January 01, 2018

MONTH-IN-BRIEF: Mergers & Acquisitions

Ryan Thomas, Chauncey Lane

Joint Ventures

ExxonMobil and BHP to End Joint Marketing of Natural Gas

By W. Benjamin Tarpley, Bass, Berry & Sims PLC

Following mounting scrutiny from the Australian Competition and Consumer Commission (ACCC), BHP Billiton Petroleum Pty. Ltd. (BHP) and Esso Australia Resources Pty. Ltd. (Esso), an Australian affiliate of Exxon Mobil Corporation, have agreed to begin separately marketing their shares of natural gas produced by the Gippsland Basin Joint Venture, the largest producer of natural gas in southern Australia. BHP and Esso formed the Gippsland Basin Joint Venture in 1964 for the production of crude oil and natural gas at fields in the Gippsland Basin, located off the coast of the Australian state of Victoria. Prior to the agreement among BHP, Esso, and the ACCC, BHP and Esso jointly negotiated and entered into natural gas sales agreements for the supply of natural gas produced by the joint venture, which gave the ACCC pause. The ACCC was concerned that BHP and Esso’s collaboration depressed competition in the Australian market and thereby adversely affected consumers of natural gas. According to the ACCC, each of BHP and Esso’s independent marketing of the natural gas produced by the joint venture will improve the competitive landscape in the Australian energy sector, resulting in better prices and contract terms for consumers.

Mergers & Acquisitions Law

FTC Challenges Tronox Limited-Cristal Merger

By David R. Venturella, Bass, Berry & Sims PLC

On December 5, 2017, the Federal Trade Commission (FTC) challenged Tronox Limited’s proposed acquisition of competitor Cristal for $1.67 billion and a 24 percent stake in the combined entity. Tronox, headquartered in Connecticut, and Cristal, headquartered in Saudi Arabia, are two of the top three suppliers of chloride process titanium dioxide (TiO2), which is a white pigment used in many products including paint, industrial coatings, plastic, and paper. In the FTC’s administrative complaint, it alleged that the acquisition would allow the newly merged firm and the other top supplier, Chemours Company, to control the vast majority of TiO2 sales and more than 80 percent of the TiO2 manufacturing capacity in the North American market. The FTC believes that the merger agreement violates Section 5 of the FTC Act, which prohibits unfair methods of competition, and that the merger, if consummated, would violate Section 7 of the Clayton Act, which prohibits a transaction “the effect of [which] may be substantially to lessen competition . . . .” The FTC drew support for its complaint from Valspar Corp. v. E.I. DuPont de Nemours and Co., 873 F.3d 185 (3rd Cir. 2017), in which the Third Circuit recognized that the titanium dioxide industry “is an oligopoly” “dominated by a handful of firms” and has “substantial barriers to entry.” The administrative trial is slated to begin on May 8, 2018.

Delaware Supreme Court Reverses Chancery Court’s Ruling on Dell Appraisal Decision

By Arooj Nazir, Husch Blackwell

In Dell, Inc. v. Magnetar Global Event Driven Master Fund Ltd., the Delaware Supreme Court reversed the court of chancery’s appraisal decision, urging the court of chancery to rely on deal price in determining fair value. In 2013, Dell’s board of directors negotiated a merger with Michael Dell and Silver Lake, an investment firm. The purchase price for this transaction was $13.75 per share, and at a special stockholders’ meeting, 57 percent of the stockholders approved the merger. Several stockholders, however, demanded an appraisal of their shares in connection with the merger. The Delaware Court of Chancery, using its own DCF analysis, determined that the fair value of Dell’s common stock was $17.62. However, on appeal, the Delaware Supreme Court reversed the court of chancery’s decision, finding, in part, that the court of chancery must give the deal price “heavy weight” in its ruling, and that deal price is the best evidence of fair value in arm’s-length transactions.

International Law

ABA Sections Release Comments Regarding Modernizing and Simplifying French Merger Control Law

By David R. Venturella, Bass, Berry & Sims PLC

On November 30, 2017, the American Bar Association Sections of Antitrust Law and International Law (ABA Sections) released comments to the French Competition Authority on modernizing and simplifying the French Merger Control Law. The ABA Sections recommended against introducing varying notification thresholds for different sectors of the economy, as such complexity would increase legal costs on parties in determining whether their transaction meets the notification thresholds. The ABA Sections instead recommended mandatory notification thresholds based on objectively quantifiable criteria, such as assets and sales or turnover, as opposed to market share-based tests and other subjective and potentially fact-intensive criteria. Further, the ABA Sections recognized that a transaction-value notification threshold may be appropriate as long as such threshold is coupled with additional tests and exemptions to ensure an appropriate local nexus. The ABA Sections cautioned against using a transaction-value threshold without ensuring a local nexus, because such a threshold would likely capture a significant number of transactions that would have no material impact on the jurisdiction.

Ryan Thomas

Counsel, Bass Berry & Sims PLC

As mergers and acquisitions (M&A) and securities counsel to numerous national companies and private equity firms, Ryan Thomas has closed more than $50 billion in M&A transactions, and more than $60 billion in overall transactions, including both the largest domestic LBO, and the largest private equity-backed IPO at the time. Ryan’s practice focuses on public and private companies within the healthcare, media, retail, government services, life sciences and technology industries, among others.

Chauncey Lane

Counsel; Husch Blackwell, LLP

Boards and senior executives of public and private companies and investment management firms call on Chauncey for his knowledge and experience in mergers and acquisitions and capital market transactions. In this role, Chauncey regularly assists domestic and international clients with buy-side and sell-side mergers, divestitures, asset acquisitions, going-private transactions, debt and equity offerings, corporate governance and corporate restructurings. Chauncey is an active member of the Business Law Section’s Mergers and Acquisitions Committee and Federal Regulation of Securities Committee.