Monthly Archives: August 2017

The Delaware Supreme Court Speaks to Market Evidence in Appraisal: DFC

Theodore N. Mirvis is a partner in the Litigation Department at Wachtell, Lipton, Rosen & Katz. This post is based on a publication by Mr. Mirvis, William Savitt, Ryan A. McLeod, and Nicholas Walter. This post is part of the Delaware law series; links to other posts in the series are available here.

The Delaware Supreme Court’s ruling this week in DFC is its first significant statement on the role of market evidence in appraisal “fair value” determinations in seven years. The wide-ranging and thorough opinion marks a robust affirmation of the primacy of real-world evidence in determining fair value. DFC Global Corp. v. Muirfield Value Partners, L.P., No. 518, 2016 (Del. Aug. 1, 2017).

The New Market Manipulation

Tom C.W. Lin is Professor of Law at the Temple University Beasley School of Law. This post is based on a recent article by Professor Lin.

Financial markets face a new and daunting high-tech mode of manipulation. With this new mode of market manipulation, millions of dollars can vanish in seconds, rogue actors can halt the trading of billion-dollar companies, and trillion-dollar financial markets can be distorted with a simple click or a few lines of code. Almost every investor and institution is at risk. This is the new precarious reality of our financial markets.

In my recent article, The New Market Manipulation, I examine this new, perilous financial reality, the emerging high-tech mode of new market manipulation, and the need for better pragmatic policies to address the rising technological threats to manipulate our financial markets. The article offers an original, early examination of the new high-tech forms of market distortions that it calls cybernetic market manipulation, explains the critical consequences of these dangerously disruptive actions on the marketplace, and proposes sensible policies to better protect investors and safeguard the financial system.


Snap Decision: Leading Index Providers Nix Multi-Class Shares

Joseph A. Hall and Michael Kaplan are partners at Davis Polk & Wardwell LLP. This post is based on a Davis Polk publication by Mr. Hall, Mr. Kaplan, Alan F. Denenberg, Sophia Hudson, Byron B. Rooney, and Richard D. Truesdell, Jr. Related research from the Program on Corporate Governance includes The Untenable Case for Perpetual Dual-Class Stock by Lucian Bebchuk and Kobi Kastiel (discussed on the Forum here).

Changes Respond to Snap Controversy But Would Hit Many Other Public Companies

The Snap, Inc. IPO in March 2017 was the first in which only non-voting shares were offered to the public. In response, the Council of Institutional Investors and others lobbied the major index providers to bar non-voting shares from their indices, arguing that absent this change passive investors such as index funds would be forced to invest in non-voting shares that erode public company governance. In turn, global index providers S&P Dow Jones Indices, MSCI and FTSE Russell initiated market consultations to determine whether to revise their policies. S&P Dow Jones and FTSE Russell recently announced plans to revise their index eligibility rules. MSCI’s consultation remains open until August 31, 2017.


Delaware Court of Chancery Holds Controller Transaction Satisfies Entire Fairness and Issues Appraisal Award Below Deal Price

William Savitt and Ryan A. McLeod are partners at Wachtell, Lipton, Rosen & Katz. This post is based on a Wachtell Lipton firm memorandum by Mr. Savitt and Mr. McLeod. This post is part of the Delaware law series; links to other posts in the series are available here.

The Delaware Court of Chancery recently issued a post-trial opinion holding that a controller cash-out merger was “entirely fair” and appraised for a value less than half of the deal price. ACP Master, Ltd. v. Sprint Corp. C.A. No. 8508-VCL (Del. Ch. Jul. 21, 2017).

The case concerns the 2013 buyout of Clearwire by its majority stockholder, Sprint. The acquisition was part of a larger effort by Softbank to enter the U.S. cellular market, and it occurred in tandem with Softbank’s acquisition of majority control of Sprint. Sprint and Clearwire initially agreed to a buyout price of $2.97 per share, but stockholders reacted negatively to the announcement and a third party proposed a series of increasing topping bids. The bidding war concluded when Sprint agreed to raise its offer to $5.00 per share and the Clearwire committee agreed to terminate discussions with the third party. A hedge fund took a position in the stock and filed suit, alleging that the deal was the product of fiduciary breaches and arguing that the stock was worth over $16.00 per share.


Managerial Myopia and the Mortgage Meltdown

Adam C. Kolasinski is Associate Professor of Finance at Texas A&M University Mays Business School. This post is based on a recent article, forthcoming in the Journal of Finance Economics, by Professor Kolasinski and Nan Yang, Assistant Professor of Finance at Hong Kong Polytechnic University.

In a new study forthcoming in the Journal of Finance Economics, we present evidence that financial firm CEOs’ incentives for short-term focus played an important role in the subprime crisis of 2007-2009. Prominent policy makers and opinion leaders have asserted that incentives for managerial myopia were important drivers of the crisis. For example, the Financial Crisis Inquiry Commission Report of 2011 asserts the following:


Delaware Update

This post is based on a Fried Frank publication by Andrea Gede-LangeRandi LallyMark H. LucasDavid L. ShawMatthew V. Soran, and Gail Weinstein. This post is part of the Delaware law series; links to other posts in the series are available here.

Court held claims asserted against directors before the company was acquired by a third party were extinguished in the acquisition—Massey Energy Co. Litigation (May 4, 2017)

The former stockholder-plaintiffs asserted “Caremark-type” claims that the Massey Energy directors had failed to exert proper oversight over the company’s operations, resulting in a mining explosion that claimed numerous lives, which then led to the company’s sale. The court found, consistent with long-established law, that these “otherwise valid” Caremark-type claims of breach of the directors’ oversight duty, made before Massey merged with a third party acquiror, “passed” to the acquiror in the merger. The plaintiffs therefore could no longer satisfy the requirement that they had “continuously owned” the claims and, thus, they could no longer bring them. The court rejected the plaintiffs’ contentions that they qualified for an exception to the continuous ownership rule based on the merger having been effected (a) for the purpose of depriving stockholders of standing to bring a derivative action or (b) as a mere reorganization which did not affect the plaintiffs’ ownership interest in the business. The court also rejected the plaintiffs’ argument that they could bring “inseparable fraud” claims.


Deals Mid-Year Review and Outlook

Bob Saada and Neil Dhar are partners at PricewaterhouseCoopers LLP. This post is based on a PwC publication by Mr. Saada and Mr. Dhar.

So far, 2017 isn’t quite the year many deal forecasters were expecting. But at the midway point, it looks on track for a finish that won’t leave dealmakers gritting their teeth.

A deals market that had a bullish start in 2017—anticipating what a new, business-friendly government administration might do—has calmed along with the stock market. But deal volumes are up over 2016, suggesting the fundamentals are in good shape.

Businesses appear to be giving a vote of confidence to an economy growing steadily, if not spectacularly. They’re still striking deals and taking long-term opportunities. They’re getting on with growth and likely won’t be knocked off their stride by turbulence in Washington. Indeed, the early thoughts of “we’ll see what happens” with new policies and regulations may be giving way to “we’ll believe it when we see it.”


Board Pay—Not Just a Public Company Concern

James F. Reda is a Managing Director at Arthur J. Gallagher & Co. This post is based on an Arthur J. Gallagher publication by Mr. Reda. Related research from the Program on Corporate Governance includes Paying for Long-Term Performance by Lucian Bebchuk and Jesse Fried (discussed on the Forum here); and The Growth of Executive Pay by Lucian Bebchuk and Yaniv Grinstein.

The pay levels and mechanisms for directors at public companies are well studied and benchmarked. Private and family-owned companies? Not so much. Indeed, board compensation norms for these non-public firms (which make up a huge segment of our economy) have long been very obscure. New research sheds light on the topic.

Private companies continue to struggle with how much to pay their outside board members given the shortage of available benchmarks and data. Unlike publicly traded companies, where detailed information about director compensation can be collected from an annual proxy statement and multiple survey sources, understanding pay at private boards requires further research and analysis.


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