22 Brav, “Hedge Fund Activism,” 4.
23 See, e.g., Iman Anabtawi and Lynn A. Stout, “Fiduciary Duties for Activist Shareholders,” 60 Stanford Law Review 1255 (2008). For a more skeptical view of these proposals, see Paul Rose, Regulating Shareholder Influence (draft dated March 2009).
24 Portnoy v. Cryo-Cell Int’l, Inc., 940 A.2d 43 (Del. Ch. 2008).
25 Shareholders who are passive investors can elect to file a Schedule 13G instead of a Schedule 13D. The Schedule 13G requires disclosure of significantly less information and does not need to be as frequently updated as a 13D filing. However, the federal securities laws do not permit activist conduct until the shareholder converts to a Schedule 13D filing. Sometimes an activist investor will file a Schedule 13G but then still engages in activist activities. Rumors of an SEC crackdown on this practice have been circulating for years now, although no such thing has occurred.
26 If the buyer acquires more than 10 percent of the issuer, it will also be subject to the short-swing profit rules under Section 16 of the Exchange Act and required to report any sales or acquisitions of securities within two business days. Section 16(b) of the Securities Exchange Act of 1934 penalizes so-called short-swing profits made by insiders and others beneficially owning more than 10 percent of any company’s stock. Under §16(b), short-swing profits are profits from any purchase and sale, or any sale and purchase occurring within a six-month period. An example would be a 10 percent owner purchasing Company X stock in month 1 and then selling in month 5. The penalty for such behavior is complete disgorgement of the profit from the transaction, payable to the issuer. This is an objective, strict liability scheme intended to prevent insiders from trading on and profiting from inside information. The requirements of Section 16 are probably one reason that hedge fund shareholder activists generally prefer to hold less than a 10 percent share interest in their targets.
27 Factset SharkWatch Database (as of Feb. 17, 2009).
28 See Richard Teitelbaum, “Icahn Ally Jana’s Activism Loses Its Punch as Profit Run Ends,” Bloomberg.com, Oct 24, 2009.
29 See Jana Partners, LLC (Schedule 13D), CNET Networks, Inc., filed on Jan. 7, 2008. The facts of Jana’s investment set forth here are drawn from Jana Master Fund, LTD v. CNET Networks, Inc., 954 A.2d 335 (Del. Ch. 2008).
30 Jana could obtain full control because there was a flaw in CNET’s corporate documents. CNET’s lawyers placed the requirements for a staggered board in CNET’s bylaws, not in the company’s certificate of incorporation. If, instead, these provisions had been in the company’s certificate of incorporation, Jana would not have been able to make this amendment proposal. Under Delaware law, only the board can propose amendments to the certificate, but shareholders can propose amendments to the bylaws. The bylaws provided that they could be amended by 66.67 percent of the shares entitled to vote at any shareholder meeting. Thus, by taking advantage of this failure, Jana could sidestep the requirements of the staggered board. Once again, the importance of getting the legal drafting right was emphasized to CNET’s detriment.
31 Jana Master Fund, LTD, 954 A.2d 335, at 337-338.
32 Ibid., 346.
33 Henry Blodget, “How to Save CNET,” AlleyInsider, Oct. 3, 2007, available at www.alleyinsider.com/2007/10/how-to-save-cne.html.
34 See Merissa Marr and Kevin J. Delaney, “CBS to Acquire CNET for $1.8 Billion,” Wall Street Journal, May 16, 2008, B7.
35 See Morgan Stanley Current Report (Form 8-K), filed on Sept. 22, 2008; F. Mark Reuter, “Perils of Ambiguous Advance Notice Provisions,” Emerging Issues 2581 (Jul. 19, 2008).
36 See Heather Timmons, “A Hedge Fund and Its Nonprofit Twin,” New York Times, June 26, 2008, 3.
37 See Julia Werdigier, “Fight Seen for ABN; Stock Soars,” New York Times, Apr. 17, 2007.
38 The facts of the Children’s investment in CSX are drawn primarily from CSX Corp. v. Children’s Inv. Fund Mgmt., 562 F.Supp.2d 511, 523-535 (2008).
39 Alex Roth and Tamara Audi, “Historic Greenbrier under Cloud,” Wall Street Journal, Jan 3, 2009.
40 See Michael J. de la Merced, “Hedge Funds Propose CSX Directors, Starting Proxy Battle,” New York Times, Dec. 20, 2007, C2.
41 17 C.F.R. § 240.13(d)-5(b)(1).
42 CSX Corp., 562 F.Supp. at 570.
43 Ibid. at 573-574.
44 For details on the meeting, see Michael de la Merced, “A Hedge Fund Struggle for CSX Is Left in Limbo,” New York Times, June 26, 2008.
45 See “RiskMetrics Group-ISS Governance Services (ISS) Recommends CSX Shareholders Elect Four TCI/3G Board Nominees,” PR-Inside, June 18, 2008.
46 CSX Press Release, “CSX Invites Two New Members to Join Immediately” (Sept. 16, 2008).
47 See CSX Corp. v. Children’s Inv. Fund Mgmt., No. 08-2899-cv (2nd Cir. 2008) (Summary Order).
48 See Michael de la Merced, “Economic Climate Hampers Activist Investors,” New York Times, Mar. 26, 2009.
49 See “2008 Hedge Fund Performance Numbers: December & Year-End,” Market Folly, Jan. 20, 2009. Available at www.marketfolly.com/2009/01/2008-hedge-fund-performance-numbers.html.
50 See Lauren Coleman-Lochner, “Ackman Says Investors Can Exit Target Fund in March,” Bloomberg.com, Feb 9, 2009.
51 See “Hedge Fund Closures in 2008,” Market Folly, Mar. 24, 2009. Available at www.marketfolly.com/search?q=jana+partners.
52 Factset SharkWatch Database.
53 See Robert Daines, et al., “Rating the Ratings: How Good Are Commercial Governance Ratings?” (Draft dated February 10, 2009).
54 See “FSA Proposes Greater Disclosure of ‘Contracts for Difference,’” FSA/ PN/114/2007, Nov. 12, 2007.
Chapter 8: Microsoft, InBev, and the Return of the Hostile Takeover
1 FactSet Mergermetrics Database.
2 Ibid.
3 Ibid.
4 Ibid. The numbers are 67 percent, 66 percent, and 68 percent, respectively.
5 Ibid. (Figures as of February 10, 2009).
6 See Lucian Bebchuk et al., “The Powerful Antitakeover Force of Staggered Boards: Theory, Evidence, and Policy,” 54 Stanford Law Review 887 (2002).
7 See David Marcus, “Manifest Destiny,”TheDeal.com, Nov. 7, 2008.
8 For a discussion of this new type of strategic hostile, see Peter D. Lyons, “Unsolicited, but Welcome,” Daily Deal, July 25, 2006.
9 Microsoft Corporation, Press Release, “Microsoft Proposes Acquisition of Yahoo! for $31 per Share” (Feb. 1, 2008).
10 FactSet SharkWatch Database (figures as of February 7, 2009).
11 See Megan Davies,“Yahoo Has a Poison Pill at Disposal,” Reuters, Feb. 2, 2008.
12 Ibid.
13 See Amended Bylaws of Registrant,Yahoo!, Inc. Current Report (Form 8-K), ex. 3.1, filed on July 27, 2007.
14 FactSet, SharkWatch Database (through 2008).
15 See Robert Guth et al., “Yahoo’s Rejection Pressures Microsoft to Mull a New Bid,” Wall Street Journal, Feb. 11, 2008, B1.
16 See Yahoo! Inc. Press Release, “Yahoo! Extends Deadline for Nominating Directors to Board” (Mar. 5, 2008).
17 Delaware law requires that a company hold its annual meeting within 13 months of the last one. See Del. Gen. Corp. Law § 211(c) (2008). So, Yahoo was required to hold its annual meeting by July 12, 2008. Microsoft chose not to sue for a violation of this law at the time. The reasons were probably twofold. First, it is unclear under the governing Delaware law about whether a shareholder could sue before that date. A target can thus typically obtain a few extra months advantaging themselves of this ambiguity in the statute. Second, the cost of suing on a one-month postponement probably wasn’t worth the cost, given Microsoft’s later hesitance about even proceeding with a proxy contest.Yahoo’s lawyers leveraged this uncertainty to buy more time for Yahoo.
18 See Miguel Helft, “Yahoo Celebrates (for Now),” New York Times, May 5, 2008, 1.
19 See Eric Schonfeld, “Does Ballmer Need to Go,” TechCrunch, May 4, 2008. Available
at www.techcrunch.com/2008/05/04/does-ballmer-need-to-go/.
20 “Icahn Says Yahoo ‘Completely Botched’ Microsoft Talks,” New York Times Dealbook, May 15, 2008.
21 See Joann Lublin and Jessica Vascellaro, “Yahoo Nears Clearing Biondi and Chapple to Join Board,” Wall Street Journal, Aug. 13, 2008, B3.
22 Holden Frith et al., “Yahoo! Admits It Is Now Open to New Microsoft Bid,” TimesOnline.co.uk, Nov. 6, 2008.
23 See Peter Whoriskey, “Yahoo Founder, CEO Yang Steps Down,” Washington Post, Nov. 18, 2008, D1.
24 See “InBev’s Offer for Anheuser-Busch: The Letter,” New York Times Dealbook, June 11, 2008.
25 See Steven M. Davidoff, “A Budweiser Independence Plan,” New York Times Dealbook, June 12, 2008.
26 Professor John C. Coates IV makes this argument in “Takeover Defenses in the Shadow of the Pill: A Critique of the Scientific Evidence,” 79 Texas Law Review 271, 286 (2000).
27 Anheuser-Busch Companies, Inc., Press Release, “Anheuser-Busch Rejects InBev Proposal as Financially Inadequate, Not in Best Interests of Shareholders” ( June 26, 2008).
28 See Andrew Ross Sorkin,“Chilling a Deal for Bud,” NewYork Times, June 17, 2008; Patricia Sellers, “Bud-Weis-Heir August Busch IV Is Rebellious, Risk-Taking—and (Nearly) Ready to Rule the World’s Largest Brewer,” Fortune, Jan. 13, 1997.
29 See InBev S.A., Preliminary Consent Solicitation (Schedule 14A), filed on May 7, 2008.
30 Del. Gen. Corp. Law § 228(c) (2008).
31 Anheuser-Busch Companies, Inc. Definitive Proxy Statement (Schedule 14A), 20, filed on Oct. 6, 2008 (hereinafter Anheuser-Busch Proxy Statement).
32 “Bid May Spark Battle Royale for Anheuser-Busch,” New York Times Dealbook, June 12, 2008.
33 See Complaint in Anheuser-Busch Companies, Inc. v. InBev NV/SA, July 7, 2008. See also David Kiley, “Anheuser Busch Fights for Time,” businessweek. com, July 10, 2008.
34 Anheuser-Busch Companies, Inc. Current Report (Form 8-K), filed on June 26, 2008.
35 Del. Gen. Corp. Law §§ 213, 228 (2008).
36 Complaint in InBev NV/SA v. Anheuser Busch Companies, Inc., June 26, 2008.
37 See David Kesmodel and David Luhnow, “Anheuser Courts an Ally in Mexico,” Wall Street Journal, June 13, 2008, B1.
38 Shamrock Holdings v. Polaroid Corp., 559 A.2d 278 (Del.Ch. 1989). In an earlier case in the battle between Shamrock and Polaroid, the Chancery Court upheld Polaroid’s borrowing of $280 million to fund an employee stock ownership plan to which it issued 14 percent of its stock. The court upheld the action despite a pending tender offer by Shamrock and the antitakeover effect of the issuance under Delaware’s business combination statute. See Shamrock Holdings, Inc. v. Polaroid Corp., 559 A.2d 257 (Del. Ch. 1989).
39 See Michael J. de la Merced,“Anheuser-Busch Agrees to Be Sold to a Belgian Brewer for $52 Billion,” New York Times, July 14, 2008.
40 Anheuser-Busch Proxy Statement, 45.
41 Lucian Arye Bebchuk et al., “The Powerful Antitakeover Force of Staggered Boards: Theory, Evidence, and Policy,” 891.
42 Roche Holdings, A.G., Press Release, “Roche Says Offer for Ventana Medical Systems, Inc. Is Full and Fair” (July 11, 2007). See also Steven M. Davidoff, “It Only Takes One Flaw: Ventana and Kellwood,” M&A Law Prof, Nov. 14, 2007, available at http://lawprofessors.typepad.com/mergers/2007/11/it-only-takes-o.html.
43 See, e.g., Charles M. Foster Jr. et al., “The Shareholder Wealth Effects of Pennsylvania Fourth Generation Antitakeover Law,” 32 American Business Law Journal 399 (1995).
44 Factset Mergermetrics Database (excluding 2007 and as of February 7, 2009).
45 Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc., 506 A.2d 173 (Del. 1986).
46 Ibid., 184.
47 City Capital Assocs. Ltd. P’ship v. Interco., 551 A.2d 787, 800 (Del. Ch. 1988).
48 For another 1988 case where the Chancery Court ordered that a target take no further steps to implement a poison pill, see Grand Metro. Pub. Ltd. Co. v. Pillsbury Co., 558 A.2d 1049, 1061-1062 (Del. Ch. 1988).
49 See, e.g., Weinberger v. UOP, Inc., 457 A.2d 701, 712 (Del. 1983).
50 Unocal Corp. v. Mesa Petroleum Corp., 493 A.2d 946 (Del. 1985).
51 T. Boone Pickens, The Luckiest Guy in the World, (2000), 236.
52 Unocal Corp., 493 A.2d at 949.
53 Unitrin, Inc. v. American General Corp., 651 A.2d 1361 (Del. 1995)
54 Ibid., 1367.
55 Ibid., 1390.
56 Ibid., 1389.
57 See Robert B. Thompson and D. Gordon Smith, “Towards a New Theory of the Shareholder Role: ‘Sacred Space’ in Corporate Takeovers,” 80 Texas Law Review 261, 284-286 (2001).
58 These cases are: Omnicare v. NCS Healthcare, Inc., 818 A.2d 914 (Del. 2003); Chesapeake Corp. v. Shore, 771 A.2d 293 (Del. Ch. 2000); Mentor Graphics Corp. v. Quickturn Design Systems, Inc., 728 A.2d 25 (Del. Ch. 1998); Carmody v. Toll Bros., Inc., 723 A.2d 1180 (Del. Ch. 1998).
59 Mentor Graphics, 728 A.2d 25; Carmody, 723 A.2d 1180. A no-hand poison pill is one that contains “provisions…[which] suspend, limit or eliminate the board’s power to redeem the poison pill after a majority of the board has been replaced.” Peter V. Letsou, “Are Dead Hand (and No Hand) Poison Pills Really Dead?” 68 University of Cincinnati Law Review 1101, 1101 (2000). The effect of these limitations is to bar, for this measured period of time, a bidder’s acquisition of corporate control after a successful proxy contest by the bidder to obtain control of the target board. The Delaware Chancery Court had also previously struck down a dead-hand poison pill mainly on statutory grounds, although it also found the provision disproportionate under Unocal. See Carmody, 723 A.2d 1180. Dead-hand poison pills are a more pernicious form of poison pill and “require redemptions of poison pills to be approved by ‘continuing directors’ (i.e., directors in office when the poison pill was adopted or directors who were elected with the support of such directors).” Letsou, “Are Dead Hand,” 1101.
60 Chesapeake Corp. v. Shore, 771 A.2d 293 (Del. Ch. 2000).
61 See Thomson and Smith, “Towards a New Theory,” 286.
62 Blasius Indus., Inc. v. Atlas Corp., 564 A.2d 651, 659-661 (Del.Ch.1988).
63 Williams v. Geier, 671 A.2d 1368, 1376 (Del.1996) (quoting Stroud v. Grace, 606 A.2d 75, 92 (Del.1992)).
64 MM Companies, Inc. v. Liquid Audio, Inc., 813 A.2d 1118 (Del. 2003).
65 Ibid., 1132.
66 Mercier, et al. v. Inter-Tel, 929 A.2d 786 (Del. Ch. 2007).
67 Ibid., 814.
68 The other is Hollinger Int’l, Inc. v. Black, 844 A.2d 1022, 1089 (Del. Ch. 2004).
69 One study of the proxy voting machinery has found that “[m]anagement is overwhelmingly more likely to win votes by a small margin than to lose by a small margin. The results indicate that, at some point in the voting process, management obtains highly accurate information about the likely voting outcome and, based on that information, acts to influence the vote.” See Yair Listokin, “Management Always Wins the Close Ones,” American Law and Economics Review (forthcoming).
70 See Edward B. Rock, “Saints and Sinners: How Does Delaware Corporate Law Work,” 44 U. C.L.A. Law Review 1009 (1997)
71 Bebchuk et al., “The Powerful Antitakeover Force of Staggered Boards.”
72 Ibid.; Lucian Bebchuk and Alma Cohen, “The Costs of Entrenched Boards,” 78 Journal of Financial Economics 409 (2005). See also Thomas W. Bates et al., “Board Classification and Managerial Entrenchment: Evidence from the Market for Corporate Control,” Journal of Financial Economics (forthcoming). This last paper finds that staggered boards can be beneficial and that the conventional wisdom that staggered boards facilitate management entrenchment may be misplaced.
73 Compare Bates et al., “Board Classification,” 3 (finding target shareholders of companies with staggered boards receive a larger share of the proportional gains from a merger transaction than companies without a staggered board); Bebchuk et al., “The Powerful Antitakeover Forc
e of Staggered Boards” (premiums are not different but shareholders of companies with staggered boards had a 10 percent difference in returns than companies without a staggered board). A board adoption of a staggered board has also been found to reduce share value. See James Mahoney and Joseph Mahoney, “An Empirical Investigation of the Effect of Corporate Charter Antitakeover Amendments on Stockholder Wealth,” 14 Strategic Management Journal 17 (1993). Conversely, undoing the staggered board has been found to increase share value. See Re-Jin Gou, “Undoing the Powerful AntiTakeover Force of Staggered Boards” (draft dated Oct. 10, 2006).
74 See generally “Response Symposium,” 55 Stanford Law Review 791 (2002).
75 Factset MergerMetrics Database (through May 21 for each year). According to FactSet MergerMetrics, the volume of activity for this period was $18.46 billion in 2009 and $61.65 billion in 2008 for the same period of time.
76 Factset Mergermetrics Database.
77 Jeff Madrick, How We Got from the First Hostile Takeover to Megamergers, Corporate Raiding, and Scandal (1987).
78 See James Sterngold, “I.B.M.’s Big Move: The Corporate Culture; Suddenly, the Hostile Takeover Is a Benevolent Act,” New York Times, June 7, 1995.
Chapter 9: Mars, Pfizer, and the Changing Face of Strategic Deals
1 Dealogic Database.
2 See Dennis K. Berman, “Apollo Makes Huntsman Bid—Equity Firm Tops Offer from Basell; A ‘Strategic’ Angle,” Wall Street Journal, July 5, 2007, A10.
3 Andrew Ross Sorkin, “When a Bank Works Both Sides,” New York Times, Apr. 8, 2007.
4 For a broad overview of these agreements and particular provisions negotiated therein, see Robert E. Spatt and Adam S. Booken, “Social Issues in Selected Recent Mergers and Acquisitions Transactions” (client memo dated Jan. 9, 2009).
5 See Policies for Management of the Feature Animation Businesses, filed as ex. 99.1.3 to the Pixar Current Report (Form 8-K), filed on Jan. 26, 2006.
6 See Dow Jones & Company, Inc. Preliminary Proxy Statement (Schedule 14A), 46-57, filed Sept. 7, 2007.
7 Dealogic Database.
8 See Peter Burrows, Backfire: Carly Fiorina’s High-Stakes Battle for the Soul of Hewlett-Packard (2003).
Gods at War: Shotgun Takeovers, Government by Deal, and the Private Equity Implosion Page 39
