28 For a scholarly analysis of Vice Chancellor Strine’s decision to award specific performance, see Yair Jason Listokin, “The Empirical Case for Specific Performance: Evidence from the Tyson-IBP Litigation,” Journal of Empirical Legal Studies 469 (2005).
29 Antonio J. Macias, Risk Pricing and Flexibility in Acquisitions: The Economic Impact of Material-Adverse-Change (MACs) Clauses (draft dated Dec. 12, 2008).
30 Gilson and Schwartz, “Understanding MACs,” 350-354. In their article, Gilson and Schwartz analyzed the prevalence of MAC carve-outs from 1993, 1995, and 2000. In 1993, nearly 81 percent of MAC clauses sampled did not contain a single carve-out. In 1995, approximately 68 percent of MAC clauses sampled did not contain any carve-outs.
31 Nixon Peabody, LLP, Sixth Annual MAC Survey (Oct. 19, 2007), available at www.nixonpeabody.com/linked_media/publications/MAC_survey_2007.pdf.
32 See Macias, Risk Pricing and Flexibility in Acquisitions, 1.
33 See Press Release to MGIC Investment Corp., Current Report (Form 8-K), ex. 99, filed on Aug. 7, 2007; Radian Group, Inc. Quarterly Report (Form 10-Q), filed on Aug. 9, 2007.
34 See Steven M. Davidoff, “MGIC/Radian Deal—MIA,” M&A Law Prof Blog, Aug. 29, 2007, available at http://lawprofessors.typepad.com/mergers/2007/08/mgicradian-deal.html.
35 See Dennis K. Berman, “Buy-out Group Balks at Sallie Mae: J.C. Flowers Wants to Cut Bid amid Tighter Credit; Lender’s Chief Fights Back,” Wall Street Journal, Sept. 27, 2007, A3.
36 Agreement and Plan of Merger dated as of April 15, 2007, among SLM Corporation, Mustang Holding Company Inc. and Mustang Merger Sub, Inc., at § 1.01(a), filed as an exhibit to SLM Corporation Current Report (Form 8-K), filed on Apr. 18, 2007.
37 See SLM Corporation v. J.C. Flowers II L.P., et al., C.A. No. 3279-VCS, Transcript of SLM Hearing, Oct. 22, 2007.
38 See Justin Baer and Jason Kelly, “Sallie Mae Rebuffs Reduced Offer from J.C. Flowers,” Bloomberg.com, Oct. 2, 2007.
39 See Gregory Corcoran, “Sallie Mae Chief Comes Crawling Back,” Wall Street Journal DealJournal, Dec. 13, 2007.
40 See Michael J. de la Merced, “Finish Line to Buy Genesco for $1.5 Billion,” New York Times, June 19, 2007.
41 See Finish Line, Inc., Press Release, Sept. 28, 2007. For further analysis of the Genesco-Finish Line litigation, see Bradley C. Sagraves and Bobak Talebian, “Material Adverse Change Clauses in Tennessee: Genesco v. Finish Line,” 9 Transactions:Tennessee Journal of Business Law 343 (Spring 2008).
42 See Genesco, Inc. v. Finish Line, Inc. & Headwind, Inc., No. 07-2137-II(III) (12 D. Tenn., Davidson County, Dec. 27, 2007). For an analysis of the opinion, see Steven M. Davidoff, “Genesco v. Finish Line: The Opinion,” M&A Law Prof Blog, Dec. 28, 2007, available at http://lawprofessors.typepad.com/mergers/2007/12/genesco-the-opi.html.
43 See Finish Line, Inc., Press Release, Mar. 4, 2008. See also Steven M. Davidoff, “Lessons from the Genesco Fight,” New York Times DealBook, Mar. 4, 2008.
44 The facts are more particularly detailed in Judge Lamb’s opinion in Hexion Specialty Chemicals, Inc. v. Huntsman Corp., C.A. No. 3841-VCL, 2008 WL 4457544 (Del. Ch. Sept. 29, 2008).
45 See Press Release of Huntsman, Jul. 19, 2008.
46 Hexion, 2008 WL 4457544, at ∗16-20.
47 Ibid. at ∗15.
48 For further speculation on the scope and content of the future MAC, see Kenneth M. Wolff and Cason A. Moore, “In the Wake of the Crunch: Credit Market Turmoil and the Potential Effect on MAC Provisions,” 11(10) M & A Law 7 (2007).
49 See also Eric Talley, On Uncertainty, Ambiguity and Contractual Conditions (Draft Dated Dec. 12, 2008).
Chapter 4: United Rentals, Cerberus, and the Private Equity Implosion
1 Jenny Andersen, “20/20 Hindsight through What Were Once Rose-Colored Glasses,” New York Times, Aug. 31, 2007, C1.
2 See Andrew Ross Sorkin, “Can Private Equity Firms Get Out of Buyouts?” New York Times, Aug. 21, 2007. In his article, Sorkin quoted from a piece I had written in August 2007, “Private Equity’s Option to Buy,” M&A Law Prof, Aug. 16, 2007, available at http://lawprofessors.typepad.com/mergers/2007/08/private-equitys.html.
3 See Dennis K. Berman, “Acxiom’s Suitors May Drop Offer; ValueAct and Silver Lake Are Close to a Settlement That Will Cancel the Deal,” Wall Street Journal, Oct. 1, 2007, A2.
4 See Acxiom Press Release, Oct. 10, 2007.
5 See Andrew Ross Sorkin, “Acxiom Shows Breaking Up Is Costly,” New York Times, Oct. 10, 2007. Bank of America, the third financing bank, refused to pay part of the fee due to fears of legal exposure to a claim for tortious interference with Acxiom’s contract with Silver Lake and ValueAct. Bank of America’s fear would later be validated when targets subsequently began to bring just such claims against banks that balked at financing private equity acquisitions.
6 See Harman International Industries Press Release, Oct. 22, 2007. The discount the private equity firms received in the Harman settlement was probably greater, on account of allegations that Harman had breached the acquisition agreement by violating the limitations on capital expenditures therein. See Michael de la Merced, “Canceling Harman Deal, Suitors Buy Bonds Instead,” New York Times, Oct. 23, 2007.
7 See United Rentals, Inc. Current Report (Form 8-K), filed on Nov. 14, 2007.
8 These shell subsidiaries were created by Cerberus and set up so that the acquisitions contract with United Rentals was only with them. The purpose of this was to ensure that Cerberus could limit its liability to either (1) payment of the reverse termination fee or (2) funding the acquisition. Cerberus accomplished this by not being party to the agreements, so only the shell subsidiaries were required to perform and otherwise be liable if there was breach of the agreement.
9 The details of the parties’ arguments are discussed in Steven M. Davidoff, “Cerberus Sues in New York,” M&A Law Prof, Nov. 23, 2007, available at http://lawprofessors.typepad.com/mergers/2007/11/cerberus-sues-i.html.
10 For a more thorough analysis of the two possible readings of this contract, see Steven M. Davidoff, “The Dog Bites,” M&A Law Prof, Nov. 15, 2007, available at http://lawprofessors.typepad.com/mergers/2007/11/united-rentals-.html.
11 See Dennis K. Berman and Matthew Karnitschnig, “United Rentals, Cerberus Delay Start of Trial,” Wall Street Journal, Dec. 17, 2007, A16.
12 See Gregory Corcoran, “Cerberus’s Feinberg: The Money-Shot,” Wall Street Journal Deal Journal, Dec. 18, 2007.
13 The negotiation history of the transaction is detailed in United Rentals, Inc. v. RAM Holdings, Inc., et al., 937 A.2d 810, 834-43 (Del. Ch. 2007).
14 Ibid.
15 United Rentals Press Release, Dec. 24, 2007.
16 See Steven M. Davidoff, “The Four Buyouts of the Apocalypse,” New York Times DealBook, Apr. 9 2008.
17 See Steven M. Davidoff, “Who’s Next for the Deal Dead Pool?” New York Times DealBook, Jan. 10, 2008.
18 See Michael J. de la Merced, “Deal to Buy Credit Card Processor Is in Peril,” New York Times, Jan. 29, 2008.
19 See Alliance Data Systems Corp. v. Aladdin Solutions, Inc., et al., Civil Action No. 3507-CVS (Jan. 29, 2008). For further commentary on the complaint, see Steven M. Davidoff, “Alliance Data’s Complaint,” New York Times DealBook, Jan. 31, 2008.
20 See Hearing Transcript, Alliance Data Systems Corp. v. Aladdin Solutions, Inc. et al., Civil Action No. 3507-VCS, Feb. 4, 2008 (hereinafter ADS Hearing Transcript).
21 Heidi N. Moore, “Deal Journal Exclusive: Regulator Removes Major Block for Blackstone-ADS,” Wall Street Journal Deal Journal, Mar. 20, 2008.
22 See ADS Hearing Transcript, 39-42.
23 See Alliance Data Systems Corp. Current Report (Form 8-K), dated Feb. 8, 2008.
24 See Alliance Data Systems Corp. v. Blackstone Capital Partners V L.P., et al., Civil Action No. 3796-VCS (Del. Ch. Jan. 15, 2009).
25 Complaint in BT Triple Crown Merger Co., Inc., et al. v. Citigroup Global Markets Inc., dated Mar. 25, 2008, at 4.
27 See Asset Purchase Agreement dated April 20, 2007 by and among the company or companies set forth as Seller on the signature page thereto, Clear Channel Broadcasting, Inc., and the company or companies set forth as Buyer on the signature page thereto, at § 10.4, filed as an exhibit to the Clear Channel Communications, Inc. Current Report (Form 8-K), filed on Apr. 26, 2007.
28 See Wachovia Bank, N.A., et al. v. Newport Television LLC, et al., Civil Action No 08-CVS-4056 (N.C. Gen Ct. Justice Feb. 22, 2007).
29 Hearing in Clear Channel Broadcasting, Inc., et al. v. Newport Television LLC, No. 3550-VCS, at 70-87, dated Feb. 26, 2008.
30 See Clear Channel Press Release, Mar. 14, 2008; Andrew Ross Sorkin and Michael de la Merced, “Lawsuit is Settled Over Sale of Clear Channel TV Unit,” New York Times, March 15, 2008.
31 For a general review of these transactions and the role of the financing banks in these settlements, see Vipal Monga, “When Friends Fall Out,” The Deal, Sept. 21, 2007.
32 The banks were Citigroup, Deutsche Bank AG, Credit Suisse Group, Morgan Stanley, Royal Bank of Scotland Group, and Wachovia Corp. See Complaint in BT Triple Crown Merger Co., Inc., et al. v. Citigroup Global Markets Inc., No. 08-600899 (N.Y. Sup. Ct. Mar. 25, 2008).
33 Ibid., 16.
34 See Agreement and Plan of Merger, dated as of November 16, 2006, by and among BT Triple Crown Merger Co., Inc., B Triple Crown Finco, LLC, T Triple Crown Finco, LLC, BT Triple Crown Capital Holdings III, Inc., and Clear Channel Communications, Inc., a Texas corporation, § 8.02, filed as an exhibit to Clear Channel Communications, Inc. Current Report (Form 8-K), filed on Nov. 16, 2006.
35 See Memorandum of Law in Support of Defendants’ Motion for Summary Judgment, BT Triple Crown Merger Co., Inc., et al. v. Citigroup Global Markets Inc., No. 08-600899, dated Apr. 10, 2008.
36 Ibid., 16-24.
37 Heidi N. Moore, “Behind the Psychology of the Clear Channel Settlement,” Wall Street Journal Deal Journal, May 14, 2008.
38 Ibid.
39 For a history of this transaction, see CC Media Holdings, Inc. Registration Statement (Form S-4), at 78-100, filed on June 2, 2008.
40 See Penn National Gaming, Inc. Definitive Proxy Statement (Schedule 14A), 90-91, filed on Nov. 7, 2007.
41 See Penn National Gaming, Inc. Press Release, exhibit 99.1 to Penn National Gaming, Inc. Current Report (Form 8-K), filed on July 9, 2008.
42 See Dale A. Oesterle, The Law of Mergers and Acquisitions (3d ed., 2005), 315 n. 8.
43 See Susan Pullman and Peter Lattman, “Buyout Bust Turns Bitter, A Major Deal Lands in Court,” Wall Street Journal, Sept. 9, 2008.
44 Hexion Specialty Chemicals, Inc. v. Huntsman Corp., C.A. No. 3841-VCL, 2008 WL 4457544 (Del. Ch. Sept. 29, 2008).
45 See Huntsman Press Release, dated Dec. 23, 2008.
46 See Peter Lattman, “Huntsman’s Founder Got Fees for Work Settling Suit,” Wall Street Journal, Mar. 30, 2009.
47 The decision was BCE Inc. v. 1976 Debenture holders, 2008 SCC 69 (Dec. 19, 2008).
48 See “Its Buyout Dead, BCE Starts a Fee Fight,” New York Times DealBook, Dec. 11, 2008.
49 For a further discussion of the reasons for use of the reverse termination fee and its failings, see Steven M. Davidoff, “The Failure of Private Equity,” 82 Southern California Law Review 481 (2009); Gregory V. Varallo and Blake Rohrbacher, “Lessons from the Meltdown: Reverse Termination Fees” (undated, unpublished manuscript). See Steven H. Goldberg, “Deals Gone Bad,” Thedeal.com, Aug. 19, 2008.
50 Thomson Reuters Database.
51 Dealogic Database.
52 See The Bank of New York Mellon v. Realogy Corp., C.A. No. 4200-VCL (Del. Ch., Dec. 18, 2008). See also Complaint, ING Prime Rate Trust, et al. v. Freescale Semiconductor, Inc. (N.Y. Sup. Ct. Mar. 24 2009).
53 Jason Kelly and Jonathan Keehner, “Blackstone Said to Cut About 70 Jobs as LBOs Falter,” Bloomberg, Dec. 12, 2008.
54 See Julie Ziegler and Jason Kelly, “Harvard in Discussions to Sell Stakes in Private-Equity Funds,” Bloomberg, Nov. 4, 2008.
55 Michael Wolff, “The Ultimate Bubble,” Vanity Fair (Dec. 2008).
56 Kelly Holman, “PE Funds Amass More Than $1 Trillion,” IDDMagazine. Com, Jan. 26, 2009.
57 Factset MergerMetrics Database (transactions greater than $100 million in value). See also Vijay Sekhon, “Valuation of Reverse Termination Fees in Mergers & Acquisitions,” New York University Journal of Law & Business (forthcoming), 3.
58 For a discussion of the appropriate level for a reverse termination fee, see Vipal Monga, “Turning the Tide,” The Deal, Aug. 29, 2008.
Chapter 5: Dubai Ports, Merrill Lynch, and the Sovereign Wealth Fund Problem
1 See Bob Davis and Dennis K. Berman, “Lobbyists Smoothed the Way for a Spate of Foreign Deals,” Wall Street Journal, Jan. 25, 2008, A1.
2 Thomson Reuters; Dealogic Database.
3 Ibid.
4 CIC does not disclose its assets under management in a timely manner, so the current figure is unknown.
5 Press Release, Merrill Lynch & Co., “Merrill Lynch Economists Expect Sovereign Wealth Fund Assets to Quadruple by 2011” (Oct. 12, 2007); “Currencies: How Big Could Sovereign Wealth Funds Be by 2015?” Morgan Stanley Research Global (May 3, 2007).
6 The figure is accurate as of January 29, 2009. See web site of Alaska Permanent Fund Corporation, available at www.apfc.org/home/Content/home/index.cfm.
7 For details on the CIC Blackstone investment, see Blackstone Group LP Amendment No. 9 to Registration Statement (Form S-1), 4-5, filed on June 21, 2007. See also Chip Cummins, “The New Deal Diplomacy—Sovereign-Wealth Funds Buy Small Stakes and Keep Quiet, Winning Over Some Skeptics,” Wall Street Journal, Nov. 28, 2007, C1; Rick Carew, “China’s Sovereign Wealth Fund Forges Strategy, Hunts for Staff,” Wall Street Journal, Nov. 20, 2007, A14.
8 See Ian Talley, “Politics & Economics: Gulf States Seen Raising Foreign-Asset Holdings,” Wall Street Journal, Jan. 17, 2008, A10.
9 See Henry Sender et al., “As Oil Hits High, Mideast Buyers Go on a Spree—Dubai, Qatar Battle for Stakes in Bourses; Political Savvy Grows,” Wall Street Journal, Sept. 21, 2007, A1.
10 United States Government Accountability Office, Report to the Committee on Banking, Housing, and Urban Affairs, U.S. Senate, Sovereign Wealth Funds: Publicly Available Data on Sizes and Investments for Some Funds Are Limited, at app. 3 (Sept. 2008).
11 Dealogic Database.
12 See Richard E. Caves, “Japanese Investment in the United States: Lessons for the Economic Analysis of Foreign Investment,” 16(3) World Economy 279 (2007).
13 For details on the Kuwaiti and Norwegian funds, see Kuwait Investment Office in London, www.kia.gov.kw/En/KIO/About/Pages/default.aspx; Government Pension Fund, Norges Bank, www.norges-bank.no/templates/article____69365.aspx.
14 The terms of the investment are set forth in the Merrill Lynch & Co. Amended Current Report (Form 8-K), filed on Dec. 28, 2007. See also Randall Smith and Jason Leow, “Merrill May Take More Steps to Fix Finances—Thain Doesn’t Dicker as the Firm Sells Stake to a Singapore Fund,” Wall Street Journal, Dec. 26, 2007, C1.
15 See Bank of America Corp. Quarterly Report (Form 10-Q), 25, filed on May 8, 2008.
16 See Heidi N. Moore, “Wall Street Banks: Will Sovereign Wealth Funds Speak Up?” Wall Street Journal Deal Journal, Jan. 8, 2009.
17 See Exhibit 99.1 to Merrill Lynch & Co. Amended Current Report (Form 8-K), filed on July 29, 2008.
18 See Saskia Scholtes and Greg Farrell, “Temasek Counts Cost of Paper Losses on Merrill Investment,” Financial Times, Jan. 8, 2008, 13.
19 Bettina Wassener, “Temasek Holdings Loses 31 Percent of Portfolio,” New York Times, Feb. 10, 2009.
20 The Blackstone Group L.P. Current Report (Form 8-K), filed on Oct. 16, 2008.
21 Mitsubishi purchased pr
eferred stock yielding 10 percent per quarter and 117 million shares of common stock. See Morgan Stanley Current Report (Form 8-K), filed on Oct. 14, 2008. For coverage of the Mitsubishi investment, see Aaron Lucchetti, “Propped Up, Morgan Stanley Now Sets Forth to Right Itself,” Wall Street Journal, Oct. 14, 2008, C1. The CIC investment was in equity units yielding a 9 percent dividend payable quarterly and mandatorily convertible to common stock on August 17, 2010. For further details on the CIC investment, see Morgan Stanley Current Report (Form 8-K), filed on Dec. 27, 2007.
22 Ibid.
23 See Andrew Edgecliffe-Johnson and Simeon Kerr, “Black Gold Meets Silver Screen as Abu Dhabi Goes to the Movies,” Financial Times, Sept. 3, 2008, 1.
24 See Andrew Critchlow, “Big Mideast Funds Scale Back Investments: Last Year’s Hot Investors at Davos Take Cautious Approach to West after Losses; Focus on Emerging Markets,” Wall Street Journal, Jan. 27, 2009.
25 See Jason Dean et al., “China Jumps into Rio Tinto Saga—Chinalco, Alcoa Buy Stake, Complicating BHP Takeover Bid,” Wall Street Journal, Feb. 28, 2008, A3. 26 Rio Tinto Press Release, Feb. 12, 2009.
27 Dealogic Database.
28 See Rick Care and Jason Leow, “Temasek Shakes Up Its Top Ranks,” Wall Street Journal, Feb. 7, 2009.
29 See Jeffrey Ball and Chip Cummins, “Dow’s Plan for Growth Threatened by Scuttled Kuwait Deal,” Wall Street Journal, Dec. 29, 2008, A1.
30 See, e.g., Lester Thurow, Head to Head: The Coming Economic Battle among Japan, Europe, and America (1992), 113-151.
31 Although, to be fair, British enthusiasm for American railroad investment fluctuated, depending on returns and events. See A. W. Currie, “British Attitudes toward Investment in North American Railroads,” 34 Business History Review (1960), 194, 199.
32 Interview by Michael Buchanan with Sultan Ahmed bin Sulayem, BBC Radio 4 (Feb. 29, 2008).
33 Sovereign Wealth Fund Institute, Linaburg-Maduell Transparency Index, as of Apr. 3, 2009.
34 See Bob Davis, “Wanted: SWF’s Money Sans Politics,” Wall Street Journal, Dec. 20, 2007, C1.
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