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63(3): 729 - 760 (May 2008)
Go-shop provisions have changed the way in which private equity firms execute public-companies buyouts. While there has been considerable practitioner commentary on go-shops over the past three years, this Article presents the first systematic empirical evidence on the effect of this new dealmaking technology on deal pricing and deal process. Contrary to the claims of prior commentators, I find that: (1) go-shops yield more search in aggregate (pre- and post-signing) than the traditional no-shop route; (2) “pure” go-shop deals, in which there is no pre-signing canvass of the marketplace, yield a higher bidder 17 percent of the time; and (3) target shareholders receive approximately 5 percent higher returns through the pure go-shop process relative to the no-shop route. I also find no post-signing competition in go-shop management buyouts (“MBOs”), consistent with practitioner wisdom that MBOs give incumbent managers a significant advantage over other potential buyers. Taken as a whole, these findings suggest that the Delaware courts should generally permit go-shops as a means of satisfying a sell-side board’s Revlon duties but should pay close attention to their structure, particularly in the context of go-shop MBOs.
63(3): 761 - 775 (May 2008)
In this Article, we suggest that the existing standards of liability for breach of fiduciary duty should not change in order to account for changing circumstances. The existing standards of conduct and liability incorporate the necessary flexibility to balance the potentially competing duties of constituency directors with protection of the interests of various corporate constituencies. And if the fiduciary duty standards in corporation law are not sufficiently flexible to accommodate particular circumstances, constituents may wish to invest in an alternative entity (such as a limited liability company) governed by other law that will accommodate their needs. Or perhaps the investor may be able to effect a legally authorized change in the certificate of incorporation of the corporation to permit it to be governed more to the investor’s liking.
63(3): 777 - 807 (May 2008)
Consequential damage waivers are a frequent part of merger and acquisition agreements involving private company targets. Although these waivers are heavily negotiated, the authors believe that few deal professionals understand the concept of consequential damages and, as a result, the inclusion of such waivers may have an unexpected impact on both buyers and sellers. The authors believe that this Article is the first attempt to define “consequential damages,” as well as some of the other terms used as purported synonyms, in the merger and acquisition context. After tracing the historical derivation of the term and its current use by the courts, this Article considers the impact of such waivers in a hypothetical business acquisition and proposes some specific guidelines for the negotiation of these waivers.
63(3): 809 - 854 (May 2008)
The scope of NSMIA preemption is a critical issue going forward, as state securities regulators seek to continue to police “exempt” offerings which are undertaken at regional, state, and local levels. This Article focuses on how state and federal courts are reconciling the important objective of NSMIA to make securities law more uniform with the historic mission of state blue sky laws to protect investors. As part of reconciling this tension, we believe it is necessary to preserve states’ authority to fulfill their longstanding interest in working alongside the federal government to provide investor protection.
63(3): 855 - 879 (May 2008)
Officers and directors of a troubled corporate enterprise can expect to face a host of complex decisions as they attempt to restructure the corporation’s affairs. These decisions may be made more difficult because officers’ and directors’ fiduciary duties extend to all shareholders, including creditors, when the corporation is in the zone of insolvency. The role of corporate restructuring counsel is critical in this uncertain environment. This Article provides a comprehensive overview of recent court decisions and statutory changes relating to the fiduciary duties of officers and directors of troubled companies. It also provides practical applications of these principles to common situations that directors and officers face as they attempt to guide a troubled business toward a successful restructuring.
63(3): 881 - 905 (May 2008)
Directors of Delaware corporations owe to their stockholders a duty of disclosure derived from their ordinary fiduciary duties of care and loyalty. A common disclosure claim is that the target company’s disclosure document in a business combination was materially misleading or incomplete with respect to the fairness opinion relied on by the target’s board in evaluating the transaction. The Delaware courts have decided numerous cases involving claims that disclosure as to some element of a fairness opinion – projections, analyses, assumptions – is defective. This Article describes the general duty of disclosure, discusses the principles behind the cases of fairness opinions, and sets out a framework for predicting the information that must be disclosed with respect of fairness opinions under Delaware Law.
63(3): 907 - 919 (May 2008)
During 2007, Congress showed significant interest in mandatory pre-dispute consumer arbitration agreements. Some in Congress focused on whether to prohibit them altogether. This Article argues that such legislation is unnecessary because the current system of consumer arbitration works well and needs no fix. The authors review case law and empirical studies showing that the current system of checks and balances in the area of consumer arbitration law is sufficiently protective of consumers’ rights. These protections emanate from: (1) the Federal Arbitration Act (“FAA”) itself, (2) the careful drafting of arbitration agreements, (3) the use of third-party arbitration administrators, and (4) the rigorous enforcement of the FAA by state and federal courts.