December 02, 2020

MONTH-IN-BRIEF: Mergers & Acquisitions

Chauncey Lane, Yelena Dunaevsky

M&A Law

Simon Property and Taubman Enter Amended and Restated Merger Agreement

By John Adgent

As discussed in June, Simon Property Group, Inc., a commercial real estate company (“Simon”), previously sought to terminate its February 9, 2020 merger agreement (the “Merger Agreement”) with Taubman Center, Inc., a real estate investment trust that focuses on shopping centers (“Taubman”), and filed an action in the Circuit Court for the 6th Judicial Circuit of Oakland County, Michigan for a declaratory judgement (the “Merger Litigation”). In the Merger Litigation, Simon sought validation for its purported termination of the Merger Agreement on the grounds that Taubman had suffered a Material Adverse Effect (as defined in the Merger Agreement) and had breached its covenant in the Merger Agreement to use commercially reasonable efforts to operate in the ordinary course of business. Taubman answered with a counterclaim, denying the allegations and seeking specific performance to require Simon to perform its obligations under the Merger Agreement. 

On November 14, 2020, Simon and Taubman announced that the parties entered into an Amended and Restated Agreement and Plan of Merger (the “Amended and Restated Merger Agreement”). The parties indicated that the Amended and Restated Merger Agreement modifies certain terms of the Merger Agreement, including a reduced purchase price of $43.00 per share from the original purchase price $52.50 per share, and other provisions to reduce closing conditionality. In connection with the entry into the Amended and Restated Merger Agreement, the parties also announced their entry into a Settlement Agreement, pursuant to which, among other things, each party agreed to dismiss with prejudice all claims brought in the Merger Litigation and stipulate to an order of dismissal that dismisses with prejudice all claims stated by the parties in the Merger Litigation.

Subject to Taubman shareholder approval and customary closing conditions, the parties now expect the merger to close in late 2020 or early 2021.

Tiffany and LVMH Agree to Modify Terms of November 2019 Merger Agreement

By John Adgent

On November 16, 2020, Tiffany & Co., an American luxury jewelry company (“Tiffany”), filed its Preliminary Proxy Statement (the “Proxy”) to solicit shareholder approval for an amended and restated merger agreement (the “Merger Agreement”), entered into on October 28, 2020, with LVMH Moët Hennessy-Louis Vuitton SE, a French conglomerate specializing in luxury goods (“LVMH”), Breakfast Holdings Acquisition Corp., a Delaware corporation and an indirect wholly owned subsidiary of LVMH (“Holding”), and Breakfast Acquisition Corp., a Delaware corporation and a direct wholly owned subsidiary of Holding. The announcement and entry into the Restated Merger Agreement comes in the wake of the lawsuit filed by Tiffany in September to enforce the parties’ November 24, 2019 merger agreement (the “Original Merger Agreement”).

Along with soliciting shareholder approval, the Proxy outlines the changes to the Original Merger Agreement pursuant to the Merger Agreement. Notably, the Merger Agreement reduces the per share merger consideration paid to Tiffany shareholders in the Original Merger Agreement from $135.00 to $131.50. Additionally, the Merger Agreement expressly permits Tiffany to declare and pay regular quarterly dividends of up to $0.58 per share in Tiffany’s sole discretion. The Merger Agreement also removes certain closing conditions, such as: (A) the absence of a material adverse effect on Tiffany, and (B) the absence of (1) any legal prohibition by a governmental entity that is in effect and enjoins, prevents or otherwise prohibits, materially restrains or materially impairs or makes unlawful consummation of the transactions contemplated by the Merger Agreement and (2) any proceeding instituted by a governmental entity that seeks to temporarily or permanently impose a legal restraint.

The Proxy also provides that, concurrently with the execution of the Merger Agreement, Tiffany and LVMH entered into a settlement agreement pursuant to which, among other things, each party agreed to dismiss with prejudice all claims that it brought in the September litigation and filed a stipulation and order of dismissal dismissing with prejudice all claims asserted by the parties therein.

Delaware District Court Dismisses All Claims of “Multifaceted Financial Fraud” Related to Windstream’s Spinoff of Uniti

By Mary Lindsey Hannahan

On November 4, 2020, the U.S. District Court for the District of Delaware (the “Court”) dismissed an investor’s claims alleging “complex and multifaceted financial fraud” arising out of now-bankrupt Windstream Holdings, LLC and Windstream Holdings, Inc., a telecommunications company (together, “Windstream”), spinoff of Uniti Fiber Holdings Inc., a provider of fiber products for telecom carriers, and Uniti Group Inc. (together, “Uniti”). The investor, SLF Holdings, LLC (“SLF”), asserted a variety of fraud-based claims, primarily under the federal securities law and Alabama law, against Uniti, Uniti’s CEO, and Windstream’s general counsel. However, the Court dismissed all eleven of SLF’s claims against the defendants, finding that the “allegations do not plausibly allege that anyone conspired to ‘hide’ the spinoff’s risk… or to defraud SLF.”

SLF’s claim arises from its investment in Uniti and Uniti’s earlier spinoff from Windstream. In 2015, Uniti was created when Windstream spun it off into a separate, publicly traded real estate investment trust (“REIT”). Uniti then entered into a master lease agreement with Windstream, under which Windstream leased certain fiber and copper network assets from Uniti. Windstream’s debt covenants required that the lease be a “true lease” (as opposed to a sale and leaseback transaction), and that requirement was also necessary for Uniti to qualify as a REIT. At the time of the spinoff, Windstream’s counsel concluded that it was a true lease, not financing, but warned that the IRS could argue the opposite. In 2017, SLF and Uniti entered into a purchase agreement, under which Uniti acquired certain of SLF’s assets in exchange for $700 million, split between cash and $65 million in Uniti stock equivalents. In 2019, a court found that the Windstream lease was not a “true lease,” and thus Windstream did breach its “sale-leaseback” covenant and declared its $300 million debt due immediately. Windstream filed bankruptcy and then sued Uniti for breach of the master lease agreement. SLF then filed this suit against Uniti, alleging fraud in the inducement, among other fraud allegations, largely centered on the fact that, prior to the parties’ 2017 purchase agreement, Uniti did not disclose the opinion of counsel that the IRS may find the master lease agreement to not be a “true lease,” resulting in a violation of Windstream’s loan and resulting negative financial impact on Uniti.

However, the Court dismissed each of SLF’s claims with prejudice, finding that Windstream and Uniti had made publicly available disclosures such that Uniti was not required to provide the specific opinion of counsel. Specifically, the spinoff documents, the master lease, indentures and companies’ statements to regulators were all publicly available. SLF additionally was a sophisticated investor with three different law firms assisting on its $700 million transaction, and thus had done its own “due diligence related to Uniti’s stock to determine whether it was willing to accept Uniti market risk.” SLF failed to plausibly allege an actionable misrepresentation or omission, scienter, reasonable reliance and causation. Thus, even taking all of its allegations as true, SLF “failed to allege that it did not have access to the relevant information and did not have ample opportunity to detect any purported fraud.” The Court further denied SLF’s request to amend its complaint (again) because no amendment “can change the historical facts about, for example, what defendants disclosed to the market.”  

CoreLogic Takeover Saga May Finally Come to an End

By Mary Lindsey Hannahan

The battle for control of CoreLogic, Inc., a publicly-traded company providing consumer, financial and property data, analytics and services (“CoreLogic”), as discussed in September, may finally be winding down. On November 17, 2020, CoreLogic announced preliminary results of its special shareholders’ meeting. Based on preliminary votes counted by its proxy solicitor, shareholders voted to retain nine of the twelve directors on CoreLogic’s board of directors (the “Board”). However, three nominees of Senator Investment Group (“Senator”) and Cannae Holdings (“Cannae”) were nominated for appointment for the three open seats. Overall, this vote represents a win for CoreLogic, showing that its shareholders agree with the Board that the Senator and Cannae’s takeover bids undervalue the company.

For the past four months, CoreLogic has urged its shareholders to reject Senator and Cannae’s nominees in the vote forced by Senator and Cannae, after CoreLogic spurned their two bids in July and September of this year. The contentious battle began in late June, when Senator and Cannae first made an unsolicited offer of $65/share to take CoreLogic private, a valuation which they viewed as a 37% premium. CoreLogic pushed back then, and again to their next $66/share offer, adamantly opposing the bids in open letters to shareholders and encouraging shareholders to vote against Senator and Cannae’s director nominees when the wishful would-be buyers forced a shareholder vote on the matter. CoreLogic has argued that parties have expressed an interest in paying at least $80/share, representing an over $1 billion increase from Senator and Cannae’s offers. Subject to certification of the voting results by an independent inspector of the election, it appears that Senator and Cannae have lost this battle for CoreLogic, for now.

Delaware Supreme Court Upholds Chancery Court Decision over ZTM’s Acquisition by Accurus Aerospace

By Whitney Robinson

On November 9, 2020, the Delaware Supreme Court (the “Court”) affirmed the October 31, 2019 decision of the Court of Chancery (the “Chancery Court”). In its October 2019 opinion, the Chancery Court granted in part and denied in part the parties’ cross-motions for summary judgment. 

The suit arose from the 2016 acquisition of ZTM, Inc., an aerospace parts manufacturer (“ZTM” and together with the other sellers, the “Sellers”) by Accurus Aerospace Corporation and Accurus Aerospace Wichita LLC, companies that buy aerospace manufacturing companies (collectively, “Buyers”). The Boeing Company (“Boeing”) was one of ZTM’s largest customers, accounting for more than half of its sales. After the closing, Boeing informed ZTM that it had awarded other suppliers contracts to supply certain parts that ZTM was contracted to supply through the end of 2016 (the “Lost Parts”). These Lost Parts made up roughly 10% of ZTM’s projected sales for the next three years. The parties agree that Sellers did not know the Lost Parts had been awarded to other suppliers at Closing.

After learning about the Lost Parts, the Buyers, under the terms of the Asset Purchase Agreement (the “APA”), asserted a claim for indemnification for breach of contract, causing Sellers to file suit alleging that Buyers breached the terms of the Escrow Agreement and the covenant of good faith and fair dealing. The Buyers then counterclaimed, alleging that Sellers breached the APA. Thus, the Chancery Court had to “only determine whether Sellers represented that Buyers would undoubtedly have the opportunity to bid on the Lost Parts under the APA’s plain and unambiguous terms.”  The Chancery Court found that the Sellers did not breach the APA and also that the Buyers did not breach the Escrow Agreement.

Buyers argued that the Lost Parts should have been disclosed under Section 3.25(d) of the APA, which required disclosure of material issues. Looking at the language of the APA and considering the definition of “issue” in its ordinary meaning and within the APA as a whole, the Chancery Court stated that the contractual relationship between ZTM and Boeing was not an issue, there was no dispute between them and they had a good working relationship. Buyers also failed to establish breaches of sections tied to activities that occurred since the Balance Sheet Date of December 31, 2015, because Boeing awarded the Lost Parts to the other suppliers prior to that date. Additionally, the Buyers could not successfully rely on the catchall representation “to enforce a contractual right that it did not obtain for itself at the negotiating table.” Thus, the Sellers did not breach the APA. The Chancery Court also held that Buyers did not breach the Escrow Agreement by refusing to release escrowed funds while Buyers’ claims were pending, Buyers did not breach the implied covenant of good faith and fair dealing, and that Sellers were not entitled to attorney’s fees.

M&T Bank Files Writ of Certiorari Following Third Circuit’s Ruling in a Class Action Suit over 2015 Merger

By Whitney Robinson

On November 15, 2020, defendants in a proposed class action suit filed a petition for writ of certiorari with the United States Supreme Court (the “Court”) after the Third Circuit Court of Appeals (the “Third Circuit”) allowed the suit to move forward. The suit arose from the acquisition of Hudson City Bancorp, Inc., a bank holding company (“Hudson City”) by M&T Bank, an American bank holding company (“M&T,” and together with Hudson City and other defendants, “Petitioners”). As required for companies seeking shareholder approval for stock-based mergers, the joint proxy statement of the companies filed in 2013 provided risk factors pursuant to Item 105 of Regulation S-K. The risk factors in the joint proxy addressed, among other things, risk around regulatory approvals required for the merger and that M&T believed it was compliant with laws regarding its Bank Security Act and anti-money laundering (“BSA/AML”) program. Prior to the vote of Hudson City shareholders, it was disclosed that the Federal Reserve had concerns over M&T’s BSA/AML compliance, thus delaying regulatory approval. Despite this, the Hudson City shareholders approved the acquisition. The deal closed in November of 2015 following M&T’s settlement agreement with the Consumer Financial Protection Bureau and the Federal Reserve’s approval. 

The plaintiffs, Hudson City shareholders, alleged in their second amended complaint, violations of §14(a) of the Securities Exchange Act of 1934, as amended, because the joint proxy did not address the BSA/AML compliance issues, and because M&T failed to comply with Item 105 of Regulation S-K, making M&T’s disclosure materially misleading. The District Court of the District of Delaware dismissed the complaint. But, the Third Circuit did not agree, holding, “‘that the BSA/AML deficiencies and consumer checking practices posed significant risks to the merger before M&T issued the Joint Proxy’ and that ‘the weaknesses present in M&T’s BSA/AML and consumer compliance programs’ would have been material. Because the Joint Proxy omitted discussion of these ‘deficiencies’ and ‘weaknesses,’ plaintiffs had ‘met their pleading burden.’”

The Petitioners argue, as one reason for granting certiorari, that the Third Circuit’s decision is squarely in opposition with the First and Second Circuits’ approach to Item 105 disclosures. According to the First Circuit, disclosure under item 105 is required when the issuer has actual knowledge of the risks. In the Second Circuit, an issuer does not need to disclose “uncharged, unadjudicated wrongdoing.” The Third Circuit found that actual knowledge is not needed under Item 105 and that unadjudicated wrongdoing must be disclosed.

Arguing that the Third Circuit’s decision “creates a nightmare scenario for SEC reporting companies” and will “prompt a wave of speculative disclosures that will serve only to confuse rather than inform,” the Petitioners present two questions to the Court:

  • Whether Item 105 of Regulation S-K, which obligates public companies to discuss material risk factors in registration statements, periodic SEC filings, and stock-based merger proxies, requires a company with knowledge of a general risk factor to ascertain and disclose facts that may bear on that general risk factor that are not otherwise within the company’s actual knowledge; and
  • Whether Item 105 of Regulation S-K requires companies to identify and discuss potentially unlawful business practices or inadequate compliance procedures in circumstances where neither the company nor any regulator has identified an issue or concern and the company believes that such practices or procedures are compliant with applicable law.

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.

Yelena Dunaevsky

Woodruff Sawyer

Yelena is a corporate finance and securities attorney and, as a member of Woodruff Sawyer’s transactional insurance brokerage team, advises clients on M&A- and IPO-related insurance solutions. Yelena specializes in SPAC transactions and is a frequent author of articles covering various aspects of corporate transactions and related insurance coverage. She serves as a managing editor of the American Bar Association’s Business Law Today.