47 See Wachovia Corporation Current Report (Form 8-K), filed on Sept. 29, 2008.
48 See Wachovia Corporation Current Report (Form 8-K), filed on Oct. 3, 2008 (hereinafter Wachovia Form 8-K).
49 Ibid.
50 See Share Exchange Agreement by and between Wachovia Corporation and Wells Fargo & Co, dated Oct. 3, 2008, filed as an exhibit to the Wachovia Corporation Current Report (Form 8-K), filed on Oct. 9, 2008.
51 See Ibid.
52 For an account of this litigation, see Steven M. Davidoff, “The Mad Legal Dash for Wachovia,” New York Times DealBook, Oct. 5, 2008.
53 See Francesco Guerrera and James Politi, “Citigroup Pulls Out of Battle for Wachovia,” Financial Times, Oct. 9, 2008.
54 Wachovia was organized under the laws of North Carolina and so the agreement of Wachovia’s board to be acquired was governed by North Carolina law, not Delaware law. A North Carolina court would later deny a motion by Wachovia’s stockholders to preliminary enjoin the Wachovia shareholder vote on the acquisition by Wells Fargo. See Ehrenhaus v. Baker, 2008 NCBC 20 (N.C. Super. Ct. Dec. 5, 2008). Again showing the preference of courts to stay out of the government’s sponsored dealmaking, the court stated: “This case does not fit neatly into conventional business judgment rule jurisprudence, which assumes the presence of a free and competitive market to assess the value and merits of a transaction. But other than insisting that he would have stood firm in the eye of what can only be described as a cataclysmic financial storm, Plaintiff offers nothing to suggest that the Board’s response to the Hobson’s choice before it was unreasonable” (Op. at 124-125).
55 See Morgan Stanley Press Release, Oct. 13, 2008.
56 See Louise Story and Andrew Ross Sorkin, “Morgan Agrees to Revise Terms of Mitsubishi Deal,” New York Times, Oct. 12, 2008, A1.
57 See Securities Purchase Agreement by and between the Company and Mitsubishi UFJ Financial Group, Inc., dated as of September 29, 2008, and the amendment thereto entered into on October 3, 2008, filed as an exhibit to the Morgan Stanley Current Report (Form 8-K), filed on Oct. 3, 2008.
58 Bear Stearns Co. v. Jardine Strategic Holdings, No. 31371187, slip. op. (N.Y. Sup. Ct. June 17, 1988).
59 See Morgan Stanley Press Release, Oct. 13, 2008. See also Story and Sorkin, “Morgan Agrees to Revise Terms.”
60 See Jon Hilsenrath, “Paulson, Bernanke Strained for Consensus in Bailout,” Wall Street Journal, Nov. 10, 2008.
61 Emergency Economic Stabilization Act of 2008, Pub.L. 110-343, Div. A at §3 (Oct. 3, 2008).
62 Ibid.
63 See Mark Landler, “U.S. Investing $250 Billion in Banks,” New York Times, Oct. 13, 2008.
64 For a history of this phase of the bailout, see Davidoff and Zaring, “Regulation by Deal.”
65 See “White House Consulted with Obama Team on Auto Rescue Plans,” CNN.com, Dec. 19, 2008.
66 The Fed agreed only to charge an interest rate at the Overnight Index Swap, plus 300 basis points. As of February 3, 2009, the one-month OIS rate was 2.3 percent.
67 The terms of the Citigroup bailout are set forth in Citigroup, Inc. Current Report (Form 8-K), filed on Nov. 26, 2008.
68 See U.S. Treasury press release, “Treasury Releases Guidelines for Targeted Investment Program” (Jan. 2, 2009).
69 See Bank of America, Inc. Current Report (Form 8-K), filed on Jan. 16, 2009; Bank of America, Inc., Current Report (Form 8-K), filed on Jan. 22, 2009. See also Dan Fitzpatrick et al., “In Merrill Deal, U.S. Played Hardball,” Wall Street Journal, Feb. 6, 2009, A1.
70 See Edmund L. Andrews and Stephen Labaton, “Bailout Plan: $2.5 Trillion and a Strong U.S. Hand,” New York Times, Feb. 10, 2009.
Chapter 11: Restructuring Takeovers
1 See 17 C.F.R. §240.14e-1 (Rule 14e-1(a)).
2 The all-holders best price rule is embodied in 17 C.F.R. §240.14d-10 (Rule 14d-10).
3 See, e.g., Del. Gen. Corp. L. § 262 (2009).
4 Factset Mergermetrics Database. See also Jim Mallea, “M&A Year-End Review,” Factset Mergers, Jan. 23, 2009.
5 Amendments to the Tender Offer Best-Price Rule, Exchange Act Release No. 34-54684 (Dec. 8, 2006). For a discussion of these rulings and this bias, see David Marcus, “Tender Returns,” Daily Deal, Jan. 30, 2006; Jason K. Zachary, “Love Me Tender, Love Me True: Compensating Management and Shareholders under the ‘All-Holders/Best-Price Rule,’ 31 Securities Regulation Law Journal 81 (2003).
6 Regulation of Takeovers and Security Holder Communications, Exchange Act Release No. 42055, [1999-2000 Transfer Binder] Fed. Sec. L. Rep. (CCH) 86,215 (Oct. 22, 1999) (hereinafter M&A Release).
7 Factset Mergermetrics Database.
8 Mallea, “M&A Year-End Review.”
9 See Peter D. Lyons, “Unsolicited, but Welcome,” Daily Deal, July 25, 2006; Steve Lohr and Laurie J. Flynn, “Oracle to Acquire PeopleSoft for $10.3 Billion, Ending Bitter Fight,” New York Times, Dec. 14, 2004, C1.
10 A significant example is in the case of fairness opinions. Federal securities law mandates disclosure of the analyses underlying a fairness opinion in a merger transaction but not a cash tender offer. There is no compelling reason for this disparity. See Steven M. Davidoff, “Fairness Opinions,” 55 American University Law Review 1557, 1590-1594 (2006).There are also significant unwarranted timing distinctions in the delivery of information. In a cash tender offer transaction, information is typically published in the tender offer document within 5 to 10 business days. In a merger, however, there is no public disclosure until the definitive proxy statement is mailed to stockholders one to two months later.
11 17 C.F.R. § 230.14d-10 (2009).
12 17 C.F.R. § 230.14e-5 (2009). See generally M&A Release, 82,608-12.
13 Adoption of Rule 10b-13 under the Securities Exchange Act of 1934, Exchange Act Release No. 8712, [1969-1970 Transfer Binder] Fed. Sec. L. Rep. (CCH) 77,745, at 83,708 (Oct. 8, 1969) (hereinafter 10b-13 Release).
14 17 C.F.R. § 230.14d-7 (2009).
15 See Rule 10b-13 Release, 83,708.
16 See 17 C.F.R. § 230.14e-5 (2009).
17 Sandra Betton et al., “The Toehold Puzzle,” CEPR Discussion Paper (May 2005), 1.
18 See Jeremy Bulow et al., “Toeholds and Takeovers,” 107 Journal of Political Economy 427 (1999); Sanford J. Grossman and Oliver D. Hart, “Takeover Bids, the Free-Rider Problem and the Theory of the Corporation,” 11 Bell Journal of Economics 42-64 (1980).
19 The Panel on Takeovers and Mergers, the City Code on Takeovers and Mergers, at Rule 28 (2006).
20 Guidant Corp. Definitive Proxy Statement (Schedule 14A), 70, filed on Mar. 1, 2006.
21 Gillette Co. Definitive Proxy Statement (Schedule 14A), 41, filed on May 25, 2005.
22 The panel’s recommendations were set forth in SEC Advisory Committee on Tender Offers, Report of Recommendations and Commission Positions ( July 8, 1983), and reprinted in Tender Offers (Marc I. Steinberg, ed., 1985), 303-434. In March 1984, the SEC commissioners considered the recommendations; the SEC rejected the sweeping ones, including a prohibition on charter and bylaw amendments that erected “high barriers to change of control.” See Statement of John S. R. Shad, Chairman of the Securities and Exchange Commission, before hearings of the House Subcommittee on Telecommunications, Consumer Protection, and Finance Concerning the Recommendation of the SEC Advisory Committee on Tender Offers, reprinted in Exchange Act Tender Offers Advisory Committee Recommendations—SEC Response [1983-1984 Transfer Binder] Fed. Sec. L. Rep. (CCH) 83,511, at 86,681 (March 28, 1984).
23 Del. Gen. Corp. L. § 211(c) (2009).
24 See Steven M. Davidoff, “BEA Systems: Icahn Goes to Delaware,” M&A Law Prof, Oct. 29, 2007, available at http://lawprofessors.typepad.com/mergers/2007/10/beas-icahn-goes.html.
25 See web site of Delaware Division of Corporations, http://corp.delaware.gov/. See also Robert Daines, “The Incorporation Choices of IPO Firms,” 77 New York University Law Review 1559, 1601 (2002).
26 For a recent study findi
ng this preference, see Matthew Cain & Steven M. Davidoff, “Deleware’s Competitive Reach: An Empirical analysis of Public Company Merger Agreements” (Draft dated June 11, 2009). See also Theodore Eisenberg and Geoffrey Miller, “Ex Ante Choices of Law and Forum: An Empirical Analysis of Corporate Merger Agreements,” 59 Vanderbilt Law Review 1975 (2006).
27 See Marcel Kahan and Edward B. Rock, “How to Prevent Hard Cases from Making Bad Law: Bear Stearns, Delaware and the Strategic Use of Comity,” 58 Emory Law Journal 714 (2009).
28 For a summary of these positions, see Roberta Romano,“The State-Competition Debate in Corporate Law,” 8 Cardozo Law Review 709, 710-717, 720-725 (1987). See also Frank H. Easterbrook and Daniel R. Fischel, The Economic Structure of Corporate Law (1991), 4-8; Lucian A. Bebchuk and Allen Ferrell, “Federalism and Corporate Law: The Race to Protect Managers from Takeovers,” 99 Columbia Law Review 1168, 1172, 1190-1191 (1999). For an argument that Delaware has won the state competition for public charters and its main competitor is now the federal government, see Mark J. Roe,“Delaware’s Competition,” 117 Harvard Law Review 588 (2003).
29 See Press Release,“North Dakota Governance Council, North Dakota Enacts First Shareholder Friendly Corporation Law” (Apr. 11, 2007).
30 See Faith Stevelman, “Regulatory Competition, Choice of Forum and Delaware’s Stake in Corporate Law,” 34 Delaware Journal of Corporate Law 57 (2009).
31 See In re Netsmart Tech., Inc., S’holders Litig., Del. Ch., C.A. No. 2563 (Del. Ch. Mar. 6, 2007).
32 See Roe, “Delaware’s Competition.”
33 Ibid. See also Mark J. Roe, “Delaware’s Politics,” 118 Harvard Law Review 2491 (2005).
34 Chancellor Chandler’s recent opinion in In Re Citigroup Inc. Shareholder Derivative Litigation, C.A. 3338-CC (Del. Ch., Feb. 24, 2009), shows this potential. There Chandler refused to dismiss as a matter of law claims that payments to Charles O. Prince in connection with his termination from Citigroup were not corporate waste.
35 See Weinberger v. UOP, Inc., 457 A. 2d 701 (Del. 1983).
36 In re Wheelabrator Tech., Inc. S’holders Litig., 663 A.2d 1194 (Del. Ch. 1995).
37 The facts about the Landry’s buy-out are set forth in Landry’s Restaurants, Inc. Amendment No. 7 to Preliminary Proxy Statement (Schedule 14A), filed Jan. 5, 2009, 19-57 (hereinafter Landry’s Proxy Statement).
38 Exhibit 99.1 to Landry’s Restaurants, Inc. Current Report (Form 8-K), filed Jan. 12, 2009.
39 See Landry’s Proxy Statement, 152.
40 See James Politi and Aline van Duyn, “Investors Reject $22bn Move for Cablevision,” Financial Times, Oct. 24, 2007.
41 See Victor Brudney and Marvin A. Chirelstein, “A Restatement of Corporate Freezeouts,” 87 Yale Law Journal 1354, 1367 (1978).
42 Guhan Subramanian, “Go-Shops vs. No-Shops in Private Equity Deals: Evidence and Implications,” 63 Business Law 729, 730-731 (2008).
43 This idea was put forth by Louis Lowenstein in “Management Buyouts,” 85 Columbia Law Review 730 (1985).
Chapter 12: DealMaking Beyond a Crisis Age
1 See Ronald J. Gilson, “Value Creation by Business Lawyers: Legal Skills and Asset Pricing,” 94 Yale Law Journal 239 (1984). For another view on the role of transactional lawyers see George W. Dent, Jr., “Business Lawyers as Enterprise Architects,” 64 Business Lawyer 279 (2009)
2 The most developed theory of investment banking highlighting the importance of the partnership model is in Alan D. Morrison and William J.Wilhelm, Investment Banking: Institutions, Politics, and Law (2007).
3 For a narrative history of the decline of this model, see Jonathan A. Knee, The Accidental Investment Banker (2006).
4 Thomson Reuters Deals Intelligence.
About the Author
Steven M. Davidoff is a nationally known authority on takeovers and corporate law. He writes as “The Deal Professor” for the New York Times “DealBook.” Davidoff also writes in trade journals, such as the Deal, lectures, has testified before the United States Senate, and is frequently quoted in the national media on issues related to our capital markets. He is a professor of law at the University of Connecticut School of Law and a graduate of the Columbia Law School, where he was a Harlan Fiske Stone scholar. Davidoff practiced for almost a decade as a corporate attorney, primarily at Shearman & Sterling in their New York and London offices. Davidoff also has a BA from the University of Pennsylvania and an MS in finance from the London Business School.
Acknowledgments
This book could not have been written without the help of my research assistants, Austin Anderson,William Carl Means Jr., Nik Ristev, Stephen M. Salley, and Nicole Small. If their hard work is any sign, they will all make excellent lawyers. I am also indebted to both Dean Jeremy Paul of the University of Connecticut School of Law and Dean Alan C. Michaels of the Michael E. Moritz College of Law at The Ohio State University for research support and assistance.
I would also like to thank the editors and staff at John Wiley and Sons: Skyler Balbus, Bill Falloon, Meg Freeborn, and Stacey Fischkelta for their patience and helpful comments and suggestions. Thanks also go to my agent, Pilar Queen. I hope that one day she can represent me in all of my life dealings.
Everything that we do is due to our own efforts but even more so to the help we receive from others. I would particularly like to thank my mother and father and all of the rest of my family (yes, Bob, Ila, Josh, Nikki, and Tony, you too). And of course, my grandmother whom I dearly love.
I cannot thank everyone else, both colleagues and dear friends, who have helped in this and my other endeavors, but I would be remiss if I did not thank Professor Peter Henning. It was he who got me my first writing gig as the M&A Law Prof. Without him, this book would not exist. Final thanks go to those who reviewed earlier drafts of this manuscript or provided their thoughts and suggestions: Adam Davis, Alan Fishbein, Stephen Haas, Dale Oesterle, Paul Rose, Michael Weisbach and David Zaring. All errors are my own.
My last love goes to Idit. Her soul and wisdom in things of this world and beyond are my delight and fortune. She is my own personal merger. I thank her for everything.
Steven M. Davidoff Bexley, Ohio June, 2009
Index
@Home-Excite i2 Technologies Inc. 3Com Corporation, transaction
A
ABN Amro Bank, N.V.
Abu Dhabi
Accredited Home Lenders Holding Co.
fall of
MAC clause
Ackman, Bill
Acquisition agreements parameters of
Activist hedge funds. See Hedge fund activism
Activist investing. See also Shareholder Activism
Acxelis Technologies, Inc.
Acxiom Corporation
Adelphia Communications Corp.
Affiliated Computer Service, Inc.
AFL-CIO
A.G. Edwards
Agency costs
AIG, Inc.
bailout
collapse
nationalization of
AirTran Holdings Inc
A.J. Industries
Alaska Permanent Fund
Alcatel SA
Alcoa
Algeria
Allen, Chancellor William T.
Alley Insider (blog)
Alliance Data Systems (ADS)
AllState
AllTel Corp.
Alpha
Altria
Aluminum Corporation of China (Chinalco)
American General Corp.
American Industrial Revolution
America Online, Inc. (AOL)
AOL-Netscape deal
AOL-Time Warner merger
Anderson, Kurt
Anheuser-Busch Companies, Inc.
sale of
Annual meeting of shareholders
Antitrust regulation
Apollo Management L.P.
Appraisal rights
Archibald, Nolan
Ashland Inc.
Asian merger and a
cquisition activity
Asset purchase
Auction theory
Azerbaijani fund
B
Back-end merger
Bailouts
creep
Basic Capital LLC
Bair, Sheila
Ballmer, Stephen A.
Banco Santander SA
Bancroft family
Bank of America Corporation
bailout
Bank of China
Bankruptcy
Chapter
Chapter
Bankruptcy Abuse Protection and Consumer Protection Act of 2005
Barbarians at the Gate
Barclays Plc
Bartiromo, Maria, xv
Basell Industries AF
BASF
Bausch & Lomb Inc.
BCE, Inc.
Bear hug letter
Bear, Stearns & Co.,
and moral hazard principle
implosion
sale of
Bear Stearns Co. v. Jardine Strategic Holdings
BEA Systems, Inc.
Beatrice Foods Co.
Behring, Alexandre
Belgium
Bell Atlantic
Bergerac, Michel
Berkshire Hathaway Inc.
Bernanké, Ben, Federal Reserve Chairman
Beta
BHP Billiton
Big Deal:The Government’s Response to the Financial Crisis (Davidoff and Zaring)
Big Deals (Wasserstein)
Bi-Lo LLC
Black, Leon
Blackstone Group, xv-xvii
Blasius Industries Inc. v. Atlas Corp.
Blasius standard and shareholder voting
Blodget, Henry
“Bloody Shirt of Blasius”
Bluhdorn, Charles
Blunt, Governor Matthew R.
Bollywood
Borse Dubai
Bostock, Roy
Boston Scientific
Boutique investment banks
Brazen v. Bell Atlantic
Break fees. See also Termination fees
BRIC (Brazil, Russia, India, China)
Bridge financing
Brito, Carlos
Brocade Communications Systems Inc.
Brunswick Group LLP
Buckmaster, James
Buffett, Warren
Bulldog Investors
Burnett, Erin
Gods at War: Shotgun Takeovers, Government by Deal, and the Private Equity Implosion Page 41
