Presentation on theme: "Mergers & Acquisitions: Trends and Developments in 2013"— Presentation transcript:
1Mergers & Acquisitions: Trends and Developments in 2013 Prepared for:the Hispanic National Bar Association Annual ConventionSeptember 2013
2Moderator: Sean A. Monroe Sean A. Monroe is a Partner in the Century City, California office of O’Melveny & Myers LLP and a member of the Mergers and Acquisitions Practice. Sean has broad experience in a range of public and private M&A, private equity, and corporate finance transactions, including fund formation and investments, private equity and strategic acquisitions and divestitures, and complex public and private company mergers and acquisitions. Sean has extensive involvement with federal and state securities laws and regulations, state corporate laws, and general corporate matters and corporate governance, with related exposure to tax, intellectual property, employee benefits, ERISA, environmental and bankruptcy practice areas.Sean specializes in handling the M&A, securities, and other corporate aspects of entertainment, sports and media transactions, including those involving motion picture financings, entertainment fund formation, acquisitions of, and investments in, entertainment and media businesses, acquisition due diligence and evaluation, and distribution arrangements.Sean graduated from Boalt Hall School of Law, University of California Berkeley, and received his undergraduate degree from Georgetown University.Panelist: Carlos A. GonzalezCarlos R. González is Vice President and Chief M&A Counsel at Prudential Financial. In this role, Mr. González is responsible for providing legal advice in connection with corporate M&A activities and other strategic initiatives involving Prudential Financial’s domestic and international insurance, annuities, retirement services, asset management and other businesses.Prior to joining Prudential Financial, he was a Senior Associate at Debevoise & Plimpton LLP in New York City, where he was a member of the Firm’s Mergers & Acquisitions Group.Carlos received his law degree from Columbia Law School and his undergraduate degree from Fairfield University.Panelist: Michael-Bryant HicksMichael-Bryant Hicks is an Assistant General Counsel for mergers and acquisitions within the legal department at DaVita HealthCare Partners Inc. Michael-Bryant also represents the company’s strategy and the development of business lines outside of its core dialysis treatment business. Michael-Bryant received his law degree from Yale Law School and his undergraduate degree from the University of North Carolina at Chapel Hill.
3Agenda for discussion: 1. Objectives for the panel discussion2. Introductions3. Legal developments and issues in Domestic and Cross-Border M&A in 20134. Practice developments, deals, experiences and observations in 20135. Thoughts on client service, business development, networking and career progression6. Questions
4Legal Developments in Domestic and Cross-Border M&A in 2013
5Reverse Triangular Merger Is Not An Assignment By Operation of Law Case Background:In Meso Scale Diagnostics, LLC v. Roche Diagnostics GMBH, No VCP (Del. Ch. Feb. 22, 2013), Meso Scale alleged that a breach of contract occurred when the Roche subsidiary merged with and into BioVeris through a reverse triangular merger because the merger constituted an assignment of BioVeris’s license rights and obligations without Meso Scale’s consent.The Decision:A reverse triangular merger does not result in an assignment by operation of law of assets that began as property of the surviving entity and continued to be such after the merger.The Delaware Chancery Court declined to follow an unpublished California case (SQL Solutions, Inc. v Oracle Corp.) which had held that a reverse triangular merger is an assignment by operation of lawObservation:Clarifies law with respect to transactions and agreements governed by Delaware law.Consent would still be required for the IP rights held in the subsidiary to be accessed by the acquirer, or if further corporate restructuring was to occur.Any anti-assignment clause should be properly drafted to give effect to the parties’ intentions; in this instance a “change of control” provision would have protected Meso Scale.Whether a reverse triangular merger is an assignment by operation of law is still an issue under California law in light of SQL Solutions (at least with respect to a non-exclusive copyright license).
6Disclaimers On The Accuracy Of Information Given In Due Diligence Case Background:In RAA Management LLC v. Savage Sports Holdings Inc., Del., No. 577, 2011 (May 18, 2012), RAA sued Savage, alleging that Savage knowingly made material fraudulent misrepresentations and omissions during the due diligence process. Savage contended that RAA’s claims should be precluded by the non-reliance disclaimer in their NDA, even for a claim of fraud.The Decision:The Delaware Supreme Court found that RAA’s non-reliance disclaimer was unambiguous because the language of the non-reliance disclaimer in the NDA did not distinguish between due diligence information that was inaccurate because of negligence, mistake, intent or fraud.The court rejected New York’s “peculiar knowledge” exception because applying it would preclude sophisticated parties from ever having an enforceable agreement that a bidder would not bring claims if it walked away from negotiations.Delaware’s public policy is in favor of enforcing contractually binding written disclaimers of reliance on representations outside of a final agreement of sale or merger.Observation:A properly-drafted NDA is a critical agreement that should be implemented at an early stage of any due diligence exercise.Buyers should conduct their process aware of the potential risk of inaccuracy or incompleteness of diligence information, mindful of the costs they will incur.
7Implied Standstill Provision In Confidentiality Agreement Case Background:In Martin Marietta Materials, Inc. v. Vulcan Materials Company, C.A. No CS (Del. Ch. May 4, 2012), Vulcan claimed that Martin Marietta breached its NDA confidentiality obligations by improperly using and publicly disclosing information obtained in their discussions for a consensual merger to aid Martin Marietta’s public bear-hug exchange offer and proxy contest to acquire Vulcan.The Decision:Although the confidentiality agreement between the parties did not contain an explicit standstill provision, the Delaware Chancery Court concluded that, based on the specific wording of the agreement as well as the parties’ negotiations and other extrinsic evidence, the companies intended to bar disclosure of the existence of their negotiations and to limit the use of shared information to a consensual negotiated transaction.Observation:NDA obligations have continuing relevance post-transaction. Careful thought should be applied prior to entering into one in light of the general “non-use” restrictions and the parties’ potential courses of action.An implied standstill obligation may be created in a general “non-use” NDA provision by restricting the use of confidential informationDisclosures a party is compelled to make as a result of a hostile bid will not be viewed as “legally required”This decision was based largely on the particular facts of this case and the negotiating history; parties desiring to impose (or not impose) a standstill obligation in an M&A or auction process should specifically negotiate around that subject.A confidentiality agreement without a standstill provision may allow a bidder to terminate discussions and proceed with a hostile offer at any time.
8The “Don’t Ask, Don’t Waive” Standstill Provision Case Background:In In re Complete Genomics, Inc. Shareholder Litigation, C.A. No VCL (Del. Ch. Nov. 9, 2012) (transcript ruling); C.A. No VCL (Del. Ch. Nov. 27, 2012) (transcript ruling), the Delaware Chancery Court enjoined Complete Genomics from enforcing the “Don’t Ask, Don’t Waive” standstill provision in its confidentiality agreement with one potential bidder that would prohibit that bidder from asking Complete Genomics for a waiver of the standstill in order to make a competing offer.A “don’t ask, don’t waive” provision will prohibit a potential bidder from requesting that the target company release the bidder from a standstill obligation.The Decision:The “don’t ask, don’t waive” provision will “impermissibly limit” the Seller’s Board’s “ongoing statutory and fiduciary obligations to properly evaluate a competing offer, disclose material information, and make a meaningful merger recommendation to its stockholders.”The “don’t ask, don’t waive” provision, similar to a “no-talk provision,” would “absolutely preclude the flow of incoming information to the Board.”
9The “Don’t Ask, Don’t Waive” Standstill Provision (Continued) Case Background:In In re Ancestry.com, C.A. No CS (Del. Ch. Dec. 17, 2012), shareholders of Ancestry sought to enjoin the shareholder vote on a potential merger, arguing that the “don’t ask, don’t waive” provisions in Ancestry’s NDA with potential bidders impermissibly precluded the board of directors from being fully informed of possible superior offers.The Decision:“Don’t ask, don’t waive” provisions are not invalid per se under Delaware law.The use and effect of “don’t ask, don’t waive” provisions are material to shareholders in determining how to vote on a proposed merger and therefore should be publicly disclosed, especially where the restrictions potentially account for why no superior offers have been made.Observation:“Don’t ask, don’t waive” provisions will be placed under greater scrutiny by the court based on the facts surrounding their use in the particular cases.Seller’s counsel should be prepared to advise the seller’s board during the auction process as to the existence of standstill agreements and the import of “don’t ask, don’t waive” provisions. Directors must understand the consequences of subjecting potential buyers to these provisions.Sellers should be prepared to disclose the existence of “don’t ask, don’t waive” provisions to their shareholders when seeking approval of a transaction.
10Conflicts of Interest of Financial Advisor Case Background:In In re El Paso Corporation Shareholder Litigation, C.A. No CS, at 1 (Del. Ch. Feb. 29, 2012), shareholders of El Paso sought a preliminary injunction to enjoin a merger between El Paso and Kinder Morgan, Inc., alleging a number of conflicts of interest, including that El Paso’s lead financial advisor Goldman Sachs & Co. owned approximately 19% of Kinder Morgan stock and controlled two of Kinder Morgan’s Board seats. The lead Goldman banker advising El Paso also failed to disclose his personal ownership of $340K of Kinder Morgan stock.The Decision:The Plaintiffs had a reasonable likelihood of success on the merits in proving a breach of the duty of loyalty, thus potentially exposing the defendants to claims for damages post-closing.Take-away:Seller’s counsel should be sensitive to banker conflicts and be ready to defend their roles.Individual banker conflicts (in addition to those of the firm) should be specifically inquired about and disclosed.Preventative measures for proceeding with a conflicted banker may include:Engaging a second independent investment banker; orAvoiding engagement terms that incentivize the banker to provide conflicted advice.Consideration should also be given to actual or potential conflicts of interest of controlling shareholders. See, In re Southern Peru Copper Corp. Shareholder Derivative Litigation, C.A. No. 961-CS (Del. Ch. Oct. 14, 2011), affirmed by the Delaware Supreme Court in Americas Mining Corp. v Theriault (51 A.3d 1213).
11Business Judgment Rule Standard of Review for Interested Stockholder Transaction Case Background:In In re MWF Shareholders Litigation, 2013 WL (Del. Ch. May 29, 2013) a holding company owned by Ronald Perelman held 43% of M&F Worldwide (“MWF”) and offered to purchase the rest of MWF’s equity in a going-private merger. In their Proposal to MWF, M&F conditioned their offer on two devices designed to protect minority shareholders: (1) approval by an independent special committee and (2) approval by a vote of a majority of the shareholders not affiliated with Perelman. Despite approval by both, MWF shareholders sued M&F, Perelman and the other directors of MWF, alleging that the terms of the merger were unfair.The Decision:The Delaware Chancery Court applied the business judgment rule and granted summary judgment in favor of M&F.Take-away:To obtain a business-judgment standard of review, a transaction involving a controlling shareholder must include the use of both protective devices and: (A) the controlling shareholder should refuse to proceed with his or her offer without approval by both protective devices; (B) the special committee must be independent and properly empowered to employ financial and legal advisors, negotiate the merger and veto the proposal; and (C) the majority-of-the-minority must be uncoerced and fully informed.It is unclear from MWF whether a controlling shareholder must condition its refusal to proceed without approval by both protective devices upfront. In MWF, M&F attached this condition to its initial offer, and made clear its offer would in all events be subject to these requirements only answered the question of what standard applies where a controlling shareholder conditions upfront approval by both protective devices. In M&F’s proposal to the MWF board, M&F stated that, “[w]e will not move forward with the transaction unless it is approved by a special committee. In addition, the transaction will be subject to a non-waivable condition requiring the approval of a majority of the shares of the company not owned by M&F or its affiliates.”
12Business Judgment Rule Standard of Review for Interested Stockholder Transaction (continued) M&F also filed this letter with the SEC and “issued a press release containing substantially the same information.” Although the Court did not discuss this protection further, throughout the opinion, it referenced M&F’s refusal to proceed until both groups approved the transaction.However, note the difficulty caused by a majority-of-the-minority approval condition in the Dell transaction.
13Legal Issues in Cross Border Mergers & Acquisitions
14International nature affects all elements of the transaction Cross-Border M&A: General OverviewInternational nature affects all elements of the transactionTransaction StructureTake into account legal/regulatory system, tax laws, accounting standards, restrictions on foreign direct investments, antitrust concerns, successor liability, and political considerationsSelection of CounselDiligenceAccommodate differences in parties’ expectations regarding scope, confidentiality, transparency, recordkeeping/compliance controlsNegotiationsCultural differences, role of attorneys in transactions, allocation of responsibilities between U.S. and local counselDocumentationLocal vs. U.S. vs. UK styled and law governed agreements
15Form of Agreements - Generally Documenting the DealForm of Agreements - GenerallyLocal vs. U.S. (e.g., New York) vs. UK law-governed documentsMandatory forms required for certain types of agreementsMaybe preferable for certain agreements to be governed by local law (e.g., shareholders agreement)Nature of local jurisdiction’s legal system (common law vs. civil law jurisdictions)Certain civil or commercial codes provide default rules that obviate the need for detailed representations and covenants contained in common law agreementsIf considering foreign law:Discuss with local counsel differences with U.S. lawConsider how contracts are interpreted (strict construction of contracts?) and whether foreign law is well developedAre provisions of law incorporated into the contract?
16Documenting the Deal (Continued) Local reaction to US-style agreementsLack of familiarity of small or family run companies with US formsEnglish vs. local languageControl of DocumentsChoice of local style documentation places local counsel in role as primary drafter and negotiatorLess control over document for U.S. lawyer and U.S.-based client
17Local vs. US vs. UK Style Agreement? Key considerations and differencesTiming of transfer of risk of business to buyer – signing vs. closingConditionality - broad vs. limitedIndemnification vs. breach of contract claimsTypes of recoverable damagesScope of representations and warranties and related disclosure
18Dispute Resolution in Cross-Border Transactions Arbitration or LitigationFor cross-border deals, arbitration is often acceptable to the parties in light of flexibilityArbitration cannot be forced upon the parties. The parties must agree to submit to arbitrationIt is more important to choose a neutral and better dispute resolution forum (arbitration outside the host country) than to choose English or NY law instead of the local law (assuming there are no impediments in the local law)Good arbitration centers outside Europe and North AmericaSingaporeHong KongSao Paulo
19Foreign Corrupt Practices Act (FCPA) Successor LiabilityAn acquiror can be held responsible as a successor for the pre-acquisition conduct of an acquired entityActions to reduce FCPA successor liability risk:Conduct an assessment of the corruption index in the jurisdictionConduct an appropriate level of corruption due diligenceWill vary based on jurisdiction and industryAddress any potential “red flags” discovered in due diligenceMaintain a detailed file of due diligence conducted and issues addressedObtain appropriate contractual protections (e.g. reps, termination and audit rights)Impose appropriate internal controls post-closingIf appropriate, consider disclosing any potential violations to the DOJ and obtaining an advisory opinion
20General Observations Recent M&A trends & deal metrics Global M&A volume reached $1.25 trillion in the 1st half of 2013, slightly up on the 1st half of 2012 ($1.24 trillion). Volume dropped for the second consecutive quarter to $589.5 billion in 2Q 2013, down 14% on the previous quarter ($658.3 billion). Global cross border M&A totaled $338.4 billion in the 1st half of 2013, down 19% year-on-year and accounted for 27% of total M&A volume, the lowest half year share since the 1st half of 2009 (25%)US targeted M&A was up 27% year-on-year to $509.7 billion in the 1st half of 2013, the highest 1st half since 2011 ($524.6 billion). Activity decreased 23% to 4,659 deals.The volume of going private deals reached $95.5 billion via 80 deals in the 1st half of 2013, the highest half yearly volume since the first half of 2007 ($291.5 billion). North America was the most active region with 28 deals ($77.6 billion) led by the HJ Heinz ($27.5 billion) and Dell Inc. ($20.7 billion) transactions.Source: Dealogic
21General Observations (Continued) In public M&A deals, increasingly frequent litigation; frequently filed in more than one venue:“The past decade has witnessed a dramatic transformation in the nature of public company M&A litigation. In 2010, 84.2% of announced deals attracted lawsuits. In 2010 and 2011, according to Cornerstone Research, 91% attracted lawsuits According to the data for 2011, in the same study, 96% of deals valued at $500 million or more attracted lawsuits. That’s compared to 53% in As these volumes have increased, merits-related outcomes have decreased.”-- Vice Chancellor J. Travis Laster noted in Stourbridge Investments LLC v. BersoffShareholder litigation increasingly filed in more than one venue:Even for companies incorporated in Delaware, challenges to a deal are more commonly filed in the Delaware Court of Chancery and another State venue.In , most lawsuits involving acquisitions valued at or over $100 million brought in non-Delaware state courts were in California, Texas and New York, likely reflecting where many deal targets are headquartered.The prevalence of litigation indicates the continuing importance of process, planning and careful management in managing corporate transactions.