Andrew G. Gordon, Jaren Janghorbani, and Ross A. Fieldston are partners at Paul, Weiss, Rifkind, Wharton & Garrison LLP. This post is based on a Paul, Weiss publication by Mr. Gordon, Ms. Janghorbani, Mr. Fieldston, Matthew W. Abbott, Scott A. Barshay, and Robert B. Schumer. This post is part of the Delaware law series; links to other posts in the series are available here.
Recently in Arkansas Teacher Retirement System v. Alon USA Energy, Inc., the Delaware Court of Chancery (in an opinion by Vice Chancellor McCormick) held, on a motion to dismiss, that Delek US Holdings, Inc.’s acquisition of Alon may have violated Section 203 of the Delaware General Corporation Law, Delaware’s anti-takeover statute. The Alon board had exempted Delek from Section 203’s restrictions on business combinations, subject to a standstill provision. However, Delek later allegedly breached the standstill provision, and the court ruled that the breach may have “vitiated the Alon board’s Section 203 approval and restored the protections of Section 203.” The court further ruled that Alon stockholders had standing to directly enforce the standstill as third party beneficiaries. Finally, the court ruled that the merger was not entitled to business judgement review because the parties negotiated substantive deal terms before committing to use the procedural protections required by Kahn v. M&F Worldwide Corp. in controlling stockholder transactions, among other things.
The Alon decision recounts allegations of a less-than-pristine process for negotiating a controlling stockholder merger, as well as what the court characterized as “creative” theories of the stockholder-plaintiff in challenging that process, especially regarding Section 203 of the DGCL. Due to the high stakes involved in controlling stockholder mergers, the opinion serves as an important reminder of the types of process issues (whether real or only alleged) of which merger parties and their counsel should be mindful, and of the willingness of Delaware courts to hold parties to terms to which they have agreed.
Comment Letter Regarding Earnings Releases and Quarterly Reports
More from: Ariel Babcock, Sarah Keohane Williamson, FCLTGlobal
Ariel Fromer Babcock is Managing Director and Sarah Keohane Williamson is the Chief Executive Officer of FCLTGlobal. This post is based on a comment letter submitted by FCLTGlobal to the Securities and Exchange Commission. Related research from the Program on Corporate Governance includes The Myth that Insulating Boards Serves Long-Term Value by Lucian Bebchuk (discussed on the Forum here); The Uneasy Case for Favoring Long-Term Shareholders by Jesse Fried (discussed on the Forum here); and Can We Do Better by Ordinary Investors? A Pragmatic Reaction to the Dueling Ideological Mythologists of Corporate Law by Leo E. Strine (discussed on the Forum here).
By some accounts, public markets are out of fashion.
Detractors point to the long-term trend towards fewer initial public offerings (IPOs) in developed economies, especially the U.S., and the growth of private pools of capital over the past decade, which has largely deprived retail investors of the most significant growth investment opportunities of the past decade. But public markets continue to be essential to wealth creation, innovation and capital stability, and ensuring they remain an attractive venue is essential to our economic growth.
Investment managers and executive teams too often cite quarterly reporting and quarterly earnings guidance as a key source of short-term pressure in the public market and a principal reason many companies opt not to list.
Transitioning away from the quarterly treadmill toward conversations centered on long term capital deployment and growth can simplify investor communications and reduce the reporting burden on corporations while simultaneously strengthening companies’ longer-term shareholder bases by giving investors the relevant information they need to make their investment decisions in a format that is digestible while also alleviating one source of short-term pressure, improving the accuracy of valuations, and ensuring public markets remain a compelling option for growing corporations in need of stable capital.
Quarterly guidance leads to short-term business decisions which ultimately cause long-term harm.
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