Corporate governance - Vigil

It’s now accepted wisdom that virtually all public company mergers and acquisitions will be challenged with at least one lawsuit—over 95% of them are. A less well-publicized form of challenge—and one that is both fascinating and perplexing for those interested in securities litigation—is the unique creature of Delaware law known as the appraisal proceeding.

On July 27, 2017, the U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”) announced a $12 million settlement with CSE Global Limited (“CSE Global”) and its subsidiary, CSE TransTel Pte. Ltd. (“TransTel”), which are both based in Singapore. [1]

The US federal banking agencies with responsibility for enforcing the Volcker Rule have issued temporary one year no-action relief with respect to certain private non-US investment funds that are not “covered funds” for purposes of the Volcker Rule, but that could be treated as “banking entities” for purposes of the Volcker Rule due to a foreign bank’s investment in or governance arrangements with the fund. [1] Such funds are referred to as “qualifying foreign excluded funds.” The relief generally provides that the US banking agencies will not take action against a foreign bank or treat a qualifying foreign excluded fund as a banking entity based on the foreign bank’s acquisition or retention of an ownership interest in, or sponsorship of, the qualifying foreign excluded fund.

In two recent decisions, the Delaware Court of Chancery addressed the differing rights of preferred and common stockholders in the M&A context. On April 14, 2017, in Frederic Hsu Living Trust v. ODN Holding Corp., [1] the Court refused to dismiss claims that a private equity fund and the directors of one of its portfolio companies breached their fiduciary duties to common stockholders by selling certain of the company’s business lines and assets in order to fund a mandatory redemption of preferred stock.

The complete publication (available here) summarizes significant developments relating to the 2017 U.S. annual meeting proxy season, including:

Under intense pressure from the banking industry, the Trump Administration recently introduced legislation to repeal the Dodd-Frank Act and thereby eliminate the Volcker Rule. This development immediately raises the question of why the big banks would want to worry about a small, arcane, technical trading rule such as the Volcker Rule. The answer is that the Volcker Rule, if properly implemented, would eliminate huge amount of profits banks are currently making from proprietary stock trading that may be in conflict with their clients’ interests.

At the dawn of the Financial Crisis of 2007-09, major investment banks stood as the elite of Wall Street. They were large-scale, publicly listed corporations providing broad-ranging financial products and services across the globe. But as we know, their reliance on short-term funding and exposure to mortgage-related securities left them financially vulnerable and created system-wide financial risks. As their lending sources dried up, they received massive government assistance designed to avert catastrophic system-wide harms. Those investment banks that survived became bank holding companies (BHCs). These events wiped out major investment banks, prompting The Wall Street Journal to assert that “Wall Street as we’ve known it for decades has ceased to exist.” [1]

In a decision issued on Friday [July 21, 2017] that will likely slow the recent spike in appraisal suits, the Delaware Court of Chancery held that the fair value of Clearwire Corp. was $2.13 per share—less than half the merger price of $5 per share. See ACP Master, Ltd. et al. v. Sprint Corp., et al., C.A. No. 8508-VCL (Del. Ch. July 21, 2017) (“Clearwire”). The decision by Vice Chancellor Laster also found that Sprint Nextel Corp. (“Sprint”), which owned slightly more than 50% of Clearwire’s voting stock at the time of the merger, did not breach its fiduciary duties in acquiring the Clearwire shares it did not already own because the merger was entirely fair to Clearwire’s minority stockholders.

Few research topics over the last two decades have proven as alluring and elusive as corporate governance.  Its allure is self-evident: Since the turn of the 21st century, a growing number of pundits, commentators, and scholars have argued that high quality corporate governance matters in creatin