomon is a Professor of Law at UC Berkeley School of Law. The following post is based on a textbook written by Professor Davidoff Solomon; Claire Hill, Professor of Law at the University of Minnesota School of Law; and Brian Quinn, Associate Professor of Law at Boston College.

In our recently released textbook Mergers and Acquisitions: Law, Theory, and Practice we aim to change the way that transactional law is taught in U.S. law schools by immersing students in a deal environment.

We wrote this book with the intent of teaching students not just the law and theory behind mergers and acquisitions, but the practice of the art itself. Being an M&A practitioner or litigator requires not only a knowledge of the law—the statutes, cases, and regulations—but also the documentation and the practices within the transacting community. The textbook can also serve as a treatise—outlining and documenting the current state of M&A law and practice. It is therefore useful not just for students but also for practitioners and academics.


2016 Amendments to the DGCL

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; links to other posts in the series are available here.

Legislation proposing to amend the General Corporation Law of the State of Delaware (the “DGCL”) has been released by the Corporate Council of the Corporation Law Section of the Delaware State Bar Association and, if approved by the Corporation Law Section, is expected to be introduced to the Delaware General Assembly. If the amendments become effective, they would result in several changes to the DGCL. Among other things, the proposed amendments would clarify the requirements and procedures relating to so-called “intermediate-form” mergers under Section 251(h) of the DGCL and would make several changes to Section 262 of the DGCL, which governs appraisal rights, to dispense with certain de minimis appraisal claims and to give parties an opportunity to make pre-judgment payments to appraisal claimants to limit the amount of interest that would otherwise accrue on an appraisal award. READ MORE »

Rethinking Corporate Governance for a Bondholder Financed, Systemically Risky World

Steven L. Schwarcz is the Stanley A. Star Professor of Law & Business at Duke University School of Law. This post is based on an article by Professor Schwarcz, available here.

In Rethinking Corporate Governance for a Bondholder Financed, Systemically Risky World, I re-envision, for systemically important firms, the shareholder-primacy model of corporate governance. The Federal Reserve recently acknowledged that shareholder primacy lacks sufficient incentives for those firms to take precautions against their own failures. I argue that including bondholders in their governance not only could help to reduce systemic risk but also is merited by crucial changes in the bond markets.


Supervising Large, Complex Financial Institutions

William C. Dudley is President and Chief Executive Officer of the Federal Reserve Bank of New York. This post is based on a speech by Mr. Dudley’s Opening Remarks at the Federal Reserve Bank of New York’s recent conference on Supervising Large, Complex Financial Institutions: Defining Objectives and Measuring Effectiveness. The views expressed in this post are those of Mr. Dudley and do not necessarily reflect those of the Federal Open Market Committee or the Federal Reserve System.

Welcome. It is great to see all of you here today to discuss the objectives and measurement of supervision for large, complex financial institutions.

Nearly eight years have passed since the financial crisis hit, pushing the financial system and the U.S. economy to the brink, and leaving scars that are still evident today. The hardships of the financial crisis are unfortunately still open wounds for too many people, especially those who lost their jobs, homes or businesses, or those who struggled with the sharp fall in value of their homes and with staying current on their debts and bills. Understanding what went wrong and how to avoid severe financial crises in the future is, I am sure, an issue foremost in the minds of all the distinguished speakers here today, and I am no exception. Before continuing, let me indicate that what I have to say today reflects my own views and not necessarily those of the Federal Open Market Committee or the Federal Reserve System. [1]


The Inside Counsel Revolution

Ben W. Heineman, Jr. is a former GE senior vice president for law and public affairs and a senior fellow at Harvard University’s schools of law and government. This post is based on an article that first appeared in Corporate Counsel magazine and is an excerpt from Mr. Heineman’s new book, The Inside Counsel Revolution: Resolving the Partner-Guardian Tension.

The practical ideal of the modern general counsel is a lawyer-statesperson who is an outstanding technical expert, a wise counselor and an effective leader, and who has a major role assisting the corporation achieve the fundamental goal of global capitalism: the fusion of high performance with high integrity and sound risk management. For the lawyer-statesperson, the first question is: “Is it legal?” But the ultimate question is: “Is it right?”

This vision of the general counsel has been a critical element of the inside counsel revolution that began in the late 1970s and that has increased in scope and power ever since. Working with the CEO and other senior executives, the GC must forge an unbreakable bond between performance, integrity and risk on a set of foundational corporate issues: business strategy, culture, compliance, ethics, risk, governance, citizenship and organization. In so doing, the GC must help create the trust in the enterprise that is so vital to its sustainability and durability: trust among employees, shareholders, creditors, customers, partners, suppliers, regulators, media, NGOs and the public. To carry out this challenging role, the GC must resolve the most basic problem confronting inside lawyers: being partner to the board of directors, the CEO and business leaders but ultimately being guardian of the corporation.


Compensation Committee Guide

Michael J. Segal is senior partner in the Executive Compensation and Benefits Department of Wachtell, Lipton, Rosen & Katz. This post is based on the introduction to a Wachtell Lipton publication by Mr. Segal, Jeannemarie O’BrienAdam J. ShapiroAndrea K. Wahlquist, and David E. Kahan. The complete publication is available here.

The past year has been marked by a continued focus by shareholders and investor groups on executive compensation, and a related continued need for compensation committees to proactively manage their companies’ communications with shareholders and proxy advisory firms—both in the context of the nonbinding, advisory “say-on-pay” votes required by Dodd-Frank and also as preemptive actions against possible shareholder activists seeking the means by which to challenge board composition. 2015 also witnessed finalization by the U.S. Securities and Exchange Commission (the “SEC”) of the long-awaited pay ratio disclosure rules, and continued action from the plaintiffs’ bar challenging compensation decisions.


Nordic Corporate Governance and Concentrated Ownership

Klaus Ilmonen is Partner and head of the Capital Markets practice at the Helsinki office of Hannes Snellman. This post is based on an article authored by Mr. Ilmonen.

The corporate governance implications of concentrated ownership have become topical with the success of companies with large controlling shareholders, such as Facebook, Google and Amazon. The debate on the perceived short-termism related to dispersed ownership has also increased interest in governance models based on monitoring by large shareholders. As a result, Nordic corporate governance models have been subject to increasing interest in the international corporate governance debate. The Nordic corporate environment has generally been characterized by a prevalence of concentrated ownership and by the use of control enhancing mechanisms by large shareholders. Yet private benefits of control extracted by controlling shareholders have been reported to be relatively low. This combination has been seen to reflect a competitive governance model.


Can Falling Interest Rates Increase a Company’s Financing Costs?

Meyer C. Dworkin is a partner in the Corporate Department at Davis Polk & Wardwell LLP. This post is based on a Davis Polk publication by Mr. Dworkin, James A. Florack, Joseph P. Hadley, Jason Kyrwood, Michele Babkine, and Michael Fan.

A company that borrows or issues floating-rate debt—debt with an interest rate that periodically resets based on an underlying index (typically LIBOR or EURIBOR)—will often hedge the risk of an increase in the floating rate by entering into an interest rate swap agreement (“IRS”). Under an IRS, such a borrower or issuer—the “fixed-rate payer”—agrees to pay periodic “fixed amounts” to its swap counterparty based on an agreed “fixed rate,” in exchange for the payment of periodic “floating amounts” by the swap counterparty—the “floating-rate payer”—based on a “floating rate” equal to the underlying index of the debt instrument the borrower or issuer is seeking to hedge.


2016 Spin-Off Guide

Gregory E. Ostling is a partner in the Corporate Department at Wachtell, Lipton, Rosen & Katz. This post is based on the introduction to a Wachtell Lipton publication. 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, in recent years, companies have been able to tap the debt markets 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 Penn National Gaming’s spin-off of its real estate assets into the first-ever casino REIT, Energizer’s spin-off of its household products business, Gannett’s spin-off of its publishing business, DuPont’s spin-off of its performance chemicals business, eBay’s spin-off of PayPal, Baxter’s spin-off of its biopharmaceuticals business, HP’s separation of its PC and printer business and its enterprise business, W.R. Grace’s separation of its construction products and packaging technologies businesses and its catalyst technologies and engineered materials businesses, and Yum Brands’ planned spin-off of its China business. The volume of spin-offs in 2015 was a record-setting $257 billion.


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