VOLUME 7 • COLUMNS
INCREASED ANTITRUST MERGER ENFORCEMENT: CONSIDERATIONS FOR YOUR NEXT DEAL
Michael B. Bernstein, Justin P. Hedge, and Francesca Pisano
Antitrust merger enforcement has become increasingly aggressive in recent years with the Federal Trade Commission and Antitrust Division of the Department of Justice demonstrating that they are ready to litigate to block deals they believe will harm competition. While an increasing number of mergers have been challenged and blocked in federal court, some are prevailing at trial or managing to find a path to clearance without litigation. This Article reviews the trends that have emerged in federal merger enforcement and discusses some key differences between deals that have been cleared and those that have faced government opposition.
VOLUME 5 • ISSUE 2 • PRINT
THE EFFECT OF DELAWARE DOCTRINE ON FREEZEOUT STRUCTURE & OUTCOMES: EVIDENCE ON THE UNIFED APPROACH
Fernán Restrepo and Guhan Subramanian
Historically, Delaware corporate law provided different standards of judicial review for buyouts by controlling shareholders (also known as “freezeouts”). The standards were based on what transactional form was used: deferential business judgment review for freezeouts executed as tender offers and stringent “entire fairness” review for transactions structured as mergers. Subramanian (2005), Subramanian (2007), and Restrepo (2013) provide doctrinal and empirical evidence that (1) transactional planners responded to these differences in standards of judicial review; (2) these differences in judicial scrutiny created differences in outcomes for the minority shareholders; and (3) differences in outcomes created a social welfare loss, not just a wealth transfer from minority shareholders to the controlling shareholder. Over the past decade, in a series of important decisions, Delaware law has migrated toward a unified approach to freezeouts regardless of transactional form. In this Article we present empirical evidence on all freezeouts of Delaware targets during this period of doctrinal evolution. In general, we find that deal outcomes converged after the Delaware Chancery Court’s decision in In re Cox Communications, Inc. Shareholders Litigation. Our findings suggest that: (1) transactional planners seem to respond to even dicta in the Delaware case law; and (2) the social welfare loss identified in Subramanian (2005) seems no longer to be present. This result in turn suggests that the Delaware Supreme Court seems to have adopted the correct policy by endorsing the unified approach for merger freezeouts in Kahn v. M&F Worldwide Corp., and moreover, that the court should also explicitly endorse this approach in the context of tender offer freezeouts when presented with such facts.
VOLUME 5 • ISSUE 2 • PRINT
CORPORATE LEGACY
Andrew A. Schwartz
Many public companies have shed takeover defenses in recent years, on the theory that such defenses reduce share price. Yet new data presented here shows that practically all new public companies—those launching their initial public offering (IPO)—go public with powerful takeover defenses in place. This behavior is puzzling because the adoption of takeover defenses presumably lowers the price at which the pre-IPO shareholders can sell their own shares in and after the IPO. Why would founders and early investors engage in this seemingly counterproductive behavior? Building on prior attempts to solve this mystery, this Article claims that IPO firms adopt takeover defenses, at least in part, so that they can remain independent indefinitely and create corporate legacies that last for generations.
VOLUME 4 • ISSUE 2 • PRINT
M&A UNDER DELAWARE’S PUBLIC BENEFIT CORPORATION STATUTE: A HYPOTHETICAL TOUR
Frederick H. Alexander; Lawrence A. Hamermesh; Frank R. Martin; Norman M. Monhait
Noting the enthusiastic initial response to Delaware’s 2013 public benefit corporation statute, this Article presents a series of hypotheticals as vehicles for comment on issues that are likely to arise in the context of mergers and acquisitions of public benefit corporations. The Article first examines appraisal rights, concluding that such rights will be generally available to stockholders in public benefit corporations, and noting the potential for ambiguity in defining “fair value” where the corporation’s purposes extend to public purposes as well as private profit. Next, the Article examines whether and to what extent “Revlon” duties and limitations on deal protection devices may be relaxed or modified in the context of the sale of a public benefit corporation. Finally, the Article examines whether and to what extent a commitment to promote the specified public purposes of a public benefit corporation can be made enforceable against the buyer of the corporation.
VOLUME 4 • COLUMNS
BRAZILIAN PRIVATE EQUITY FUNDS (FIPs): A DNA CHANGE IN BRAZILIAN M&A DEALS
José Carlos Junqueira Sampaio Meirelles and Caio Carlos Cruz Ferreira Silva
M&A deals in Brazil involving private equity players have been undergoing an important DNA change stemming from the increasing use of the Brazilian Private Equity Fund (Fundo de Investimento em Participações (FIP)).
VOLUME 3 • ISSUE 2 • PRINT
DO DIFFERENT STANDARDS OF JUDICIAL REVIEW AFFECT THE GAINS OF MINORITY SHAREHOLDERS IN FREEZE-OUT TRANSACTIONS? A RE-EXAMINATION OF SILICONIX
Fernán Restrepo
Freeze-out transactions have been subject to different standards of judicial review in Delaware since 2001, when the chancery court, in In re Siliconix Inc. Shareholders Litigation, held that, unlike merger freeze-outs, tender offer freeze- outs were not subject to “entire fairness review”. This dichotomy, in turn, gave rise to a tension in the literature regarding the potential impact of Siliconix, as well as the treatment that freeze-outs should receive. While some defended the regime established by Siliconix, others argued for doctrinal convergence through a universal application of entire fairness, and still others proposed alternative variations of convergence based on how the negotiation process is conducted. The Delaware Chancery Court itself, in fact, subsequently made a partial step toward convergence by narrowing the scope of its precedent, as reflected in In re CNX Gas Corporation Shareholders Litigation. The empirical evidence on the effect of Siliconix (and, therefore, on the practical relevance of different standards of judicial review), however, is limited. In particular, in “Post-Siliconix freeze-outs: Theory and Evidence,” Guhan Subramanian found that minority shareholders obtain lower cumulative abnormal returns (CARs) in tender offer freeze-outs relative to merger freeze-outs, and, based on this finding, Subramanian advocates for doctrinal convergence. That article, however, does not formally examine whether Siliconix generated a structural change in relative CARs in both transactional forms and, therefore, whether the differences in outcomes are actually attributable to the disparity in standards of judicial review. The purpose of this work is, therefore, to fill this gap in the literature. To this end, this work uses a difference-in-differences approach, which compares changes over time (before and after Siliconix) between CARs in tender offers (the treatment group) and CARs in statutory mergers (the control group). As further discussed in the text, the results seem to suggest, in line with Subramanian’s intuition, that Siliconix actually had at least some negative effect on CARs in tender offers, since the estimator of difference-in-differences is consistently negative and generally significant. Based on the results, this work discusses specific policy implications, particularly in terms of regulatory convergence.
VOLUME 2 • ISSUE 2 • PRINT
MANAGING DISPUTES THROUGH CONTRACT: EVIDENCE FROM M&A
VOLUME 2 • COLUMNS
COMMENTS ON SEASONING OF REVERSE MERGER COMPANIES BEFORE UPLISTING TO NATIONAL SECURITIES EXCHANGES
David N. Feldman
Blockbuster Entertainment, Occidental Petroleum, Turner Broadcasting, Tandy Corp. (Radio Shack), Texas Instruments, Jamba Juice, and Berkshire Hathaway are just a few well-known companies that went public through a “reverse merger.” To the uninitiated, a reverse merger is a deceptively simple concept. Instead of pursuing a traditional initial public offering (IPO) utilizing an investment bank as an underwriter, a company arranges for its stock to be publicly traded following a merger or similar transaction with a publicly held “shell” company. The public shell has no other business but to look for a private company to merge with. Upon completion of the merger, the private company instantly becomes public. The shareholders of the private company typically take over the majority of the stock of the former shell, enabling them to still operate the business of the formerly private company.
VOLUME 1 • COLUMNS
NORMALIZING MATCH RIGHTS: COMMENT ON IN RE COGENT, INC. SHAREHOLDER LITIGATION
Brian JM Quinn
Early in October of this year the Chancery Court handed down its opinion in In re Cogent, Inc. Shareholder Litigation. In many respects, the ruling was pedestrian. Shareholders of Cogent, a Delaware corporation in the business of providing automated fingerprint identification systems, challenged management’s decision to sell the corporation to the 3M Company for $10.50/share in cash. The essence of the shareholders’ challenge focused on supposed inadequacies in the sales process that, according to the plaintiffs, resulted in a breach of the directors’ Revlon obligations. The shareholders further alleged that deal protections and other provisions in the merger agreement were preclusive, arguing that such provisions made it unlikely that a potential bidder lurking on the edges of the transaction might come forward.