As we turn the page on a new year, many of us reflect upon the noteworthy events of the past as we look forward to the future. Deal lawyers are not exempt from this phenomenon. We present herewith our choices for the 10 Most Influential M&A Developments of this Millennium and a few predictions for the future. Though our observations may not attract the same degree of public attention as Time’s “Person of the Year,” we expect just as much protestation from this audience (“how could you have left off Dell/Icahn“) as besets People’s “Sexiest Man Alive” issue—but please make sure you properly address your complaints, as People would surely be quite confused….
1.”Selling a Public Company” for Dummies. Early on in the millennium, deal lawyers joyously welcomed Toys “R” Us as providing much needed guidance on a myriad of issues involved in both structuring the sales process and negotiating the terms of the agreement itself. The fact that there is little remarkable about it today speaks volumes about the impact it has had on our practice.
2. Deal Litigation du Jour. The advent of virtually automatic deal litigation over public company acquisitions put new emphasis on the duty of candor and changed the face of stockholder disclosure, with more fulsome disclosure of the sale process, financial projections, fees paid to financial advisors and the analyses underlying the banker’s fairness opinion. Has all this disclosure been more valuable to investors or to plaintiffs’ attorneys seeking fees? Regardless, detailed disclosure is here to stay.
3. Financial Advisors Are Conflicted? Del Monte and the subsequent damages award provided a wake up call on financial advisor conflicts of interest and the risks of sell-side financial advisors providing buyer financing. Seller boards now pose conflict of interest questions to their bankers and are disinclined to allow their advisors to participate in buy side financing. But if your banker has no conflicts, does it have the connections for the job? Conflicts will remain an area of risk and banks will improve in identifying and disclosing potential conflicts earlier in the process.
4. Controlling and Interested Party Transactions, Entire Fairness and the Rise of the “Unified Standard.” A host of cases have moved us down a convoluted path of burden-shifting and standard setting in transactions involving controlling or interested parties. The recent MFW case may be the Toys “R” Us of the decade if it stands up to scrutiny and brings more cohesion to what is currently the most complex corner of M&A law.
5. Attack of the MAC. IBP/Tyson and Frontier Oil/Holly were followed by a spate of financed deals involving claims of “material adverse change” in beleaguered 2008, (witness Genesco/Finish Line and Hexion/Huntsman), and was the subject of the recent Osram Sylvania /Townsend Ventures case. No other defined term has received more attention in the M&A world. Do we know what it means yet? Probably not, but we’ll all likely stay the course with deliberately vague language and the courts will have more opportunities to weigh in.
6. Protection from Deal Protections. In a variety of instances, the Delaware Chancery Court has shown a reluctance to enjoin a transaction that has a “standard” mix of deal protections, but if the parties have to amend an agreement’s aggressive deal protections to settle litigation, the Court may award substantial fees (see Compellent Technologies). Will this curb strong-arming buyer behavior? Buyers beware.
7. The Golden Age of Tender Offers. The SEC’s amendments to the “all-holders, best price” rule gave new life to the two-step tender offer, and the adoption of Section 251(h) of the Delaware General Corporation Law virtually eliminated the need for top-up options and dual track tender offers and should eliminate the need for 14f-1 information statements. There’s a cloud hanging over 251(h) and obtaining support (tender) agreements in connection with tender offers, but we predict Delaware will provide statutory clarification.
8. Private Companies, Public Scrutiny. Fiduciary duties and entire fairness review have never been just for public companies, a fact seemingly sometimes lost on private company boards. In re Trados is a reminder, particularly to preferred investors and their board representatives, that process matters in private company deals too. We predict private company sell-side deal processes will come more into alignment (though likely still far from aligned) with what we see in public company practice.
9. Omnicare Ails Us. It changed practice, gave us SEC headaches in private company S-4 deals and is broadly viewed as the precedent “Most Likely Not to Succeed.” Predict we will see its demise in this decade.
10. Don’t Ask, Don’t Waive. Did you start the millennium thinking it would be reasonable to ask your sell-side client’s board of directors to allocate time at a board meeting to discuss and approve including seller-favorable standstill provisions in non-disclosure agreements? Neither did we.