Tips from the Trenches:
M&A Trends for 2011
John F. Grossbauer
Michael K. Reilly
Potter Anderson & Corroon LLP
Dallas Bar M&A Section Meeting
February 8, 2011
M&A Trends for 2011
 The Latest On Delaware M&A: The Friendly
Two Step Tender Offer
 M&A and the “Unified Theory”: A New
Roadmap
 Revlon Revisited: When, Why and Who Really
Cares Anyway?
 Post-Closing Adjustments: Some Comfort and
a Caution
 Poison Pills: The Latest Developments
 Arbitration in the Court of Chancery: A New
Option For Contracting Parties
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The Latest On Delaware M&A: The
Friendly Two Step Tender Offer
 Trend favoring the friendly two step
– Modification of Best Price Rule
– Timing Advantages
– Result = 30% in 2007, 49% in 2008, 61% in 2009
 Top-up option
– Need Significant Authorized Shares
– Terms of the note
• Cash for aggregate par value?
– Appraisal Issues
• Olson v. ev3, Inc.
• In re Cogent, Inc. S’holder Litig.
 Indenture or other issues?
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M&A and the “Unified Theory”:
A New Roadmap
 Majority Stockholders: Have the rules changed?
 One Step Mergers
– In re John Q. Hammons Hotels
 Two Step Mergers
– CNX – Supreme Court declined interlocutory appeal
– Cox Radio – Supreme Court does not address
 Structure for business judgment?
 Effect on deal value?
 Burden shifting is still available
 Another example of Court preference for
proactive directors
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Revlon Revisited: When, Why and
Who Really Cares Anyway?
 Revlon triggers
– Initiate active bidding process
– Abandon long term strategy in favor of break-up
– Change of control
 End stage transactions
– Reverse-split freeze-outs
• Reis v. Hazelett Strip-Casting Corp.
– Mix of stock and cash mergers
• Steinhardt v. Howard-Anderson (Occam)
– Stock for stock mergers (the whale and minnow)
 Effect of triggering Revlon
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– Reasonableness standard of review
– Contextually specific obligations of the board
– No blueprint
Revlon Revisited: When, Why and
Who Really Cares Anyway?
 What’s the Remedy?
– Lyondell and 102(b)(7) (but what about officers?)
– Forgo v. Health Grades, Inc. (Transcript)
“[T]he number of times that this Court has ever enjoined stockholders from
considering a premium-generating transaction in the absence of fear of a
disclosure violation or coercion and the absence of a higher competing
offer…- it’s basically a null-set.”
– In re Cogent, Inc. S’holder Litig. (absence of favoring
one bidder over another).
– Possibility of an injunction remedy nevertheless?
 Disclosure violations
– Maric Capital; Art Technology; Zenith; Occam
 Omnipresent duty to maximize value
 Deal protections and process – intertwined
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Post-Closing Adjustments: Some
Comfort and a Caution
 Drafting the escrow properly
– Imposing obligations vs. Adjusting merger consideration
 Aveta v. Bengoa
– Post-closing adjustment enforced
– Court relied on statutory authority (facts ascertainable)
– Implies limits on ability to bind non-signers
 Implications for deals with escrows
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– Properly drafted escrows work
– Enforceability issues for “stockholder reps”
– Doubt about whether non-signers can be bound to true
indemnification provisions
– Court may be skeptical about deductions for appraisal
claims
Poison Pills: The Delaware
Handbook
 Keeping the Pill “on the shelf”
– “Window Closing Pill” inconsistent with this strategy
 Using the Pill to protect NOLs
– Selectica
– Impact on Proxy Contests?
 Using the Pill to defend against activists
– Barnes & Noble
– Impact on Proxy Contests?
 Using the Pill to protect the corporate culture
– Craigslist v. eBay
 When must Pill be redeemed?
– Airgas
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 Should targets adopt a Pill in a friendly deal?
Arbitration in the Court of
Chancery: A New Option
 Permits business entities to consent to voluntary
binding arbitration
 Chancellor, Vice Chancellor or Master
 Three distinct advantages:
– Confidential proceedings
– Swift resolution
– Opportunity to resolve monetary disputes
 Mechanics
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Agreement to arbitrate (which can predate dispute)
All parties must have consented
At least one party a Delaware business entity
No party may be a consumer
For monetary relief, amount must exceed $1 million
John F. Grossbauer
Direct Dial: (302) 984-6131
Email: [email protected]
Michael K. Reilly
Direct Dial: (302) 984-6181
Email: [email protected]
Potter Anderson & Corroon LLP
Hercules Plaza, 6th Floor
1313 North Market Street
Wilmington, DE 19801
www.potteranderson.com
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