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Tips from the Trenches: M&A Trends for 2011. John F. Grossbauer Michael K. Reilly Potter Anderson & Corroon LLP Dallas Bar M&A Section Meeting February 8, 2011. The Latest On Delaware M&A: The Friendly Two Step Tender Offer M&A and the “Unified Theory” : A New Roadmap
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Tips from the Trenches: M&A Trends for 2011 John F. Grossbauer Michael K. Reilly Potter Anderson & Corroon LLP Dallas Bar M&A Section Meeting February 8, 2011
The Latest On Delaware M&A: The Friendly Two Step Tender Offer M&A and the “Unified Theory”: A New Roadmap Revlon Revisited: When, Why and Who Really Cares Anyway? Post-Closing Adjustments: Some Comfort and a Caution Poison Pills:The Latest Developments Arbitration in the Court of Chancery: A New Option For Contracting Parties M&A Trends for 2011
The Latest On Delaware M&A: The Friendly Two Step Tender Offer Trend favoring the friendly two step Modification of Best Price Rule Timing Advantages Result = 30% in 2007, 49% in 2008, 61% in 2009 Top-up option Need Significant Authorized Shares Terms of the note Cash for aggregate par value? Appraisal Issues Olson v. ev3, Inc. In re Cogent, Inc. S’holder Litig. Indenture or other issues?
M&A and the “Unified Theory”: A New Roadmap Majority Stockholders: Have the rules changed? One Step Mergers In re John Q. Hammons Hotels Two Step Mergers CNX – Supreme Court declined interlocutory appeal Cox Radio – Supreme Court does not address Structure for business judgment? Effect on deal value? Burden shifting is still available Another example of Court preference for proactive directors
Revlon Revisited: When, Why and Who Really Cares Anyway? Revlon triggers Initiate active bidding process Abandon long term strategy in favor of break-up Change of control End stage transactions Reverse-split freeze-outs Reis v. Hazelett Strip-Casting Corp. Mix of stock and cash mergers Steinhardt v. Howard-Anderson (Occam) Stock for stock mergers (the whale and minnow) Effect of triggering Revlon Reasonableness standard of review Contextually specific obligations of the board No blueprint
Revlon Revisited: When, Why and Who Really Cares Anyway? • What’s the Remedy? • Lyondell and 102(b)(7) (but what about officers?) • Forgo v. Health Grades, Inc. (Transcript) “[T]he number of times that this Court has ever enjoined stockholders from considering a premium-generating transaction in the absence of fear of a disclosure violation or coercion and the absence of a higher competing offer…- it’s basically a null-set.” • In re Cogent, Inc. S’holder Litig.(absence of favoring one bidder over another). • Possibility of an injunction remedy nevertheless? • Disclosure violations • Maric Capital; Art Technology; Zenith; Occam • Omnipresent duty to maximize value • Deal protections and process – intertwined
Post-Closing Adjustments: Some Comfort and a Caution Drafting the escrow properly Imposing obligations vs. Adjusting merger consideration Aveta v. Bengoa Post-closing adjustment enforced Court relied on statutory authority (facts ascertainable) Implies limits on ability to bind non-signers Implications for deals with escrows Properly drafted escrows work Enforceability issues for “stockholder reps” Doubt about whether non-signers can be bound to true indemnification provisions Court may be skeptical about deductions for appraisal claims
Poison Pills: The Delaware Handbook Keeping the Pill “on the shelf” “Window Closing Pill” inconsistent with this strategy Using the Pill to protect NOLs Selectica Impact on Proxy Contests? Using the Pill to defend against activists Barnes & Noble Impact on Proxy Contests? Using the Pill to protect the corporate culture Craigslist v. eBay When must Pill be redeemed? Airgas Should targets adopt a Pill in a friendly deal?
Arbitration in the Court of Chancery: A New Option • Permits business entities to consent to voluntary binding arbitration • Chancellor, Vice Chancellor or Master • Three distinct advantages: • Confidential proceedings • Swift resolution • Opportunity to resolve monetary disputes • Mechanics • Agreement to arbitrate (which can predate dispute) • All parties must have consented • At least one party a Delaware business entity • No party may be a consumer • For monetary relief, amount must exceed $1 million
John F. Grossbauer Direct Dial: (302) 984-6131 Email: jgrossbauer@potteranderson.com Michael K. Reilly Direct Dial: (302) 984-6181Email: mreilly@potteranderson.com Potter Anderson & Corroon LLPHercules Plaza, 6th Floor 1313 North Market Street Wilmington, DE 19801 www.potteranderson.com