Tag: Bidders

The Biases of an “Unbiased” Optional Takeover Regime

Marco Ventoruzzo is a comparative business law scholar with a joint appointment with the Pennsylvania State University, Dickinson School of Law and Bocconi University. This post is based on a recent article authored by Prof. Ventoruzzo and Johannes Fedderke, Professor of International Affairs at Pennsylvania State University School of International Affairs.

The conundrum of the perfect balance between mandatory and enabling rules and the role of private ordering in takeover regulation is one of the most relevant and interesting issues regarding the optimal regime for acquisitions of listed corporations. The issue is rife with complex questions and implications, both from a more technical legal perspective and in terms of public choice.

In a recent and compelling article (available here and published in the Harvard Business Law Review in 2014, and discussed on the Forum here), Luca Enriques, Ron Gilson and Alessio Pacces have argued the desirability of an optional, default regime to regulate takeovers particularly in the European Union. According to this approach, which the proponents call “unbiased,” listed corporations should be allowed to opt out of the default regime and use private ordering to tailor more desirable rules on the “pillars” of the European approach: mandatory bid, board neutrality, and breakthrough. More precisely, they suggest a dichotomy, distinguishing already listed corporations and new IPOs: for the former, the default regime should be the one currently in place; for the latter, a regime crafted against the interests of the existing incumbents should be introduced. With adequate protections and procedural rules, the theory goes, it would be easier to achieve a more efficient regulatory structure.


Delaware Supreme Court on Potential Financial Advisor Liability

Jason M. Halper is a partner in the Securities Litigation & Regulatory Enforcement Practice Group at Orrick, Herrington & Sutcliffe LLP. This post is based on an Orrick publication by Mr. Halper, Peter J. Rooney, and Gregory Beaman. This post is part of the Delaware law series; links to other posts in the series are available here.

In November 30, 2015, the Delaware Supreme Court issued a 107-page opinion affirming the Court of Chancery’s post-trial decisions in In re Rural/Metro Corp. Stockholders Litigation (previously discussed on the Forum here). In the lower court, Vice Chancellor Laster found a seller’s financial advisor (the “Financial Advisor”) liable in the amount of $76 million for aiding and abetting the Rural/Metro Corporation board’s breaches of fiduciary duty in connection with the company’s sale to private equity firm Warburg Pincus LLC. See RBC Capital Mkts., LLC v. Jervis, No. 140, 2015, slip op. (Del. Nov. 30, 2015).The Court’s decision reaffirms the importance of financial advisor independence and the courts’ exacting scrutiny of M&A advisors’ conflicts of interest. Significantly, however, the Court disagreed with Vice Chancellor Laster’s characterization of financial advisors as “gatekeepers” whose role is virtually on par with the board’s to appropriately determine the company’s value and chart an effective sales process. Instead, the Court found that the relationship between an advisor and the company or board primarily is contractual in nature and the contract, not a theoretical gatekeeping function, defines the scope of the advisor’s duties in the absence of undisclosed conflicts on the part of the advisor. In that regard, the Court stated: “Our holding is a narrow one that should not be read expansively to suggest that any failure on the part of a financial advisor to prevent directors from breaching their duty of care gives rise to” an aiding and abetting claim. In that (albeit limited) sense, the decision offers something of a silver lining to financial advisors in M&A transactions. Equally important, the decision underscores the limited value of employing a second financial advisor unless that advisor is paid on a non-contingent basis, does not seek to provide staple financing, and performs its own independent financial analysis.


The Long-Term Value of the Poison Pill

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, Daniel A. Neff, David A. Katz, Mark Gordon, and William Savitt. This post is part of the Delaware law series; links to other posts in the series are available hereRelated research from the Program on Corporate Governance about poison pills includes Toward a Constitutional Review of the Poison Pill by Lucian Bebchuk and Robert J. Jackson, Jr. (discussed on the Forum here), and  The Case Against Board Veto in Corporate Takeovers by Lucian Bebchuk.

Nearly six years ago, Air Products made an unsolicited all-cash bid to acquire Airgas for $60 per share (later increased to $70), to which the board of directors of Airgas said “no.” Based on the Airgas directors’ unanimous judgment—informed by months of thoughtful review and analysis—that Airgas was worth more than Air Products was offering, whether on a standalone basis or in the hands of another industry player, this “no” was made possible by bedrock principles of Delaware law. These principles recognize that it is the role of the board, and not raiders or short-term speculators, to determine whether and when a company should be sold, and authorize the use of appropriate measures—most notably, the poison pill—to ensure the board has the opportunity to perform this essential function.


Rural/Metro Decision: Aiding and Abetting Liability

Ariel J. Deckelbaum is a partner and deputy chair of the Corporate Department at Paul, Weiss, Rifkind, Wharton & Garrison LLP. This post is based on a Paul Weiss client memorandum by Mr. Deckelbaum, Ross A. FieldstonJustin G. Hamill, Stephen P. Lamb, and Jeffrey D. Marell. This post is part of the Delaware law series; links to other posts in the series are available here.

The Delaware Supreme Court has issued its much anticipated opinion in RBC Capital Markets v. Joanna Jervis, affirming all of the principal holdings of the Court of Chancery’s series of decisions in In re Rural/Metro Corp. S’holder Litig. The opinion speaks to a multitude of issues, but we focus on the breach of fiduciary duty and aiding and abetting liability claims in this post.


Role of Long-Term Shareholders in Hostile Takeovers

Andrew R. Brownstein is a partner in the corporate group at Wachtell, Lipton, Rosen & Katz. This post is based on a Wachtell Lipton memorandum by Mr. Brownstein, Igor Kirman, and Victor Goldfeld.

On Friday November 13, 2015, shareholders of Perrigo Company plc convincingly rejected Mylan N.V.’s hostile takeover attempt, with holders of over 60% of Perrigo’s shares refusing to tender into what was the largest hostile offer in history to go to the very end. The outcome demonstrates that a well-articulated strategy and proven record of performance, and concerns about the corporate governance of a bidder offering stock, resonate with long-term shareholders as against a premium bid of questionable merit, even in the absence of transaction alternatives.


2015 Canadian Hostile Take-Over Bid Study

The following post comes to us from Fasken Martineau DuMoulin LLP and is based on the executive summary of a Fasken Martineau study by Aaron J. Atkinson and Bradley A. Freelan, partners in the Mergers & Acquisitions practice at Fasken Martineau DuMoulin LLP. The complete publication is available here.

In Canada, there are numerous ways to acquire a public company; however, a take-over bid made directly to shareholders is the only means by which legal control can be acquired without the consent of the target board. Such an unsolicited (or “hostile”) bid is often used to bypass the board and present an offer directly to shareholders after discussions with the target board have failed, thereby putting the target company “in play”.


“Just Say No”

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 and Sabastian V. Niles.

On October 22, 2014, Institutional Shareholder Services issued a note to clients entitled “The IRR of ‘No’.” The note argues that shareholders of companies that have successfully “just said no” to hostile takeover bids have incurred “profoundly negative” returns. In a note we issued the same day, we called attention to critical methodological and analytical flaws that completely undermine the ISS conclusion. Others have also rejected the ISS methodology and conclusions; see, for example, the November analysis by Dr. Yvan Allaire’s Institute for Governance of Public and Private Organizations entitled “The Value of ‘Just Say No’” and, more generally, a December paper by James Montier entitled “The World’s Dumbest Idea.” Of course, even putting aside analytical flaws, statistical studies do not provide a basis in individual cases to attack informed board discretion in the face of a dynamic business environment. The debate about “just say no” has been raging for the 35 years since Lipton published “Takeover Bids in the Target’s Boardroom,” 35 Business Lawyer p.101 (1979). This prompts looking at the most prominent 1979 “just say no” rejection of a takeover.


The Allergan Aftermath

The following post comes to us from Philip Richter, partner and co-head of the Mergers and Acquisitions Practice at Fried, Frank, Harris, Shriver & Jacobson LLP, and is based on a Fried Frank publication by Mr. Richter, John E. Sorkin, David N. Shine, and Gail Weinstein.

Valeant’s failed acquisition bid for Allergan has underscored longstanding M&A principles—even as the involvement of shareholder activists in the M&A arena has introduced new technologies, opportunities, and challenges. In the aftermath of the Allergan saga, it is clear that Pershing Square was richly rewarded for having crafted a novel bidder-activist collaboration model. The outcome for Valeant, however, notwithstanding the creative collaboration, is that its bid ultimately failed, and in the most conventional of ways (losing to a superior offer from an alternative bidder).


The Future of the Bidder-Activist Collaboration Model

The following post comes to us from Philip Richter, partner and co-head of the Mergers and Acquisitions Practice at Fried, Frank, Harris, Shriver & Jacobson LLP, and is based on a Fried Frank publication by Mr. Richter, John E. Sorkin, David N. Shine, and Gail Weinstein.

On November 17, 2014, Allergan, Inc. announced a $66 billion merger agreement with Actavis plc, thwarting the pending $53 billion bid for Allergan by Valeant Pharmaceuticals International Inc. Valeant had teamed up with Pershing Square, a fund run by activist investor Bill Ackman, to facilitate an acquisition of Allergan by Valeant. Although the Valeant bid has failed, Pershing Square apparently will recognize a gain of well over $2 billion on consummation of the Actavis merger.

The distinguishing feature of Valeant’s now-failed pursuit of Allergan was the bidder-activist collaboration itself, which was the focal point for public attention throughout the saga. Corporate America’s initial reaction to the Pershing Square-Valeant model was fear that the model would be followed by others, unleashing a new wave of hostile takeover activity in a context that appears to make target companies particularly vulnerable. Now, at the end-point of Valeant’s bid for Allergan, we note the following:


Illinois Court Approves Single-Bidder Sale Strategy

The following post comes to us from William Savitt, partner in the Litigation Department of Wachtell, Lipton, Rosen & Katz, and is based on a Wachtell Lipton firm memorandum by Mr. Savitt, David C. Karp, and Adam S. Hobson. This post is part of the Delaware law series, which is cosponsored by the Forum and Corporation Service Company; links to other posts in the series are available here.

The Circuit Court of Cook County, Illinois yesterday [October 2, 2014] confirmed that a Delaware board may employ a single-bidder process in a cash sale governed by the Revlon standard. Keating v. Motorola Mobility Holdings, Inc., No. 11-CH-28854 (Ill. Cir. Ct. Ch. Div. Oct. 2, 2014).

The case arose from the 2011 transaction in which Google acquired Motorola Mobility for $40 per share in cash. The transaction elicited the now-conventional multiforum litigation in both Delaware (Motorola Mobility’s place of incorporation) and Illinois (its principal place of business). But the stockholder plaintiffs in Delaware dismissed their case and so only the Illinois action proceeded. Even though the merger price represented a 63% premium for Motorola Mobility’s shares and over 99% of the Motorola Mobility shares voting approved the merger, these plaintiffs attacked the deal, principally on the ground that the Motorola Mobility board should have conducted a broad auction rather than confidentially negotiate the deal with Google.