Monthly Archives: January 2017

Weekly Roundup: January 20, 2016–January 26, 2017

Posted by HLS Forum on Corporate Governance and Financial Regulation, on
Friday, January 27, 2017

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This roundup contains a collection of the posts published on the Forum during the week of January 20, 2016–January 26, 2017.

Why Do Managers Fight Shareholder Proposals? Evidence from No-Action Letter Decisions

Posted by John G. Matsusaka, University of Southern California, on Friday, January 20, 2017
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Bridging the Data Gap through Shareholder Engagement

Posted by Yannick Ouaknine, Société Générale S.A., on Friday, January 20, 2017
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FINRA’s Most Significant 2016 Enforcement Actions

Posted by Jon Eisenberg and Michael T. Dyson, K&L Gates LLP, on Saturday, January 21, 2017
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Top 10 Topics for Directors in 2017

Posted by Kerry E. Berchem and Rick L. Burdick, Akin Gump Strauss Hauer & Feld LLP, on Sunday, January 22, 2017
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Mutual Funds As Venture Capitalists? Evidence from Unicorns

Posted by Yao Zeng, University of Washington, on Monday, January 23, 2017
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“Fair Value” to be Determined by Merger Price—Merion v. Lender Processing

Posted by Gail Weinstein and Scott B. Luftglass, Fried, Frank, Harris, Shriver & Jacobson LLP, on Monday, January 23, 2017
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Broadening the Boardroom

Posted by Emmet McNamee, Glass, Lewis & Co., LLC, on Monday, January 23, 2017
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Delaware Supreme Court Reverses El-Paso MLP Judgement On Standing Grounds

Posted by Michael Holmes and Craig Zieminski, Vinson & Elkins LLP, on Tuesday, January 24, 2017
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2016 Year in Review: Securities Litigation and Regulation

Posted by Jason M. Halper, Cadwalader, Wickersham & Taft LLP, on Tuesday, January 24, 2017
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Bebchuk Leads SSRN’s 2016 Citation Rankings

Posted by Kobi Kastiel, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Tuesday, January 24, 2017
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Do Director Elections Matter?

Posted by Vyacheslav Fos, Boston College, on Wednesday, January 25, 2017
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Trends In Public-Target Mergers: Takeaways From ABA Study

Posted by Claudia K. Simon, Schulte Roth & Zabel LLP, on Wednesday, January 25, 2017
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White Collar and Regulatory Enforcement: What to Expect in 2017

Posted by John F. Savarese, Wachtell, Lipton, Rosen & Katz, on Wednesday, January 25, 2017
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Solera Underscores (Again) Difficulties of Challenging a Transaction Approved by Disinterested Stockholders

Posted by Gail Weinstein and Matthew V. Soran, Fried, Frank, Harris, Shriver & Jacobson LLP, on Thursday, January 26, 2017
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Financial Regulatory Reform in the Trump Administration

Posted by Matthew Dyckman, Goodwin Procter LLP, on Thursday, January 26, 2017
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Dealing with Activist Hedge Funds and Other Activist Investors

Posted by Martin Lipton, Wachtell, Lipton, Rosen & Katz, on Thursday, January 26, 2017
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Dealing with Activist Hedge Funds and Other Activist Investors

Posted by Martin Lipton, Wachtell, Lipton, Rosen & Katz, on
Thursday, January 26, 2017
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Martin Lipton is a founding partner of Wachtell, Lipton, Rosen & Katz, specializing in mergers and acquisitions and matters affecting corporate policy and strategy. This post is based on a Wachtell Lipton memorandum by Mr. Lipton, Steven A. Rosenblum, Karessa L. Cain, Sabastian V. Niles, and Sara J. Lewis. Additional posts by Martin Lipton on short-termism and corporate governance are available here. Related research from the Program on Corporate Governance includes The Long-Term Effects of Hedge Fund Activism by Lucian Bebchuk, Alon Brav, and Wei Jiang (discussed on the Forum here); The Law and Economics of Blockholder Disclosure by Lucian Bebchuk and Robert J. Jackson Jr. (discussed on the Forum here); and Pre-Disclosure Accumulations by Activist Investors: Evidence and Policy by Lucian Bebchuk, Alon Brav, Robert J. Jackson Jr., and Wei Jiang.

Significant developments during the past twelve months have prompted this new edition of our annual Dealing with Activist Hedge Funds.

Regardless of industry, size or performance, no company should consider itself immune from hedge fund activism. No company is too large, too popular, too new or too successful. Even companies that are respected industry leaders and have outperformed the market and their peers have come under fire.

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Financial Regulatory Reform in the Trump Administration

Posted by Matthew Dyckman, Goodwin Procter LLP, on
Thursday, January 26, 2017
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Matt Dyckman is counsel at Goodwin Procter LLP. This post is based on a Goodwin Procter publication by Mr. Dyckman. Additional posts addressing legal and financial implications of the incoming Trump administration are available here.

[T]here is considerable speculation regarding what legal changes are in store for the financial services industry in the [Trump] administration. During his campaign, President Trump consistently emphasized that financial regulatory reform is a critical component of his plan to increase economic growth and create jobs. He has expressly stated that his team would be working to “dismantle the Dodd-Frank Act and replace it with new policies to encourage economic growth and job creation.” Similarly, Treasury Secretary nominee Steven Mnuchin has said that the new administration wants to “strip back part of Dodd-Frank” and that such a rollback would be the administration’s “number one priority on the regulatory side.” But while financial regulatory reform is widely expected to be a priority in a Trump administration, few concrete proposals have been put forward. In order to anticipate the types of reform proposals that may emerge in the coming months, it may be useful to revisit recent proposals that have garnered widespread Republican support, but were never enacted. One such proposal, the Financial CHOICE Act (the CHOICE Act), passed the House Financial Services Committee on September 13, 2016, and was amended on December 20, 2016.

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Solera Underscores (Again) Difficulties of Challenging a Transaction Approved by Disinterested Stockholders

Posted by Gail Weinstein and Matthew V. Soran, Fried, Frank, Harris, Shriver & Jacobson LLP, on
Thursday, January 26, 2017
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Matthew V. Soran is partner and Gail Weinstein is senior counsel at Fried, Frank, Harris, Shriver & Jacobson LLP. This post is based on a Fried Frank memorandum by Mr. Soran, Ms. Weinstein, Robert C. Schwenkel, Andrew J. Colosimo, Mark H. Lucas, and Scott B. Luftglass. This post is part of the Delaware law series; links to other posts in the series are available here.

In Solera Stockholders Litigation (Jan. 5, 2017), a former stockholder of Solera Holdings, Inc. sought post-closing damages in connection with the acquisition of Solera by Vista Equity Partners, a private equity firm, in a $3.7 billion merger. The plaintiff in effect alleged that the Solera directors, in violation of their Revlon duties, had concentrated on private equity buyers rather than strategic buyers, had favored Vista over the other bidders, and had created a conflict of interest (which was not disclosed to stockholders) by shifting the company’s bonus programs that incentivized long-term growth of the company to a short-term retention program that incentivized management to sell the company.

The decision follows an increasingly familiar template. Based on the landmark 2015 Corwin decision, Chancellor Bouchard:

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White Collar and Regulatory Enforcement: What to Expect in 2017

Posted by John F. Savarese, Wachtell, Lipton, Rosen & Katz, on
Wednesday, January 25, 2017
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John F. Savarese is a partner at Wachtell, Lipton, Rosen & Katz. This post is based on a Wachtell Lipton publication by Mr. Savarese. Additional posts addressing legal and financial implications of the incoming Trump administration are available here.

As in so many areas of public policy, it is very difficult, if not impossible, at the moment to provide any reliable prediction of how the new Administration may change white collar and regulatory enforcement priorities, policies or practices. What is certain is that things will change. But where and how will those changes come?

Neither Attorney General-designate Jeff Sessions nor President Donald Trump has offered any significant insight into their thinking in this important area, (although Sessions did suggest at his confirmation hearings that perhaps corporate officers who engaged in wrongdoing should be subjected to more severe punishment than the company itself).

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Trends In Public-Target Mergers: Takeaways From ABA Study

Posted by Claudia K. Simon, Schulte Roth & Zabel LLP, on
Wednesday, January 25, 2017
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Claudia K. Simon is a partner at Schulte Roth & Zabel LLP. This post is based on a Schulte Roth publication which originally appeared on Law360, and is available here.

The M&A Market Trends Subcommittee of the Mergers & Acquisitions Committee of the American Bar Association’s Business Law Section recently released its annual Strategic Buyer/Public Target Deal Points Study. The study (available here) covers numerous commonly negotiated deal points in acquisition agreements of U.S. public targets by strategic buyers for transactions announced in 2015. As the chairwoman of this project, I had the pleasure of working with a group of experienced mergers and acquisitions lawyers from several major law firms. The attorneys in the working group helped compile the raw data underlying the study’s results. We aimed to provide a thorough study for M&A practitioners who are trying to determine what’s market in deals involving acquisitions of U.S. public targets. Thanks to the working group’s efforts, over the past 13 months we have doubled the number of data points covered by the study.

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Do Director Elections Matter?

Posted by Vyacheslav Fos, Boston College, on
Wednesday, January 25, 2017
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Vyacheslav Fos is Assistant Professor of Finance at Boston College Carroll School of Management. This post is based on a recent paper authored by Professor Fos; Kai Li, W.M. Young Chair in Finance and Professor at the University of British Columbia Sauder School of Business; and Margarita Tsoutsoura, Associate Professor of Finance and Charles E. Merrill Scholar at the University of Chicago Booth School of Business. Related research from the Program on Corporate Governance includes The Costs of Entrenched Boards by Lucian Bebchuk and Alma Cohen; and How Do Staggered Boards Affect Shareholder Value? Evidence from a Natural Experiment by Alma Cohen and Charles C. Y. Wang.

Modern corporations are characterized by the separation of ownership and control. Members of a corporate board are tasked to monitor managers. For board governance to be effective, shareholders must have a mechanism for disciplining directors. The shareholders’ right to elect directors is therefore a fundamental feature of corporate governance. Despite that feature’s importance, evidence that director elections matter in aligning directors’ incentives with those of shareholders is limited.

In our new research, Do Director Elections Matter?, we aim to isolate the role of the director election process in aligning directors’ incentives with those of shareholders by introducing a novel measure of director proximity to elections—Years-to-election—and thereby examine whether and how director elections matter, using CEO turnover as our focal corporate event. Our new measure is motivated by the political business cycle literature (e.g., Rogoff and Sibert, 1988; Alesina and Paradisi, 2015) and allows us to capture how electoral incentives affect director decisions. For each director-year, Years-to-election is the average number of years from a given year to the next election across all of a director’s board seats.

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Bebchuk Leads SSRN’s 2016 Citation Rankings

Posted by Kobi Kastiel, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on
Tuesday, January 24, 2017
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Statistics released publicly by the Social Science Research Network (SSRN) indicate that, as of the end of 2016, Professor Lucian Bebchuk continued to lead SSRN citation rankings for law professors. Bebchuk ranked first among all law school professors in all fields in terms of the total number of citations to his work (as well as third in the total number of downloads of his work on SSRN). Bebchuk has led the SSRN citation rankings for law professors at the end of each of the preceding nine years.

Professor Bebchuk’s works (available on his SSRN page here) have attracted a total of 4,413 citations. His top ten studies in terms of citations are as follows:

Bebchuk also ranks high in terms of downloads of his work. In this respect, as of the end of 2016, he ranked eighth among more than 300,000 authors whose work is available on SSRN. The aggregate number of downloads of his studies available on SSRN at the time was close to 250,000.

SSRN is the leading electronic service for social science research, and its electronic library contains (as of January 2017) 597,994 full-text documents by 327,576 authors. SSRN’s rankings in terms of citations and in terms of downloads are available here and here (sign in is required for the full list).

2016 Year in Review: Securities Litigation and Regulation

Posted by Jason M. Halper, Cadwalader, Wickersham & Taft LLP, on
Tuesday, January 24, 2017
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Jason M. Halper is partner and Co-Chair of the Global Litigation Group at Cadwalader, Wickersham & Taft LLP. This post is based on a Cadwalader publication by Mr. Halper, Nathan Bull, Jared Stanisci, Adam Magid, Alejandra Contreras, and Hyungjoo Han.

2016 was an active year in securities litigation. In the first half of 2016 alone, plaintiffs filed 119 new federal class action securities cases. It was also a busy year for SEC enforcement proceedings, with a record 868 cases filed, 548 of which were independent enforcement actions (as opposed to follow-up actions or cases based on delinquent regulatory filings). This continued the trend of growth in SEC enforcement activity, as independent actions have increased by nearly 61% since 2013. Amid this activity, there were a number of important legal and regulatory developments, including in the following areas:

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Delaware Supreme Court Reverses El-Paso MLP Judgement On Standing Grounds

Posted by Michael Holmes and Craig Zieminski, Vinson & Elkins LLP, on
Tuesday, January 24, 2017
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Michael Holmes and Craig Zieminski are partners at Vinson & Elkins LLP. This post is based on a Vinson & Elkins publication by Mr. Holmes, Mr. Zieminski, and Megan Coker, and is part of the Delaware law series; links to other posts in the series are available here.

The Delaware Supreme Court recently reversed a $171 million damages award in El Paso Pipeline GP Co., L.L.C. v. Brinckerhoff, ___ A.3d ___, 2016 WL 7380418 (Del. Dec. 20, 2016) (en banc), concluding that an MLP unitholder plaintiff lacked standing to pursue a derivative claim that an MLP overpaid for assets it acquired from its parent in a dropdown transaction.

The Court reasoned as follows:

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