Corporate governance - Vigil

In Does Revlon Matter: An Empirical and Theoretical Study, we examine the effect the seminal case of Revlon v. MacAndrews & Forbes Holdings has on the takeover process. We examine this through a novel M&A dataset of 1,913 transactions from 2003-2017. Our unique dataset contains details of the private merger negotiation process before public deal announcements, including the number of bidding rounds, timing of bids, bid premiums, and indicators for single versus multiple bidding parties.

Lord Denning, a highly quotable British judge, once remarked: “As a moth is drawn to the light, so is a litigant drawn to the United States.”[1]. Some reasons for this strong attraction are obvious: (1) the U.S. (and only a few other nations) authorize opt-out class actions; (2) the U.S. permits (and generously awards) contingent fees; (3) the U.S. has no “loser pays” rule (and most other countries do); and (4) the U.S. uses juries in civil cases and permits punitive damages.

A vast literature studies the effects of antitakeover provisions (ATPs) on firm value. The academic consensus is that ATPs harm firm value because they partly insulate managers from the threat of takeover, and that view has become very influential. Prominent studies find that empire building through corporate acquisitions is the main channel of value destruction by entrenched managers (Masulis, Wang, and Xie, 2007; Harford, Humphery-Jenner, and Powell, 2012). 

This post examines litigation challenging M&A deals valued over $100 million announced from 2008 through 2017, filed on behalf of shareholders of publicly traded target companies.

The “supercharged IPO,” a new and increasingly popular financial transaction, has fundamentally changed the nature of IPOs for many companies. Traditionally, an

Trian’s P&G whitepaper is a unique support document for an activist proxy contest. Its 93 pages are replete with suggestions and criticisms that should be taken into account by companies in connection with their preparations to avoid an activist attack and for dealing with an activist. The whitepaper raises the not unusual issues of comparative peer TSR, declining market shares, executive compensation in relation to performance, board complacency and weak corporate governance, among others. The unique aspects are:

So far, 2017 isn’t quite the year many deal forecasters were expecting. But at the midway point, it looks on track for a finish that won’t leave dealmakers gritting their teeth.

Last month, we described the increased threat of activists and acquirors seeking to capitalize on the COVID-19 sell-off to build positions in high-value companies at depressed prices. Even before the current crisis emerged, we recommended that all U.S. public companies regularly review their defense profile and have a shareholder rights plans “on the shelf.” For companies uniquely impacted by the crisis—especially those whose market capitalization has fallen below $1 billion—we suggested they re-assess their vulnerabilities in this new environment and consider whether now was the right time to adopt a rights plan to ward off potential opportunistic behavior. Some companies have done just that—since March 1, 2020, 24 U.S. public companies have adopted a defensive shareholder rights plan (6 other U.S. public companies have adopted NOL rights plans).

Recently in Arkansas Teacher Retirement System v. Alon USA Energy, Inc., the Delaware Court of Chancery (in an opinion by Vice Chancellor McCormick) held, on a motion to dismiss, that Delek US Holdings, Inc.’s acquisition of Alon may have violated Section 203 of the Delaware General Corporation Law, Delaware’s anti-takeover statute.

Since the Trans Union case (Smith v. Van Gorkom, 1985), it has been considered effectively mandatory for target directors to seek and consider a third-party “fairness opinion” with supporting financial analyses and valuations (henceforth “fairness valuations”) before accepting a takeover offer. Despite their ubiquity in M&A, their role is, to put it mildly, controversial.

In a new cross-nation study, we discuss our findings on how the takeover market affects stock-price crash risk, defined as the likelihood of a sudden, drastic decline in the stock price of a firm...

In a recent New York Times article, Steven Davidoff Solomon listed several possible explanations for a significant decline in the number of initial public offerings (IPOs). Among the most interesting was that there are many large and successful high-tech acquirers such as Facebook, Google, and Microsoft that are willing to pay top dollar for high flying unicorns (private companies with equity values greater than $1 billion) before they become public companies. The ability of the private markets to provide financing may have matured to the point where the advantages of financing through the public markets are no longer as great. Shareholder activism may also be scaring off companies that would normally enter the public markets. The relatively low number of IPOs over the last several years is simply a reversion back to what we should consider to be normal, perhaps 150 per year but with lots of volatility in that number.

U.S. and European companies continue to receive bids to sell themselves and their significant assets to companies based in the People’s Republic of China.

The shareholder empowerment movement (the “movement”), driven primarily by public pension funds and union-related funds with over $3 billion in assets, has renewed its effort to eliminate, restrict, or at least discourage companies from creating dual class share structures in initial public offerings (IPOs).  The impetus was the issuance of non-voting stock in the recent Snap Inc. IPO.  Such advocacy, if successful, would not be trivial, as many of our most valuable and dynamic companies, including Alphabet (Google) and Facebook, have gone public by offering shares with unequal voting rights.