Just yesterday I wrote about upcoming technology IPOs and mentioned that Skype's August 2010 registration statement was getting a little stale.  But as of a month or so ago, folks were still waiting for Skype's upcoming IPO.  What a difference a day makes!  Microsoft announced today that it will acquire Skype for $8.5 billion in cash.

So, what factors would delay the Skype IPO but not scare off Microsoft?  Well, Skype could have been waiting for an upturn in the IPO market.  An acquirer would not necessarily care about that and might think they could get a bargain if venture capital wanted a now-ish exit.  But the IPO market seems to be not so cold right now.  And Microsoft doesn't seem to be getting a bargain.  Earlier reports thought Skype would try to get a valuation at IPO of $6-7 billion.  (Pretty good for a company with no clear record of profits.)  $8.5 billion is more.  Can Microsoft add value to the assets it is acquiring?

What about management?  Skype changed CEOs last Fall.  Perhaps management issues were scaring away the IPO smart money.  An acquisition takes care of management issues.  But, all of this is armchair blogging about an interesting development in social networking!

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So, we've already blogged about the NYSE announcing two months ago a proposed merger with Deutsche Börse's (Usha's post, my post).  But, there is now a wrinkle.  NASDAQ, together with Intercontinental Exchange, has made an unsolicited offer to acquire NYSE Euronext for 16% more than Deutsche Börse's offer.  This NASDAQ offer, however, was rejected by the NYSE board.  Here is NYSE Euronext's press release reaffirming the Deutsche Börse acquisition and rejecting what it calls the proposal "to break up" the company.  I'm hoping for a hostile tender offer, but I'm just funny that way.

So, why did the NYSE reject?  Well, it's pretty far down the road with Deutsche Börse and has already invested a lot in that transaction.   The "Business Combination Agreement" has a No-Shop clause, but it allows NYSE Euronext to negotiate after an unsolicited bona fide acquisition offer if it believes it to be a "superior offer."  The reasons offered by the Board, however, are that the proposed combination is not a superior offer because it would face antitrust regulatory hurdles and would be too highly leveraged. 

Breaking up NYSE Euronext, burdening the pieces with high levels of debt, and destroying its invaluable human capital, would be a strategic mistake in terms of where the global markets are going, and is clearly not in the best interests of our shareholders. The highly conditional break-up proposal from Nasdaq/ICE would also require shareholders to shoulder unacceptable execution risk.

So, why now?  In two weeks, NYSE shareholders have their annual meeting, where they will vote for directors and also have the ability to vote on a proposal giving 10% of the shareholder vote the right to call a special shareholder meeting.  Alienating the shareholders on the eve of that meeting may not be in the directors' best interests.  And, rejecting the NASDAQ bid without even meeting with the bidder seems to have done just that.  And, remember that many big players are NYSE shareholders -- people that NASDAQ knows and can go to and chat with.  And many are also NASDAQ shareholders, so NASDAQ management is doing just that.

Fun to watch.

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So, to give you a snapshot of what experts are saying about the announcement that AT & T is buying T-Mobile USA for $39 billion, here is a conversation that took place on Saturday:

ME:    AT & T is buying T-Mobile. 

IN-HOUSE ANTITRUST EXPERT:    No, they're not.

In a nutshell, the deal will have to overcome some regulatory hurdles, including governmental approval from the DOJ/FTC under the merger guidelines.  Though most mergers have sailed through in the past decade, this would be the first chance to see whether the Obama administration will continue the Bush-era hands-off tradition or vigorously scrutinize a transaction that will result in one company having about 130 million U.S. subscribers.  (Yes, more than a third of all potential subscribers, from infants to centenarians.)  The battlefield in merger review usually focuses on identifying the market, and from there regulators decide whether the transaction will result in loss of competition in that market, how much, etc.  Here, AT & T is going to argue for a city-by-city market analysis, not a nationwide analysis, because apparently AT & T doesn't look like a future monopolist in match play. 

Normally, I like to look at the market to see whether investors think the deal will come through.  Here, AT & T is buying T-Mobile USA from Deutsche Telekom.  The parent compoany delisted from the NYSE last year, but trades its American Depositary Shares (DTEGY) on the OTCQX and its own shares in Germany and other OTC exchanges.  The ADS share price is opened up this morning, and the price for T-shares seems to be going down somewhat today.  I'm no event study expert, but I'm assuming it's hard to separate out the transaction from the volatility in the markets over Japan, Libya, etc.

Maybe AT & T should just show the FTC Verizon's ad campaign, which seems to suggest that AT & T is not a threat to anyone:

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A couple of days ago I mentioned in passing that two very large deepwater drilling companies were merging:  Houston-based Pride International and ENSCO.  Now, a shareholder suit has been filed against Pride alleging breach of fiduciary duties.  Specifically, the price ($41.60 a share, representing a premium of 21%) is too low and the process (no-shop clause, $260 million termination fee) is unfair because it ties the board's hands.  Remember, the total price tag for Pride is $7.3 billion.  So, we'll see!  (The complaint is available at plaintiff's counsel's website.)  For those of you keeping score at home, Pride did file a copy of a Shareholder's Rights Plan with the SEC on September 28, 2001, which was amended in April 2008.  I have not found a filing terminating or amending the plan since then, but it's Friday and I'm sloppy.  (ADDED:  With the merger announcement filing, Pride referenced the rights plan and amended it to not apply to ENSCO, so there you go.)

I feel very odd blogging about this because my first Houston law firm, Baker Botts, represents Pride.  In fact, Pride was one of the first client matters I worked on in 1994.  What's even more interesting, in that "wow, Houston sure is a small town" sort of way, is that the plaintiff's counsel, Ahmad, Zavitzanos & Anaipakos, was started by an attorney who left B&B in 1993.  And, there are many other ties between the firms.  Most Fridays, I'm pretty glad not to be at the law firm.  Today, I'm sort of missing out!

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The New York Stock Exchange is in advanced merger talks with Frankfurt Stock Exchange to be purchased by the FSE.  Wow!  That just feels un-American to just type that sentence.  But, apparently we're experiencing a consolidation of the industry -- London Stock Exchange and Toronto Stock Exchange have already sealed a merger deal.  Remember when the NYSE was a not-for-profit, then we all got mad because Dick Grasso made so much money as the CEO?  Well, now it's for-profit, and it's going to be owned by Europeans.  There you go.

One interesting aspect of the merger may be the future of U.S. corporate governance.  We tend to think of corporate governance as a state law issue, and more and more recently a securities law issue, but the NYSE's listing standards are the source of many corporate governance rules that don't appear anywhere in the state statutes.  These listing standards are even sometimes a step ahead of the SEC as well, which then catches up to them with their own rulemaking.  (e.g., NYSE's one-share-one-vote rule, which led to 19c-4 debacle; NYSE's requirement of independent directors on compensation committees, adopted under Dodd-Frank).  From what I read from the comparative corporate law scholars, corporate governance rules and norms are a little different in Germany than in the U.S.  Will these governance rules make their way into the NYSE listing standards?

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Are below, if you haven't seen them, and the discussion is here.

And here is the legal adviser table:

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The industry minister of Canada, invoking its Investment Canada Act, just scotched the Australian bid for Potash, which was, for a brief pre crash period, the most valuable company in the world.  The statute requires that foreign investment in the country be a net benefit to Canada - which, though I don't know this area, seems like a statute that would come close to violating TRIPs and Canada's BITs (which usually include provisions that foreign investors must be treated the same way domestic ones are ... Canada would need to establish that it does something like "good for Canada" reviews for domestic M&A as well, I would think).

Anyway, there's few economists who think that "good for X" government reviews of M&A are actually good for anything.  But it is the bleeding edge of takeover defense.  In China, antitrust is the mechanism through which this sort of vetting is done, as Anu Bradford can tell you.  In Canada, it is the ICA.  And in the US, it is national security, which is an intensely scrutinized way to kill, say, Chinese bids for American tech and gold mine companies (the two most recent times it has been used).  Anyway, I've got an article on the American national security review process in the S.Cal.L.Rev., and if you're interested, you can have a look here.

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For those unfamiliar with batttles for corporate control in the UK, the efforts of the lenders to Liverpool FC to seize the company and sell it to the owners of the Red Sox has been extremely educational as well as entertaining.  That all of this is being done over the objections of the owners, including private equity slickster Tom Hicks, make it look somewhat similar to the way that insolvency litigation works here - you've got the business loaded up with debt, missed payments by the owners, and the easily victimized lenders trying to pull the trigger.  Enter the lawyers.  As is de rigeur in English football, you've also got a late, rich bid for the team by someone from Asia.  And the particular mechanism of the suit - the lenders told the board to proceed with a sale, so the owners replaced two board members with loyalists, allegedly in breach of an agreement with the lenders to leave the board alone - sounds vaguely Delaware.

Anyway, the Guardian liveblog of yesterday is absolutely worth your time, and the best place to go for this story (of course, it's the best place to go for everything soccer).  You'll find it most engaging if Liverpool is the team you've followed since you were seven, but if you haven't (and I'm sorry for you if that's not the case), you'll still enjoy it.  The video of the supporters breaking into "You'll Never Walk Alone" outside the high court once the verdict was announced brought a tear to my eye ... but then, so did the video of long-time Liverpool supporter Chris "The Lady In Red" DeBurgh.  Here's a taste of the legal analysis:

Andrew Nixon, Associate at Thomas Eggar LLP, said:

This ruling means that there will be no need for Mr Broughton and the board to bring their own declaratory proceedings seeking an Order that they are entitled to push ahead with the deal.

Hicks and Gillett do have a right to appeal the ruling against them and given the amount of cash they are set to lose on a sale to NESV, they are likely to do so. Should they decide to take that option, then there will be further delay. If an appeal is launched then RBS may extend the loan deadline. Regardless of Justice Floyd's assertion in this morning's judgment that it would be "inappropriate" to appeal it seems likely that there is still considerable mileage in this case.

Gerald Krasner, Partner at insolvency and recovery specialist Begbies Traynor and former Chairman of Leeds United Football Club (before selling to Ken Bates in 2005), said:

This morning's announcement means that the possibility of Administration is now highly unlikely and the smart money is on the deal with NESV now going through. Even though there are obviously other parties now looking to muscle in, the chances of them being able to usurp John Henry's bid are remote although, if Hicks and Gillett look to appeal against today's ruling, that will delay things somewhat.

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City Capital Associates Ltd. Partnership v. Interco Inc. 551 A.2d 787 (Del.Ch. 1988) is one of my favorite Delaware opinions. Written by Chancellor Allen in 1988, Interco was the case in which Unocal was famously labelled "the most innovative and promising case in our recent corporation law." Ironically, Interco earned a red flag in Westlaw when the Delaware Supreme Court described the case as a "narrow and rigid construction of Unocal" and "reject[ed] such approach as not in keeping with a proper Unocal analysis." See Paramount Communications, Inc. v. Time Inc., 571 A.2d 1140, 1153 (Del.,1989). Now, over 20 years after Interco's apparent demise, Steve Davidoff suggests that Delaware's recent poison pill jurisprudence may be making room for Interco again. I agree.

Though Interco is still well known among corporate lawyers as a case in which Chancellor Allen ordered the redemption of a poison pill under Unocal, the case expresses some concern about Unocal's implications:

The danger that [Unocal] poses is, of course, that courts--in exercising some element of substantive judgment--will too readily seek to assert the primacy of their own view on a question upon which reasonable, completely disinterested minds might differ. Thus, inartfully applied, the Unocal form of analysis could permit an unraveling of the well-made fabric of the business judgment rule in this important context. Accordingly, whenever, as in this case, this court is required to apply the Unocal form of review, it should do so cautiously, with a clear appreciation for the risks and special responsibility this approach entails.

In retrospect, this hand wringing seems quaint, as the Delaware courts (particularly the Delaware Supreme Court) have routinely deferred to defensive actions by target directors. Indeed, after Unitrin modified the Unocal standard in 1995, it was hard to imagine a defensive measure that would be invalidated. The Delaware Supreme Court seemed so deferential to target boards that Bob Thompson and I declared Unocal a "dead letter" in 2001, though the Court of Chancery had invalidated a "dead hand" pill and a "no hand" pill a few years earlier. Our point was simply that defensive measures had to be extreme -- "show stoppers" in the parlance of the Delaware courts -- before they would be invalidated. Anything short of that extreme -- even a pill that makes a hostile takeover substantially harder, such as the 5% pill in Selectica, Inc. v. Versata Enterprises, Inc. -- would be approved as a proportionate response to almost any cognizable threat.

Interco offered a more nuanced interpretation of Unocal than the one developed in the subsequent Delaware Supreme Court cases. According to Chancellor Allen, "in the setting of a noncoercive offer, absent unusual facts, there may come a time when a board's fiduciary duty will require it to redeem the rights and to permit the shareholders to choose." 

Note that the premise for redemption in Interco is a noncoercive offer. As Professor Davidoff observes, Vice Chancellor Strine seems to invoke the spirit of Interco in Yucaipa American Alliance Fund II, L.P. v. Riggio, decided last month, when he writes: "there is a plausible argument that a rights plan could be considered preclusive, based on an examination of real world market considerations, when a bidder who makes an all shares, structurally non-coercive offer has: (1) won a proxy contest for a third of the seats of a classified board; (2) is not able to proceed with its tender offer for another year because the incumbent board majority will not redeem the rights as to the offer; and (3) is required to take all the various economic risks that would come with maintaining the bid for another year."

The bigger point that I would like to make in this post, however, is that Interco was animated by a sophisticated analysis of the threat prong under Unocal. Where the threat is relatively mild (e.g., "in the setting of a noncoercive offer"), the response should be accordingly muted. The Court of Chancery has been more attentive to this sort of analysis in recent years, and all three recent poison pill cases have something interesting to say on this issue.

• In Selectica the target board of directors was attempting to "prevent the inadvertent fortfeiture of potentially valuable assets, not to proteact against hostile takeover attempts." Vice Chancellor Noble reasoned, "the protection of corporate assets against an outside threat is arguably a more important concern of the Board than restricting who the owners of the Company might be." Given the elevated threat, a more severe defensive action was considered reasonable. (For an argument that the Delaware courts have gone too far, see the latest by Paul Edelman and Randall Thomas.)
• In Yucaipa, Vice Chancellor Strine identified the "threat that the corporation's stockholders would relinquish control through a creeping acquisition without the benefit of receiving a control premium." This does not seem like a terribly severe threat, given the existence of 13D filings that would place the market on alert for creeping acquisitions. Nevertheless, the defensive action in this case was not severe. Yucaipa conceded that the Rights Plan was not preclusive, which left only the issue of whether the Rights Plan fell within the "range of reasonableness" -- a business judgment rule-like inquiry that target boards rarely fail to satisfy.
• In eBay v. Newmark, as noted in my earlier post, Chancellor Chandler held that the target directors did not reasonably perceive a threat to the corporation's policy and effectiveness. Thus, the poison pill was unjustified.

While we might debate the correctness of any of these decisions, I applaud the Court of Chancery for continuing to develop its Unocal jurisprudence. Like Chancellor Allen, I have long thought that Unocal has great potential to calibrate the actions of incumbent directors. The question remains: will the Delaware Supreme Court embrace this more nuanced analysis?

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Steven Davidoff (Connecticut) has some incisive analysis of eBay v. Newmark on his Deal Professor column on the New York Times' Dealbook site. 

He ends the column by engaging our own Conglomerate forum topic on poison pills.  He starts with a comment that eBay isn't all that interesting as a poison pill case.  To follow Christine's analysis (and to borrow from craigslist lingo), perhaps we should flag Chancellor Chandler's posting as "miscategorized" -- is the case really about takeovers or about minority shareholder oppression or disenfranchisement?

Steven then gives a nice summary of what two cases that clearly do change poison pill jurisprudence -- Selectica and the Vice Chancellor Strine's opinion in the Barnes & Noble litigation -- mean for the looming legal battle over Air Product's takeover attempt on Airgas. 

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While I was teaching in London this past month, I told my students -- most of whom had just finished their first year of law school -- that their job prospects would brighten substantially over the next two years, led by a boom in mergers and acquisitions. My prediction was accompanied by the usual disclaimers: the views expressed here are entirely impressionistic and not based on systematic study or expertise. Nevertheless, the stars seem to be aligning. Banks are strengthening their balance sheets and becoming profitable. The weak economy has exposed vulnerable companies, but it has helped many other companies to become leaner. Consider the following from today's FT: 

In a buoyant second-quarter results season, two-thirds of European groups beat analyst forecasts; predictions suggest that leading American companies will report record profits this year. Businesses are flush with cash as they reap the benefits of rigorous cost-cutting and borrowing rates at historic lows. 

Even the most bullish executives privately acknowledge that there are risks to the recovery as some of the reasons underlying it evaporate and concerns persist over how developed countries tackle their public debt. But for now many of them are basking in a remarkable corporate renaissance in which size is a factor. “The strong are getting stronger and the weak are getting weaker. The competitive advantage has gone to the bigger companies,” says the chief executive of one group with $100bn revenues.

With the exception of Europe, global merger activity has already picked up this year. And John Carney's latest at CNBC suggests that at least some lawyers on getting ready:

The move of the Hanrahan team from midtown’s Lipstick building to One Chase Manhattan Plaza, in the heart of the financial district, shows that New York law firms are prepping for a big comeback for M&A debt financing. It seems likely that the clients of these lawyers—big financial institutions—are letting them know that lending standards may once again be easing and credit becoming more available for leveraged finance driven deals.

UPDATE: Larry Ribsten posted on John's story over at Truth on the Market, asking "Would a big increase in m & a activity mean a rebirth of Big Law?" Larry notes that this is area of legal practice in which Big Law is thought to have big advantages, but he is still wondering about the effect of outsourcing and technology. It's worth reading his Death of Big Law to see the argument in full.

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Newsweek is on the block.  The Washington Post Co. is accepting nonbinding bids for the 77 year-old magazine, and a few prospective buyers are lining up.  However, most name brands have declined:  Bloomberg, Thomson-Reuters, U.S. News & World Report.

I used to love Newsweek.  It was my airport purchase of choice.  I never had a subscription though, because it was so expensive.  I remember getting a call form a marketer once who would give me three other subscriptions for free (I think my picks were Oprah, Vanity Fair and something else) for purchasing a Newsweek subscription.  When I was in practice, I received an offer a week to purchase a subscription for "half off the newstand price," but it was still expensive.  Weekly magazines subscriptions are expensive. 

But now I rarely buy it, even in the airport.  If the morning newspaper seems to have stories that are already familiar, then reading a weekly magazine seems a lot like reading a 6 day-old newspaper.  And Newsweek's concept was news.  Mostly short pieces similar to a newspaper article or a blog post, with a few longer pieces, with more texture and interviews.  So, these days, you're paying $4 for the two long pieces, a lot of articles you've already read, and the cartoon/quotations page.  The weekly format just got squeezed by the Internet.  Weekly deadlines make sure that almost everything is stale and nothing is incredibly deep and thoughtful.  I actually love the articles in Vanity Fair, which are often about the financial industry, well-written and in-depth.  But I'm sure they take more than 4 days to write.

But what about People magazine?  It's a weekly, it's expensive, and it's very popular.  But what is in there isn't available on the Internet.  They have exclusive photographs.  Good ones, that I'm sure they pay for.  They also have exclusive interviews with celebrities, which they may also pay for.  Yes, you see on the Internet that Sandra Bullock is separated from her husband, but People magazine has the exclusive interview.  Two other things that sets People magazine out from the crowd.  First, it's more reliable than their competition.  If you look at a grocery store checkout aisle, four other magazines will have a cover that says that Hollywood couple No. 347 is divorcing because of (1) strange religious practice; (2) same-sex affair; (3) opposite-sex affair; (4) plastic surgery; (5) baby or lack thereof; or (6) aliens.  The cover of People magazine will be silent on the topic.  I don't believe any celebrity gossip unless it's in People magazine.  Second, People magazine may sell to a different demographic than the one that is following every celebrity on Twitter and scanning the internet constantly for news.  So, what's in People is still news to the mom at the grocery store who gets to check Facebook every other day, and People is amazingly good at getting things in the weekly magazine that seemed to have happened six hours ago.  The same people who would buy Newsweek have already kept up with most of the news that's in the latest issue.

So, stay tuned to see who wins the auction and what they will do with Newsweek once they win.

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The NY Times is reporting that United and US Air are in merger talks.

Ten years ago, the last time these two airlines were courting each other, I lived in D.C., and it was that market that caused the most antitrust concerns.  United has a hub at Dulles, while US Air has one in Philadelphia and has major operations out of National.

Will this courtship turn out differently?  Are the continuing struggles of the airlines enough to overcome union and antitrust obstacles?  (Don't ask me.  I won't even pretend to be an antitrust scholar.)

Which of the potentially eight hubs of the combined airline (SF, LAX, Phoenix, Denver, O'Hare, Philly, Dulles, Charlotte) would be downgraded?  Living in the Southwest, I hope it would be none of the western ones.  Phoenix might seem like a good candidate, although the city has stealthily grown into one of the five largest in the country.  I am also rooting for Philly to remain viable.  The US Air hub there keeps prices down when we fly back to God's Country (aka New Jersey).

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During the financial crisis, the last administration, staffed by investment bankers, tried to furiously deal its way out of the mess.  TED has a post up that suggests that perhaps we should not be surprised, given the business model, and ultimately the culture, of investment banking:

a senior banker in a revenue generating role at a large investment bank is often expected to deliver $25 million or more in transaction-related revenues to the bank each and every year. Below that, senior management just doesn't think he's producing enough. (Among other things, there's a hell of a lot of infrastructure to pay for in a big bank.) But you can't do that unless you are doing deals: mergers and acquisitions, stock and bond underwritings, derivatives. Do you see the problem? It just doesn't pay to offer good advice. A banker could and should be doing deals instead.

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My most recent article, Private Equity and the Heightened Fiduciary Duty of Disclosure, is coming out in the latest volume of NYU's Journal of Law & Business. 

There, I argue that Delaware courts are concerned with conflicts of interest in private equity deals and are subjecting them to more intense scrutiny than strategic transactions.  As a result of this scrutiny, several private equity deals have been enjoined, while strategic deals with similar defects have not.

The interesting thing, at least to me, is how Delaware is doing it.  Instead of enjoining transactions on loyalty grounds, which would be deadly to those deals, courts are finding disclosure deficiencies.  Using this approach, Delaware tries to have its cake and eat it too.  It voices its disapproval of the process and ultimately allows shareholders to decide if they want the fruits of the tainted search.

Check it out and let me know what you think.

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