Settlement talks between the parties in the fight over the famous bookstore chain seemed promising early last week. Talks went late into the night on Wednesday. But by week's end, things had fallen apart.
In a brief statement B&N said that it and Yucaipa "were unable to conclude an agreement on mutually acceptable terms."
Yucaipa is an investment company alter ego for Ron Burkle. According to scuttlement, a tentative deal had emerged in which B&N would expand the size of its board of directors by three seats and let Burkle name directors to the new seats. In return, Burkle would support the candidates director nominees for this meeting and the next. He would also stop litigating to try to have B&N's poison pill plan invalidated, thereby allowing B&N to continue in effect to limit the size of his investment in their company.
On Thursday, that tentative agreement unravelled. The parties communicated that to the chancery court in Delaware, and that court issued its ruling on the pending motion to dismiss. Barnes & Noble won the litigation -- or at least this round of it -- in a ruling by Judge Leo Strine.
The "rights plan" a/k/a the poison pill, by the way, provides that if an outside acquires 20 percent or more of the company's stock, other investors get to buy common shares at a 50 percent discount. So Burkle can only pass the 20 percent threshold if he is willing to accept enormous dilution in stock value thereafter.
"The defendants have shown that their adoption and use of the rights plan was a good, fair, reasonable response to a threat to Barnes & Noble and its stockholders," Strine said, dismissing Burkle's lawsuit.
The name of the decision is: Yucaipa American Alliance Fund II LP v. Riggio, CA5465, Delaware Chancery Court.
Showing posts with label Chancery Court. Show all posts
Showing posts with label Chancery Court. Show all posts
Monday, August 16, 2010
Monday, February 15, 2010
Kurtz v. Holbrook
The Delaware Court of Chancery recently issued a decision in the potentially important corporate-governance case of KURTZ v. HOLBROOK, on February 9.
You can read the decision here, or just accept the spoon-feeding below.
The case involved a contest for control of a microcap company named EMAK Worldwide. The Inspector of Elections had disallowed some 1 million voted shares held in their "street name" becaise they had not been accompanied by a DTC "universal proxy." Thus, the incumbents kept their control over EMAK. In the process, the incumbents also secured passage of a bylaw that reduced the size of the board, in effect pulling the chair out from under two of the incumbents who had been insufficiently responsive to the will of the one large preferred stockholder.
The dissidents sued, and the Court ruled in their favor on a range of issues.
1. Street name holders are shareholders of record for purposes of voting rights, even without a DTC "universal proxy"
2. The court invalidated the by-law amendment reducing the size of the board,
3. Any bylaw that sought to achieve the same effect by disqualifying a sitting director and this terminating his services will be invalid under Delaware law;
4. There was also a dispute in this case over the issue of "vote buying," a charge that the incumbents levelled against the dissidents. This is one form of a broader issue I've mentioned here before: how should courts respond as voting interests become severed from economic interests?
See the nice passage on pages 62-63 of the pdf. "'Vote buying' is an incendiary phrase...."
You can read the decision here, or just accept the spoon-feeding below.
The case involved a contest for control of a microcap company named EMAK Worldwide. The Inspector of Elections had disallowed some 1 million voted shares held in their "street name" becaise they had not been accompanied by a DTC "universal proxy." Thus, the incumbents kept their control over EMAK. In the process, the incumbents also secured passage of a bylaw that reduced the size of the board, in effect pulling the chair out from under two of the incumbents who had been insufficiently responsive to the will of the one large preferred stockholder.
The dissidents sued, and the Court ruled in their favor on a range of issues.
1. Street name holders are shareholders of record for purposes of voting rights, even without a DTC "universal proxy"
2. The court invalidated the by-law amendment reducing the size of the board,
3. Any bylaw that sought to achieve the same effect by disqualifying a sitting director and this terminating his services will be invalid under Delaware law;
4. There was also a dispute in this case over the issue of "vote buying," a charge that the incumbents levelled against the dissidents. This is one form of a broader issue I've mentioned here before: how should courts respond as voting interests become severed from economic interests?
See the nice passage on pages 62-63 of the pdf. "'Vote buying' is an incendiary phrase...."
Tuesday, December 29, 2009
NACCO Sues Applica
On December 22, the Chancery Court in Delaware denied a motion to dismiss in the matter of NACCO Industries v. Applica Inc., a lawsuit arising out of a takeover battle in 2006.
What underlies this lawsuit is a classic "white knight" situation. The executives at Applica, an appliance firm which markets under the Black & Decker brand, weren't at all happy at the prospect of being taken over by NACCO. But another suitor, Harbinger Capital Partners, appeared more likely to let these executives keep their job. So (these unproven allegations run), some of the executives at NACCO passed nonpublic information to a consultant working for Harbinger. Harbinger then alegedly used that information to craft disclosure documents of its own that helped sink the deal.
Eventually (this part is not allegation, but public fact), Harbinger won the bidding war and combined Applica with another appliance company it controls, Salton Inc.
The whole opinion is available here, but to my mind, the most intriguing of the counts in the lawsuit is the allegation of tortious interference with contract, pp. 57-60.
There are five common-law elements for such a claim: (1) a contract, (2) a third party's knowledge of this contract, (3) an intentional act by that third party, (4) that act must be without justification and (5) it must cause damage.
The court said that there could be "no meaningful dispute" about either of the first two elements, and that in earlier sections of the opinion (dealing with breach of contract) he had setled the fifth, on the face of the complaint, in the plaintiff's favor. So what was unique to the tort claim was the dispute over elements (3) and (4).
The Court of Chancery found that the complaint satisfied these points, as well, by alleging that "Harbinger ... obtained an unfair advantage over NACCO by accumulating a large stock position based on false disclosures. Because of Harbinger's actioons, NACCO did not receive the full benefit of the contractual protections that NACCO bargained for...."
As merger-and-acquisitions activity revives from its recent dormancy, many are the market participants who will want to study this decision.
What underlies this lawsuit is a classic "white knight" situation. The executives at Applica, an appliance firm which markets under the Black & Decker brand, weren't at all happy at the prospect of being taken over by NACCO. But another suitor, Harbinger Capital Partners, appeared more likely to let these executives keep their job. So (these unproven allegations run), some of the executives at NACCO passed nonpublic information to a consultant working for Harbinger. Harbinger then alegedly used that information to craft disclosure documents of its own that helped sink the deal.
Eventually (this part is not allegation, but public fact), Harbinger won the bidding war and combined Applica with another appliance company it controls, Salton Inc.
The whole opinion is available here, but to my mind, the most intriguing of the counts in the lawsuit is the allegation of tortious interference with contract, pp. 57-60.
There are five common-law elements for such a claim: (1) a contract, (2) a third party's knowledge of this contract, (3) an intentional act by that third party, (4) that act must be without justification and (5) it must cause damage.
The court said that there could be "no meaningful dispute" about either of the first two elements, and that in earlier sections of the opinion (dealing with breach of contract) he had setled the fifth, on the face of the complaint, in the plaintiff's favor. So what was unique to the tort claim was the dispute over elements (3) and (4).
The Court of Chancery found that the complaint satisfied these points, as well, by alleging that "Harbinger ... obtained an unfair advantage over NACCO by accumulating a large stock position based on false disclosures. Because of Harbinger's actioons, NACCO did not receive the full benefit of the contractual protections that NACCO bargained for...."
As merger-and-acquisitions activity revives from its recent dormancy, many are the market participants who will want to study this decision.
Sunday, March 22, 2009
More than just not taking personal advantage
The Harvard Program on Corporate Governance has issued a discussion paper entitled, "Loyalty's Core Demand: The Defining Role of Good Faith in Corporation Law."
The authors predict that "the legal standards used to evaluate whether directors have complied with their fiduciary duties will be a subject of growing international policy interest" -- not a lot of risk to that call, IMHO.
The abstract of the paper says this: We conclude, consistent with the Delaware Supreme Court’s recent decision in Stone v. Ritter, that in the American corporate law tradition, the basic definition of the duty of loyalty is the obligation to act in good faith to advance the best interests of the corporation. What this article also shows is that the duty of loyalty has traditionally been conceived of as being much broader than the duty to avoid acting for personal financial advantage. The duty of loyalty also precludes acting for unlawful purposes, and affirmatively requires directors to make a good faith effort to monitor the corporation’s affairs and compliance with law.
The authors? Lawrence Hamermesh, R. Franklin Balotti, Jeffrey M. Gorris, and (surely the most newsworthy so I saved it for last) Leo E. Strine Jr.
Strine's views will have extra weight with many readers because he is Vice Chancellor, Delaware Court of Chancery.
Enjoy the read.
The authors predict that "the legal standards used to evaluate whether directors have complied with their fiduciary duties will be a subject of growing international policy interest" -- not a lot of risk to that call, IMHO.
The abstract of the paper says this: We conclude, consistent with the Delaware Supreme Court’s recent decision in Stone v. Ritter, that in the American corporate law tradition, the basic definition of the duty of loyalty is the obligation to act in good faith to advance the best interests of the corporation. What this article also shows is that the duty of loyalty has traditionally been conceived of as being much broader than the duty to avoid acting for personal financial advantage. The duty of loyalty also precludes acting for unlawful purposes, and affirmatively requires directors to make a good faith effort to monitor the corporation’s affairs and compliance with law.
The authors? Lawrence Hamermesh, R. Franklin Balotti, Jeffrey M. Gorris, and (surely the most newsworthy so I saved it for last) Leo E. Strine Jr.
Strine's views will have extra weight with many readers because he is Vice Chancellor, Delaware Court of Chancery.
Enjoy the read.
Tuesday, June 3, 2008
Sand in the Gears
The Chancery Court in Delaware unsealed a fascinating complaint this week, in litigation that might end up changing the rules for acquirers and their targets alike.
The complaint is one that was filed in January by two Detroit-based pension funds with an equity interest in Yahoo. It alleges that in October of last year, Yahoo's board and its chief executive, Jerry Yang, already expected a Microsoft bid to acquire the company and discussed ways of thwarting same.
That isn't suspect, although any board discussing such a matter should be sure that the minutes contain plentiful references to everyone's desire to maximize shareholder value.
What the pension funds objected to was what they actually adopted in that line, a generous and highly unusual severance plan designed to make acquisition of the company (which would of course bring with it the inheritance of the costs of the severance plan) prohibitively costly.
The complaint calls this "throwing sand in the gears of Microsoft's plans for a smooth integration," thereby breaching fiduciary duties.
On another Yahoo-related front...the Wall Street Journal's personal-technology columnist, Walt Mossberg, interviewed Jerry Yang, and the company president Sue Decker, at the "All Things Digital" conference last week.
SOme of the transcript sounds like a tutorial, in which Mossberg is seeking to instruct the two Yahoo honchos in how lucky they were, because Microsoft could have made things much tougher for them, but didn't ... backed off quickly and started talking about joint ventures rather than an acquisition.
This raises the old chicken-egg question of entrepreneurship. Does fortune favor the bold? Or do observers simply label as bold those whom fortune has favored?
The complaint is one that was filed in January by two Detroit-based pension funds with an equity interest in Yahoo. It alleges that in October of last year, Yahoo's board and its chief executive, Jerry Yang, already expected a Microsoft bid to acquire the company and discussed ways of thwarting same.
That isn't suspect, although any board discussing such a matter should be sure that the minutes contain plentiful references to everyone's desire to maximize shareholder value.
What the pension funds objected to was what they actually adopted in that line, a generous and highly unusual severance plan designed to make acquisition of the company (which would of course bring with it the inheritance of the costs of the severance plan) prohibitively costly.
The complaint calls this "throwing sand in the gears of Microsoft's plans for a smooth integration," thereby breaching fiduciary duties.
On another Yahoo-related front...the Wall Street Journal's personal-technology columnist, Walt Mossberg, interviewed Jerry Yang, and the company president Sue Decker, at the "All Things Digital" conference last week.
SOme of the transcript sounds like a tutorial, in which Mossberg is seeking to instruct the two Yahoo honchos in how lucky they were, because Microsoft could have made things much tougher for them, but didn't ... backed off quickly and started talking about joint ventures rather than an acquisition.
This raises the old chicken-egg question of entrepreneurship. Does fortune favor the bold? Or do observers simply label as bold those whom fortune has favored?
Tuesday, March 18, 2008
CNET to appeal
In a ruling last week arising out of the Jana-led proxy fight for control of CNET, the Chancery Court in Delaware interpreted CNET's one-year notice rule as a matter of "proxy access," not one of "advance notice" for a nomination as such.
Proxy access -- the situation in which a dissident shareholder gets to piggyback off of the proxy materials that companies must provide their shareholders, and make its own case within those materials -- is determined by the federal regulatory system.
The court said that CNET's one-year requirement means that a shareholder,m even one who meets the relevant federal test, doesn't have a right to access to management-generated materials prior to that company's shareholder meetings if it has only acquired its stake in the company recently. Nonetheless, if it isn't interested in piggybacking, if it is willing and able to bear the cost of its own materials itself, as Jana is, then it can proceed with its nomination and its resolutions.
This ruling came as a surprise to a lot of observers, including yours truly.
Yesterday (when, by happenstance, most of the financial world was too absorbed by the Bear Stearns saga to notice), CNET said it is appealing to the Delaware Supreme Court.
"CNET Networks said that it continues to believe that its by-law provisions, which were approved by stockholders and have been in place since the Company's IPO, are fully applicable to hedge fund JANA Partners, LLC's proposals, and are valid and in the best interests of stockholders. The Company also said that the lower court decision incorrectly calls into question the by-laws of a large number of companies with the same or similar by-law provisions."
The chancery court decision may "call into question" all those other company's by-laws to the extent that if they use the same words, they'll be subject to the same interpretation. But it doesn't void them, and a company can re-write the wording of its by-laws to be more clear that it isn't merely limiting the piggy-backing.
Another big question here: why is it sometimes Jana and sometimes JANA? The company itself seems to use JANA consistently. But so far as I know, the letters don't stand for anything. Many news organizations, including the New York Times, have accordingly treated "Jana" in this context as a word.
The take-away though is this: advance notice requirements haven't been declared void in Delaware, even those that extend for the unusual period of a year. Still, such notices may be treated to narrow construction due to a feeling of the chancery court that they are against public interest, especially if the newly-0staked dissident is willing to put up its own resources for the proxy contest.
Proxy access -- the situation in which a dissident shareholder gets to piggyback off of the proxy materials that companies must provide their shareholders, and make its own case within those materials -- is determined by the federal regulatory system.
The court said that CNET's one-year requirement means that a shareholder,m even one who meets the relevant federal test, doesn't have a right to access to management-generated materials prior to that company's shareholder meetings if it has only acquired its stake in the company recently. Nonetheless, if it isn't interested in piggybacking, if it is willing and able to bear the cost of its own materials itself, as Jana is, then it can proceed with its nomination and its resolutions.
This ruling came as a surprise to a lot of observers, including yours truly.
Yesterday (when, by happenstance, most of the financial world was too absorbed by the Bear Stearns saga to notice), CNET said it is appealing to the Delaware Supreme Court.
"CNET Networks said that it continues to believe that its by-law provisions, which were approved by stockholders and have been in place since the Company's IPO, are fully applicable to hedge fund JANA Partners, LLC's proposals, and are valid and in the best interests of stockholders. The Company also said that the lower court decision incorrectly calls into question the by-laws of a large number of companies with the same or similar by-law provisions."
The chancery court decision may "call into question" all those other company's by-laws to the extent that if they use the same words, they'll be subject to the same interpretation. But it doesn't void them, and a company can re-write the wording of its by-laws to be more clear that it isn't merely limiting the piggy-backing.
Another big question here: why is it sometimes Jana and sometimes JANA? The company itself seems to use JANA consistently. But so far as I know, the letters don't stand for anything. Many news organizations, including the New York Times, have accordingly treated "Jana" in this context as a word.
The take-away though is this: advance notice requirements haven't been declared void in Delaware, even those that extend for the unusual period of a year. Still, such notices may be treated to narrow construction due to a feeling of the chancery court that they are against public interest, especially if the newly-0staked dissident is willing to put up its own resources for the proxy contest.
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