Tag: International governance


Mergers and Acquisitions—2016

Andrew R. Brownstein is a partner in the corporate group at Wachtell, Lipton, Rosen & Katz. This post is based on a Wachtell Lipton memorandum.

2015 was a record year for M&A. Global M&A volume hit an all-time high of over $5 trillion, surpassing the previous record of $4.6 trillion set in 2007. U.S. M&A made up nearly 50% of the total. The “mega-deal” made a big comeback, with a record 69 deals over $10 billion, and 10 deals over $50 billion, including two of the largest on record: Pfizer’s $160 billion agreement to acquire Allergan and Anheuser-Busch InBev’s $117 billion bid for SABMiller. Cross-border M&A reached $1.56 trillion in 2015, the second highest volume ever.

A number of factors provided directors and officers with confidence to pursue large, and frequently transformative, merger transactions in 2015. The economic outlook had become more stable, particularly in the United States. Many companies had trimmed costs in the years following the financial crisis, but still faced challenges generating organic revenue growth. M&A offered a powerful lever for value creation through synergies. In a number of cases, the price of a buyer’s stock rose on announcement of an acquisition, as investors rewarded transactions with strong commercial logic, bucking historical trends. Equity prices in 2015 were strong, if flat, providing companies with valuable acquisition currency. For at least the first half of the year, strong appetite from debt investors (particularly for quality credits) and low interest rates enabled acquirors to obtain financing on attractive terms.

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SEC Proposal on Resource Extraction Payments

Nicolas Grabar and Sandra L. Flow are partners in the New York office of Cleary Gottlieb Steen & Hamilton LLP. This post is based on a Cleary Gottlieb memorandum. The complete publication, including footnotes and Annex, is available here.

On December 11, 2015, the Securities and Exchange Commission (the “Commission”) issued a proposed rule (the “Proposed Rule”) on disclosure of resource extraction payments, more than two years after a federal court vacated a prior version of the rule. The Proposed Rule is similar in many ways to the Commission’s original rule, adopted in August 2012 (the “2012 Rule”)—in large part because the Commission is implementing a detailed congressional directive contained in Section 1504 of the 2010 Dodd-Frank Act. However, in addition to addressing the deficiencies the court found in the original rulemaking, the Commission has made other notable changes to reflect global developments in transparency for resource extraction payments, particularly in the European Union and Canada.

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Securities Class Action Filings: 2015 Year in Review

John Gould is senior vice president at Cornerstone Research. This post is based on a Cornerstone Research report. The complete publication is available here.

Number and Size of Filings

  • Plaintiffs filed 189 new federal class action securities cases (filings) in 2015—the most since 2008, and an 11 percent increase compared with 2014. The number of filings in 2015 was in line with the average number of filings observed annually between 1997 and 2014.
  • The total Disclosure Dollar Loss (DDL) of cases filed in 2015 jumped to $106 billion from $57 billion in 2014—an 86 percent increase. DDL remained below its historical average of $121 billion.
  • The total Maximum Dollar Loss (MDL) increased by 73 percent—from $215 billion in 2014 to $371 billion in 2015. MDL was approximately 61 percent of the historical average of $607 billion.
  • The number of mega filings in 2015 increased substantially from 2014. There were five mega DDL cases (those with a DDL of at least $5 billion) and eight mega MDL cases (those with an MDL of at least $10 billion)—compared to zero and two in 2014, respectively.

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FinCEN: Know Your Customer Requirements

Dan Ryan is Leader of the Financial Services Advisory Practice at PricewaterhouseCoopers LLP. This post is based on a PwC publication by Mr. Ryan, Sean Joyce, Joseph Nocera, Jeff Lavine, Didier Lavion, and Armen Meyer.

In recent years, authorities in the US and abroad have increased their focus on modernizing and enforcing anti-money laundering and terrorism financing (AML) regulations. As part of these efforts, the US’s Financial Crimes Enforcement Network (FinCEN) proposed Know Your Customer (KYC) requirements in 2014, which we expect to be finalized this year. [1]

FinCEN’s KYC requirements were proposed as part of a broader regulation setting out the core elements of a customer due diligence program. [2] Taken together, these elements are intended to help financial institutions avoid illicit transactions by improving their view of their clients’ identities and business relationships.

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M&A at a Glance: 2015 Year-End Roundup

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. The complete publication, including figures, is available here.

Continuing the upward trend started in 2013, 2015 was a record-breaking year for M&A activity. Almost every measure tracked in our Year-End Roundup increased sharply both globally and in the U.S.

Globally, overall deal volume as measured by total deal value was $4,741 billion, which is 63.7% greater than in 2014 ($3,506 billion), and 83% greater than in 2013 ($2,591 billion). In the U.S., overall deal volume was $2,285 billion, which is 56% greater than in 2014 ($1,465 billion), and 133.4% greater than in 2013 ($979 billion). Strategic deal volume in 2015 increased from 2014 by 41.8% globally (from $2,620 billion to $3,715 billion), and by 63.9% in the U.S (from $1,040 billion to $1,705 billion). As a result of this growth, the ratio of strategic to sponsor-related deal volume in the U.S. increased from approximately 2:1 in both 2013 and 2014 to approximately 3:1 in 2015. (Figure 1 of the complete publication, available here). Average deal value in the U.S. was 12.1% higher in 2015 than in 2014. The average value of the ten largest “megadeals” in 2015 was approximately $44 billion, which is consistent with 2014, but more than 160% greater than the average value in 2013. (Figure 2.)
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Inversions: Recent Developments

Peter J. Connors is a tax partner at Orrick, Herrington & Sutcliffe LLP. Jason M. Halper is a partner in the Securities Litigation & Regulatory Enforcement Practice Group. This post is based on an article authored by Mr. Connors and Mr. Halper, that was previously published in Law360.

In October 2015, press reports began appearing suggesting that Pfizer Inc., one of the world’s largest pharmaceutical companies, and Allergan, an Irish publicly traded pharmaceutical company, were considering entering into the largest inversion in history. Within weeks, the IRS launched its latest missive against inversion transactions. It also put the tax community on notice that more regulatory activity was yet to come.

Companies invert primarily because of perceived disadvantages associated with the U.S. corporate tax system, which has one of the world’s highest tax rates and levies taxes on worldwide income, including income earned by foreign subsidiaries (generally referred to as “controlled foreign corporations”) when repatriated and, at times, prior to repatriation. In its broadest terms, an inversion is the acquisition of substantially all the assets of a U.S. corporation or partnership by a foreign corporation. If a transaction triggers Internal Revenue Code Section 7874, the post-transaction foreign corporation will be treated as a U.S. corporation, and gain that is otherwise recognized on the transaction will not be offset by tax attributes of the U.S. entity, such as net operating losses (NOLs).

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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.

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REIT and Real Estate M&A in 2016

Adam O. Emmerich is a partner in the corporate department at Wachtell, Lipton, Rosen & Katz, focusing primarily on mergers and acquisitions, corporate governance and securities law matters. Robin Panovka is a partner at Wachtell Lipton and co-heads the Real Estate and REIT M&A Groups. This post is based on a Wachtell Lipton publication authored by Messrs. Emmerich and Panovka.

Following are some of the key trends we are following as we enter 2016, while keeping a weather eye on macro market turmoil:

  1. M&A activity should continue at a steady pace, with a number of public-to-private and public-to-public REIT mergers already in the works.
  2. We are not expecting an avalanche of REIT buyouts a la 2006-7, but many of the same drivers are apparent, as we noted last October in Taking REITs Private, and a number of significant transactions are likely.
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Reputation Concerns of Independent Directors

Wei Jiang is Professor of Finance at Columbia University. This post is based on an article authored by Professor Jiang; Hualin Wan, Associate Professor of Accounting at Shanghai Lixin University of Commerce; and Shan Zhao, Assistant Professor of Finance at Grenoble Ecole de Management.

Across the major world markets, institutional investors, stock exchanges and regulators have pushed publically listed firms to increase the number of independent directors on their boards. By 2013, 80% of directors of the S&P 1500 firms are independent, according to RiskMetric. Such a trend reflects a common belief that independent directors are effective monitors of management since they are not formally connected to firm insiders nor do they have material business relationship with the firm. However, it is unclear what incentivizes independent directors to monitor and potentially confront management, given that they are not significant shareholders, do not receive performance-sensitive compensation, and often owe their appointment to the managers they monitor.

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2015 FINRA Enforcement Actions

Jonathan N. Eisenberg is partner in the Government Enforcement practice at K&L Gates LLP. This post is based on a K&L Gates publication by Mr. Eisenberg.

Over the past several years, the Financial Industry Regulatory Authority (“FINRA”), the self-regulatory organization responsible for regulating every brokerage firm and broker doing business with the U.S. public, brought between 1,300 and 1,600 disciplinary actions each year. In 2014, the most recent year for which full-year statistics are available, it ordered $134 million in fines and $32.2 million in restitution. During the same period, it barred or suspended nearly 1,200 individuals, and expelled or suspended 23 firms. It also referred over 700 fraud cases to other federal or state agencies for potential prosecution. FINRA orders also often trigger automatic “statutory disqualifications” under Section 3(a)(39) of the Securities Exchange Act and Article III, Section 4 of FINRA’s By-Laws. Absent relief, these disqualifications prohibit persons from associating with a broker-dealer or prohibit firms from acting as broker-dealers.

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