As regular readers will recall, this blog has traced the sometimes stormy relationship between two competitors in the market for industrial gas supplies, both headquartered in Pennsylvania: Air Products (APD), of Allentown, [get out of my head, Billy Joel!] and Airgas (ARG), of Radnor.
APD bid for ARG back in February and signalled at that time a readiness to wage a proxy fight for control.
Airgas held its annual meeting recently -- September 15. So ... what happened?
Shareholders elected the three nominees for director promoted by APD. But that doesn't mean an acquisition will go through uncontested. The board is staggered, so APD would have to win another election to gain majority control. Even in announcing their election, Airgas cautioned them against over confidence in this regard.
"Although our new directors were originally nominated to stand for election to our Board by Air Products, like all Board members, they have fiduciary duties to all AIrgas stockholders. These duties do not allow them to act in Air Products' interests, or in affiliation with Air Products."
Meanwhile, shareholders also voted on three proposed bylaw amendments designed for the benefit of the would-be acquirer, and it isn't clear what the result was of these votes.
Showing posts with label mergers and acquisitions. Show all posts
Showing posts with label mergers and acquisitions. Show all posts
Sunday, September 26, 2010
Wednesday, September 8, 2010
AuthenTec and UPEK Announce Merger
On Independence Day this year I said that UPEK "has now given up on" its efforts to merge with Authen Tec.
Authen Tec is Florida based, UPEK is a California company. They are both in the biometric identification market -- fingerprint recognition doodads and stuff.
But the merger will go forward. A friendly deal has been reached. This will be accomplished as an Authen Tec purchase of UPEK rather than, as once expected, the other way around.
The two firms have of late been adversaries in IP litigation. In May of this year, the Northern District for the District Court of California, in San Jose, issued this procedural ruling in that case. I haven't kept up with it since, but imagine that the new combined company won't continue suing itself.
Authen Tec is Florida based, UPEK is a California company. They are both in the biometric identification market -- fingerprint recognition doodads and stuff.
But the merger will go forward. A friendly deal has been reached. This will be accomplished as an Authen Tec purchase of UPEK rather than, as once expected, the other way around.
The two firms have of late been adversaries in IP litigation. In May of this year, the Northern District for the District Court of California, in San Jose, issued this procedural ruling in that case. I haven't kept up with it since, but imagine that the new combined company won't continue suing itself.
Tuesday, August 31, 2010
What is Driving M&A These Days?
There's an awful lot of merger-and-acquisition activity underway in the US these days. If you wanted to 'play' it in a relatively accessible way you could doso through a merger and arb oriented ETF, such as John Spence discusses in his "Fund Track" in today's Wall Street Journal.
(I'm not suggesting you do any such thing, by the way. The observation was purely hypothetical. My readers are clearly too smart to take market advice from blogs.)
Anyway: what is driving it? Are these directors, eager to build empires? CNBC says not, that it is shareholder driven.
It may simply be that there is too much cash out there. Nobody wants to sit on cash. One wants to put it to work. But over the last couple of years, the idea of putting cash to work has been scary. Buying another firm, one that has a track record or perhaps one with assets that create some synergy with one's own, may be one of the least scary ways to do so.
(I'm not suggesting you do any such thing, by the way. The observation was purely hypothetical. My readers are clearly too smart to take market advice from blogs.)
Anyway: what is driving it? Are these directors, eager to build empires? CNBC says not, that it is shareholder driven.
It may simply be that there is too much cash out there. Nobody wants to sit on cash. One wants to put it to work. But over the last couple of years, the idea of putting cash to work has been scary. Buying another firm, one that has a track record or perhaps one with assets that create some synergy with one's own, may be one of the least scary ways to do so.
Sunday, July 11, 2010
Airgas
More must be said about Air Products versus Airgas.
AP is now offering to buy its rival at $63.50 a share, but the market is valuing Airgas at a premium above that. You can see this for yourself in the chart nearby, reproducing the trading from Friday, July 9.
Both companies provide gas to industrial and commercial users. Among others, these users include refineries, which remove sulfur from crude oil, by saturating the fuel with hydrogen first, producing hydrogen sulfide, which can then be removed from the mix. ARG is also apparently involved in the liquefaction of natural gas.
Airgas, based in Radnor, Pennsylvania, has said this: "This Board has unanimously concluded that Air Products’ unsolicited tender offer and proxy solicitation for its hand-picked nominees are an opportunistic attempt to advance Air Products’ goal of transferring the value of Airgas to Air Products at a grossly inadequate price.
"The Board continues to recommend that stockholders reject the Air Products offer."
Here is what BusinessWeek has to say.
Sunday, July 4, 2010
Upek Gives Up on Authen Tec
Happy independence day everybody.
It is appropriate to mention that Authen Tec seems to have won its own continued independence.
Authen Tec a company headquartered in Melbourne, Florida, though I understand it has a parent corporation in Shanghai, China. It creates "smart sensor" products. This appears to mean that it sells components to computer manufacturers that allow those products to use smooth touch pads, rather than such grosser doohickies as track balls, mouse buttons, or joysticks.
Upek, a privately held company headquartered in Emeryville, California, is one of its rivals, and has long sought a combination. Under the Upek plan proposed in Januray of this year, stockholders of each company would have ended up with 50% of the stock of the combined entity, and the new entity would have been listed on the Nasdaq Stock Market.
Upek had combined its merger proposal with a proxy solicitation campaign. But it has now given up on both.
The catalyst for this decision was the resignation of Robert E. Grady from the Authen Tec board. As near as I understand, Grady was their friend on the inside. Yet he is now gone.
"My decision results from my increasing discomfort with the Company's de facto embrace of the status quo, and tolerance of management leadership's actions to resist value-creating transactions," Grady said as he left.
Anyway, Upek, while applauding Grady, has given up its own efforts at soliciting proxies or otherwise inducing a merger.
Upek and Authen Tec have also engaged in patent litigation, which is virtually inevitable nowadays among two firms both working within such a highly technical field.
It is appropriate to mention that Authen Tec seems to have won its own continued independence.
Authen Tec a company headquartered in Melbourne, Florida, though I understand it has a parent corporation in Shanghai, China. It creates "smart sensor" products. This appears to mean that it sells components to computer manufacturers that allow those products to use smooth touch pads, rather than such grosser doohickies as track balls, mouse buttons, or joysticks.
Upek, a privately held company headquartered in Emeryville, California, is one of its rivals, and has long sought a combination. Under the Upek plan proposed in Januray of this year, stockholders of each company would have ended up with 50% of the stock of the combined entity, and the new entity would have been listed on the Nasdaq Stock Market.
Upek had combined its merger proposal with a proxy solicitation campaign. But it has now given up on both.
The catalyst for this decision was the resignation of Robert E. Grady from the Authen Tec board. As near as I understand, Grady was their friend on the inside. Yet he is now gone.
"My decision results from my increasing discomfort with the Company's de facto embrace of the status quo, and tolerance of management leadership's actions to resist value-creating transactions," Grady said as he left.
Anyway, Upek, while applauding Grady, has given up its own efforts at soliciting proxies or otherwise inducing a merger.
Upek and Authen Tec have also engaged in patent litigation, which is virtually inevitable nowadays among two firms both working within such a highly technical field.
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.
Wednesday, April 15, 2009
Merger arbitrage
A word about merger arb. On July 10, 2008 Dow Chemical announced that it had contracted to buy Rohm & Haas for $78 a share in cash. ROH stock increased by 60% on the day of the announcement, closing at $73.62. The difference between $73.62 and $78 thereafter represented the arbitrage opportunity.
The deal offered travellers a bumpy road. In general, the risks of merger arbitrage are (a) that the deal will not happen, due to a regulatory barrier or stockholder cold feet or other cause, or (b) that the deal will eventually happen, but on terms or after a delay that will have sucked the profit opportunity out of it.
Obviously, the quicker the better for an investor going long on the target. [The other side of the classic merger arb play, especially when an exchange of shares at a fixed ratio is involved, is going short on the buyer -- but that isn't applicable to ROH].
In this matter, the merger didn't finally close until April 1, 2009. At a modified sales price of $78.97, that amounts to an annualized recovery of about 9%.
No disaster, but surely less than they had hoped for last summer.
The deal offered travellers a bumpy road. In general, the risks of merger arbitrage are (a) that the deal will not happen, due to a regulatory barrier or stockholder cold feet or other cause, or (b) that the deal will eventually happen, but on terms or after a delay that will have sucked the profit opportunity out of it.
Obviously, the quicker the better for an investor going long on the target. [The other side of the classic merger arb play, especially when an exchange of shares at a fixed ratio is involved, is going short on the buyer -- but that isn't applicable to ROH].
In this matter, the merger didn't finally close until April 1, 2009. At a modified sales price of $78.97, that amounts to an annualized recovery of about 9%.
No disaster, but surely less than they had hoped for last summer.
Wednesday, April 8, 2009
Delaware Supreme Court news
In an important decision last month, the Delaware Supreme Court rejected post-merger
stockholder claims that directors failed to act in good faith in selling the company.
Delaware, unfortunately, is living down to its reputation as an entrenched management's favorite state, and this decision -- Lyondell Chemical v. Ryan -- will compound that.
The decision, written by Justice Berger, rejects attempts to impose personal liabiolity on directors EVEN on the assumption that they did nothing to prepare for an imnpending offer and upon receiving the offer entered into a merger agreement with a no-shop provision and a 3.2% break-up fee.
Lyondell had moved for summary judgment in the Court of Chancery. That court had refused to grant summary judgment, setting the stage for a trial. But the state's highest court has now short-circuitesd any trial, holding that "the directors are entitled to the entry of summary judgment."
This is precisely the sort of decision that ticks me off, and that has me convinced there has to be a serious shareholder-rights movement, which would among other goals put pressure upon managements to incorporate in places other than Delaware. For the record, you can find the decision yourself here.
stockholder claims that directors failed to act in good faith in selling the company.
Delaware, unfortunately, is living down to its reputation as an entrenched management's favorite state, and this decision -- Lyondell Chemical v. Ryan -- will compound that.
The decision, written by Justice Berger, rejects attempts to impose personal liabiolity on directors EVEN on the assumption that they did nothing to prepare for an imnpending offer and upon receiving the offer entered into a merger agreement with a no-shop provision and a 3.2% break-up fee.
Lyondell had moved for summary judgment in the Court of Chancery. That court had refused to grant summary judgment, setting the stage for a trial. But the state's highest court has now short-circuitesd any trial, holding that "the directors are entitled to the entry of summary judgment."
This is precisely the sort of decision that ticks me off, and that has me convinced there has to be a serious shareholder-rights movement, which would among other goals put pressure upon managements to incorporate in places other than Delaware. For the record, you can find the decision yourself here.
Wednesday, March 11, 2009
Palmiere resigns at HudBay Minerals
HudBay Minerals is a mining company working copper and zinc deposits especially in Manitobe. It trades on the Toronto Stock Exchange.
Its chief executive, Allen Palmiere, has resigned in the face of shareholder discontent resulting from a failed effort to acquire Lundin Mining, another Toronto-listed compamy, last year.
SRM Global Master Fund LP is seeking to replace the whole board at HudBay, and a special meeting has been called for March 25 at SRM's request for the purpose of this vote.
The official announcement of Palmiere's departure says the usual nice things: "The Board of Directors thanks Allen for his service to HudBay, first as chairman, then as chief executive officer and director." But there is no effort to answer the obvious question: why?
SRM doesn't call the shots yet, surely, so its discontent can't be the only operating factor here. Did Palmiere jump or was he pushed?
Let's get the Sccoby-Doo gang to work on this mystery. Maybe the new interim CEO, Colin Benner, will end up telling them "I would have gotten away with it too, if not for you meddling kids!"
Probably not. I'm just free associating.
Its chief executive, Allen Palmiere, has resigned in the face of shareholder discontent resulting from a failed effort to acquire Lundin Mining, another Toronto-listed compamy, last year.
SRM Global Master Fund LP is seeking to replace the whole board at HudBay, and a special meeting has been called for March 25 at SRM's request for the purpose of this vote.
The official announcement of Palmiere's departure says the usual nice things: "The Board of Directors thanks Allen for his service to HudBay, first as chairman, then as chief executive officer and director." But there is no effort to answer the obvious question: why?
SRM doesn't call the shots yet, surely, so its discontent can't be the only operating factor here. Did Palmiere jump or was he pushed?
Let's get the Sccoby-Doo gang to work on this mystery. Maybe the new interim CEO, Colin Benner, will end up telling them "I would have gotten away with it too, if not for you meddling kids!"
Probably not. I'm just free associating.
Wednesday, January 7, 2009
Selectica's poison pill
As I noted yesterday: on December 22, Selectica filed a complaint in Delaware looking for a declaratory judgment upholding its poison pill provisions, and therevy beating back what looks like a gradual take-over attempt by the defendants in that action, Trilogy and its subsidiary, Versata.
It doesn't appear that the court has taken any action in the interim.
The poison pill (or "rights plan") involved had/has a 4.99% beneficial ownership trigger. [Those of us who are following the CSX/TCI mess know what a controversy-generating concept "beneficial ownership" itself can be.]
The company has described the goal of the plan as "to help protect the value of the company's net operating loss carryforwards while continuing to provide customary protections against abusive takeover tactics."
What is new here is that the board of directors pulled the trigger on January 2, announcing that the company is doubling the number of shares of common stock held by all its stockholders except for Versata and Trilogy.
Selectica registered the resulting new securities with the SEC on Monday, January 5.
Passage of a threshold amount by a particular acquirer is sometimes called a "flip-in event." In a case like this, it might better be called a flip-the-bird event.
It doesn't appear that the court has taken any action in the interim.
The poison pill (or "rights plan") involved had/has a 4.99% beneficial ownership trigger. [Those of us who are following the CSX/TCI mess know what a controversy-generating concept "beneficial ownership" itself can be.]
The company has described the goal of the plan as "to help protect the value of the company's net operating loss carryforwards while continuing to provide customary protections against abusive takeover tactics."
What is new here is that the board of directors pulled the trigger on January 2, announcing that the company is doubling the number of shares of common stock held by all its stockholders except for Versata and Trilogy.
Selectica registered the resulting new securities with the SEC on Monday, January 5.
Passage of a threshold amount by a particular acquirer is sometimes called a "flip-in event." In a case like this, it might better be called a flip-the-bird event.
Tuesday, January 6, 2009
A poison pill
On December 22, Selectica Inc. filed a complaint with the Chancery Court in Delaware seeking a declaratory judgement about a poison pill. It wants the court to declare its pill to be valid, in order to limit the amount of its equity owned by Versata Enterprises Inc.
Who is suing whom? Before we look into this particular poison-pill controversy, let's fill in the background.
Versata, the defendant in the lawsuit, began life as a software consulting company, Vision Software, in the early 1990s.
In March 2000 Vision Software went public under the new name, Versata, acquiring an astonishing market cap of $4 billion.
It went private again in February 2006, when it was acquired by Trilogy Inc., a Texas-based software concern. Versata operates as a wholly-owned subsidiary of Trilogy, and is nowadays engaged in intellectual-property disputes with SAP and Sun-Microsystems. It has
So who is the plaintiff? Selectica is a San Jose, California based concern that describes the purpose of its products as the unification of its customers' business processes "to correctly configure, price, and quote offerings across multiple distribution channels."
Looking into its history a little, I've found that Selectica received and spurned a $4 per share tender offer from Trilogy in Jan. 2005, more than a year before Trilogy became the parent company of Versata. So now,in January of 2009, Selectica has been resisting such offers from Trilogy and/or Versata for an even four years.
That's the background. More on this particular poison pill tomorrow.
Who is suing whom? Before we look into this particular poison-pill controversy, let's fill in the background.
Versata, the defendant in the lawsuit, began life as a software consulting company, Vision Software, in the early 1990s.
In March 2000 Vision Software went public under the new name, Versata, acquiring an astonishing market cap of $4 billion.
It went private again in February 2006, when it was acquired by Trilogy Inc., a Texas-based software concern. Versata operates as a wholly-owned subsidiary of Trilogy, and is nowadays engaged in intellectual-property disputes with SAP and Sun-Microsystems. It has
So who is the plaintiff? Selectica is a San Jose, California based concern that describes the purpose of its products as the unification of its customers' business processes "to correctly configure, price, and quote offerings across multiple distribution channels."
Looking into its history a little, I've found that Selectica received and spurned a $4 per share tender offer from Trilogy in Jan. 2005, more than a year before Trilogy became the parent company of Versata. So now,in January of 2009, Selectica has been resisting such offers from Trilogy and/or Versata for an even four years.
That's the background. More on this particular poison pill tomorrow.
Wednesday, December 3, 2008
Conflict of Interest
So what's the most dramatic piece of this puzzle in which I've been trying to interest you this week?
Why should we pay attention especially to the proxy fight over Grubb & Ellis at today's shareholders meeting?
It features a dandy conflict-of-interest charge.
The playbook sometimes calls for the incumbent management to say, "shareholders, please don't vote for the challengers. They, or some of them, or the leader of the gang, owns interests in other companies which have interests that compete with yours and our. If they take over this company, they'll end up running it for the benefit of those competing interests, at your expense."
The charge in this case, as made by the incumbents, is that "Anthony Thompson is attempting to take control of Grubb & Ellis and install Stuart Tanz as CEO with the intention to cause Grubb & Ellis to buy or absorb Thompson's newly formed company, Thompson National Properties, a direct competitor."
Thompson's answer is that the two companies aren't direct competitors. They're both real-estate related but that phrase covers a wide range of actual operations.
As Thompson describes TNP, it is more a customer of G&E than a competitor, having purchased 3 buildings from them in 2008.
What about the claim that Thompson wants G&E to purchase TNP?
Thompson and his slate scoff at this, too. Even if they win the election today, they'll have at most three seats out of the eight, so they couldn't push through such a decision by themselves.
Also, Thompson owns a 14% stake in G&E. So, he asks, why would he press actions that would undermine the value of that stake?
One could speculate about responses to such points. After all:
(1) customers are sometimes also the competitors of their suppliers.
(2) even a consistent customer-supplier relationship could generate conflicts of interest. Conceivably, TNP could want to buy G&E to so arrange things that it could thereafter pay lower commissions when it buys buildings [just a hypothetical off the top of my head folks -- in other words, I just made it up!] but
(3) Thompson could for all I know be angling to have G&E buy TNP at an inflated price regardless of what their relationship to each other has lately been -- and could reckon that his gain on one side of that deal would exceed his loss at the other, and
(4) A three vote block on an eight member board is a formidable one, especially if the other five aren't a cohesive block themselves.
And so forth. Round and round the mulberry bush we could go.
Let's wait and see who wins this one.
Why should we pay attention especially to the proxy fight over Grubb & Ellis at today's shareholders meeting?
It features a dandy conflict-of-interest charge.
The playbook sometimes calls for the incumbent management to say, "shareholders, please don't vote for the challengers. They, or some of them, or the leader of the gang, owns interests in other companies which have interests that compete with yours and our. If they take over this company, they'll end up running it for the benefit of those competing interests, at your expense."
The charge in this case, as made by the incumbents, is that "Anthony Thompson is attempting to take control of Grubb & Ellis and install Stuart Tanz as CEO with the intention to cause Grubb & Ellis to buy or absorb Thompson's newly formed company, Thompson National Properties, a direct competitor."
Thompson's answer is that the two companies aren't direct competitors. They're both real-estate related but that phrase covers a wide range of actual operations.
As Thompson describes TNP, it is more a customer of G&E than a competitor, having purchased 3 buildings from them in 2008.
What about the claim that Thompson wants G&E to purchase TNP?
Thompson and his slate scoff at this, too. Even if they win the election today, they'll have at most three seats out of the eight, so they couldn't push through such a decision by themselves.
Also, Thompson owns a 14% stake in G&E. So, he asks, why would he press actions that would undermine the value of that stake?
One could speculate about responses to such points. After all:
(1) customers are sometimes also the competitors of their suppliers.
(2) even a consistent customer-supplier relationship could generate conflicts of interest. Conceivably, TNP could want to buy G&E to so arrange things that it could thereafter pay lower commissions when it buys buildings [just a hypothetical off the top of my head folks -- in other words, I just made it up!] but
(3) Thompson could for all I know be angling to have G&E buy TNP at an inflated price regardless of what their relationship to each other has lately been -- and could reckon that his gain on one side of that deal would exceed his loss at the other, and
(4) A three vote block on an eight member board is a formidable one, especially if the other five aren't a cohesive block themselves.
And so forth. Round and round the mulberry bush we could go.
Let's wait and see who wins this one.
Wednesday, November 26, 2008
Best Way to Ensure Competition
A deal long in the making, the acquisition of one global mining company by another, won't happen. It has been sideswiped not so much by the credit markets (just two weeks ago BHP insisted it was going forward notwithstanding) -- it has been sideswiped by the competition policy of the EC.
I refer of course to BHP Billiton, the Anglo-Australian company that had planned to buy the Rio Tinto Group with a share swap at 3.4 to 1.
As I noted back in June, when world credit conditions looked a lot better than they do now, even then the stock of the target company was trading at a level below that suggested by the 3.4 to 1 ratio suggesting that even then the market was concerned that regulators would scuttle the deal.
BHP is the larger of the two concerns, but Rio has the more illustrious history. Rio traces its origins to Spanish mines so old the ancient Roman empire had minted coins from the metal taken from that earth. In 1873, two Rothschild firms -- the Parisian and the London -- joined with other investors to buy the Spanish government's interest in these mines. They restructured the company and turned it into a profitable business run from London.
At any rate, the deal faced scrutiny from regulators in several of the countries in which both companies did business, including South Africa and Australia. But it was the EU that did the scuttling, by making unexpectedly severe demands in terms of the assets that would have to be sold off by the combined entity.
I'll use my humble blog to express baldly an opinion. Scuttling mergers is NOT the best way to ensure competition. There are several reasons for this. One of them is that the predictable action of authorities along such lines preserves incumbent managements against the threat of takeover -- and that the threat of takeover is a valuable deterrent to laziness or self-dealing by incumbents. I'm not making any such charge against the Rio Tinto management, by the way. I'm only saying that in general when authorities act as those in the EU have done, they remove a worry from corporate managers -- and the public needs to have corporate managers worry. Takeovers are among the things they should be worried about.
The best way of ensuring competition is to look for barriers to entry and then lower them. Why is some well-capitalized industrial company somewhere not even now putting money into a start-up iron ore mine? Because the market demand for iron ore doesn't make it profitable? or because there are administrative barriers? If the latter, then the EU might look into how those barriers can be lowered. That would give existing managements more, rather than less, to worry about
I refer of course to BHP Billiton, the Anglo-Australian company that had planned to buy the Rio Tinto Group with a share swap at 3.4 to 1.
As I noted back in June, when world credit conditions looked a lot better than they do now, even then the stock of the target company was trading at a level below that suggested by the 3.4 to 1 ratio suggesting that even then the market was concerned that regulators would scuttle the deal.
BHP is the larger of the two concerns, but Rio has the more illustrious history. Rio traces its origins to Spanish mines so old the ancient Roman empire had minted coins from the metal taken from that earth. In 1873, two Rothschild firms -- the Parisian and the London -- joined with other investors to buy the Spanish government's interest in these mines. They restructured the company and turned it into a profitable business run from London.
At any rate, the deal faced scrutiny from regulators in several of the countries in which both companies did business, including South Africa and Australia. But it was the EU that did the scuttling, by making unexpectedly severe demands in terms of the assets that would have to be sold off by the combined entity.
I'll use my humble blog to express baldly an opinion. Scuttling mergers is NOT the best way to ensure competition. There are several reasons for this. One of them is that the predictable action of authorities along such lines preserves incumbent managements against the threat of takeover -- and that the threat of takeover is a valuable deterrent to laziness or self-dealing by incumbents. I'm not making any such charge against the Rio Tinto management, by the way. I'm only saying that in general when authorities act as those in the EU have done, they remove a worry from corporate managers -- and the public needs to have corporate managers worry. Takeovers are among the things they should be worried about.
The best way of ensuring competition is to look for barriers to entry and then lower them. Why is some well-capitalized industrial company somewhere not even now putting money into a start-up iron ore mine? Because the market demand for iron ore doesn't make it profitable? or because there are administrative barriers? If the latter, then the EU might look into how those barriers can be lowered. That would give existing managements more, rather than less, to worry about
Monday, October 6, 2008
Cleveland-Cliffs Inc.
Cleveland-Cliffs, the Ohio-based operator of iron ore mines, announced Friday that its shareholders have voted decisively against a proposal by hedge fund Harbinger Capital -- a proposal that might have allowed Harbinger to block Cleveland-Cliffs' planned acquisitionof Alpha Natural Resources.
Harbinger requested approval from the other shareholders to increase its stake in the company from 15.57% to 33%. Ohio law requires such approval when one party passes the 20% threshold.
In a statement Friday, Cliffs' chairman Joseph Carrabba said that he was pleased that the non-Harbinger shareholders "voted to retain their right to provide meaningful input on the future strategic decisions of the Company."
The management victory is a time to reflect on a point sometimes neglected in popularizing accounts of the US based M&A world. It isn't all Delaware. Delaware obviously is of great importance, but there are major corporations that have chosen to charter themselves in other states, due in large part to the differences in the pertinent laws.
Ohio's statute in particular -- aimed overtly at protecting Ohio-based companies from unfriendly takeover -- made news back in 2003, when Northrop Grumman managed to overcome such obstacles and acquire the local company TRW. Ohio's response? -- to raise to bar again, by adding an anti-arb provision.
I would imagine that Ohio's statutes have been challenged in federal court at some point on the theory that they burden interstate commerce, thereby violating the "dormant" exercise of Congress' constitutional power in that area.
Commerce in the sense of the "dormant commerce clause doctrine" has generally meant something more tangible -- the act of moving objects into one state from another for sale there. But what about the handicapping of out-of-state investors in the way Ohio seems to have in mind? My suspicion (unconfirmed by any actual research into the question) is that challenges have been launched on this point, and they have failed.
If any of my alert readers know of litigation on this constitutional point, I'd be happy to hear of it. Thanks.
Harbinger requested approval from the other shareholders to increase its stake in the company from 15.57% to 33%. Ohio law requires such approval when one party passes the 20% threshold.
In a statement Friday, Cliffs' chairman Joseph Carrabba said that he was pleased that the non-Harbinger shareholders "voted to retain their right to provide meaningful input on the future strategic decisions of the Company."
The management victory is a time to reflect on a point sometimes neglected in popularizing accounts of the US based M&A world. It isn't all Delaware. Delaware obviously is of great importance, but there are major corporations that have chosen to charter themselves in other states, due in large part to the differences in the pertinent laws.
Ohio's statute in particular -- aimed overtly at protecting Ohio-based companies from unfriendly takeover -- made news back in 2003, when Northrop Grumman managed to overcome such obstacles and acquire the local company TRW. Ohio's response? -- to raise to bar again, by adding an anti-arb provision.
I would imagine that Ohio's statutes have been challenged in federal court at some point on the theory that they burden interstate commerce, thereby violating the "dormant" exercise of Congress' constitutional power in that area.
Commerce in the sense of the "dormant commerce clause doctrine" has generally meant something more tangible -- the act of moving objects into one state from another for sale there. But what about the handicapping of out-of-state investors in the way Ohio seems to have in mind? My suspicion (unconfirmed by any actual research into the question) is that challenges have been launched on this point, and they have failed.
If any of my alert readers know of litigation on this constitutional point, I'd be happy to hear of it. Thanks.
Monday, September 22, 2008
More on IRF, accounting troubles
It was almost a year and a half ago -- April 2007 -- that IRF announced it was investigating accounting irregularities at one of its foreign subsidiaries. It didn't say which one, though the Japan subsidiary seems the best guess.
And the irregularity may have been a form of old-fashioned channel stuffing.
At any rate, this announcement didn't have any very dramatic immediate effect on the stock price.
But what did have an impact a few weeks later (on July 1) was the news that IRF had fired its chief financial officer, Michael P. McGee. The announcement was quite tersely worded. There was none of the common face-saving stuff. The world wasn't told that Mr. McGee had decided to "pursue other opportunities," or to spend more time with his family.
It said he had been "terminated," full stop. Then it praised his replacement, Linda Pahl, for her qualifications.
Deep into that announcement, the company reminded its investors that "an internal investigation of accounting irregularities ... continues." It drew no explciit connection between those irregularities and Mr. McGee.
Mr. Market can add though, and gets to "four" quickly enough when companies lay out the 2 plus the other 2. IRF's stock price entered the month of July 2007 at $37.50. It fell nearly to $30 before that month was out. Though it soon made a partial recovery, this was the start of a continuing slide. A year after Mr. McGee's sudden departure, IRF was selling for $17.50 a sure.
It has come off of those lows since, and largely as a result of, Vishay's interest in an acquisition.
As my readers may rightly infer from the tentative quality of these last two posts, I'm still feeling my way into this company, its history, and the proxy fight. I'll seek to lessen my own ignorance in the weeks to come.
And the irregularity may have been a form of old-fashioned channel stuffing.
At any rate, this announcement didn't have any very dramatic immediate effect on the stock price.
But what did have an impact a few weeks later (on July 1) was the news that IRF had fired its chief financial officer, Michael P. McGee. The announcement was quite tersely worded. There was none of the common face-saving stuff. The world wasn't told that Mr. McGee had decided to "pursue other opportunities," or to spend more time with his family.
It said he had been "terminated," full stop. Then it praised his replacement, Linda Pahl, for her qualifications.
Deep into that announcement, the company reminded its investors that "an internal investigation of accounting irregularities ... continues." It drew no explciit connection between those irregularities and Mr. McGee.
Mr. Market can add though, and gets to "four" quickly enough when companies lay out the 2 plus the other 2. IRF's stock price entered the month of July 2007 at $37.50. It fell nearly to $30 before that month was out. Though it soon made a partial recovery, this was the start of a continuing slide. A year after Mr. McGee's sudden departure, IRF was selling for $17.50 a sure.
It has come off of those lows since, and largely as a result of, Vishay's interest in an acquisition.
As my readers may rightly infer from the tentative quality of these last two posts, I'm still feeling my way into this company, its history, and the proxy fight. I'll seek to lessen my own ignorance in the weeks to come.
Sunday, August 31, 2008
Joyce v. Morgan Stanley
I'm not sure whether this case is important in the big scheme of things, so I'll try to think it through here. If any one out there has commentary, I'd be happy to hear it.
Joyce v. Morgan Stanley is a decision of the 7th circuit court of appeals, issued August 19, that arose out of a merger of two telecomm firms in 1999.
The decision itself is available through the website of Wachtell Lipton.
Morgan Stanley was the financial adviser to one of the firms involved in the merger, the target company. Stockholders in the corporation it was advising brought this lawsuit, alleging that MS didn't warn them how to minimize their exposure to a decline in the value of the counterparty's stock's price.
On the plaintiff's theory, MS had a fiduciary responsibility to the shareholders in the target corp., and it breached that because of a prior conflict-generating relationship with the acquirer.
At first blush, then, the shareholders' claim is of the sort usually characterized as a "shareholders derivative" lawsuit. The district court certainly thought so. It dismissed the case on the ground that the plaintiffs had failed to follow the proper procedures for bringing a derivative claim. Thus, they were dismissed at the district court level for lack of standing.
The appellate court made things more complicated. It said this ISN'T a derivative lawsuit, because it wasn't a decline in share price per se that constitutes the harm alleged by a failure to hedge against such a decline. So the district court was wrong to use the standing argument.
But, the appellate court continued, Morgan Stanley didn't have any duty to warn the shareholders that they should hedge, so the question of whether it had any "conflict" with that alleged duty doesn't arise, and the district court was right to dismiss the case anyway.
As I indicated above, I'm not sure whether this is important. In fact my head hurts just thinking about it.
Joyce v. Morgan Stanley is a decision of the 7th circuit court of appeals, issued August 19, that arose out of a merger of two telecomm firms in 1999.
The decision itself is available through the website of Wachtell Lipton.
Morgan Stanley was the financial adviser to one of the firms involved in the merger, the target company. Stockholders in the corporation it was advising brought this lawsuit, alleging that MS didn't warn them how to minimize their exposure to a decline in the value of the counterparty's stock's price.
On the plaintiff's theory, MS had a fiduciary responsibility to the shareholders in the target corp., and it breached that because of a prior conflict-generating relationship with the acquirer.
At first blush, then, the shareholders' claim is of the sort usually characterized as a "shareholders derivative" lawsuit. The district court certainly thought so. It dismissed the case on the ground that the plaintiffs had failed to follow the proper procedures for bringing a derivative claim. Thus, they were dismissed at the district court level for lack of standing.
The appellate court made things more complicated. It said this ISN'T a derivative lawsuit, because it wasn't a decline in share price per se that constitutes the harm alleged by a failure to hedge against such a decline. So the district court was wrong to use the standing argument.
But, the appellate court continued, Morgan Stanley didn't have any duty to warn the shareholders that they should hedge, so the question of whether it had any "conflict" with that alleged duty doesn't arise, and the district court was right to dismiss the case anyway.
As I indicated above, I'm not sure whether this is important. In fact my head hurts just thinking about it.
Wednesday, July 9, 2008
The Clydesdales Hire Lawyers
Anheuser-Busch has filed a lawsuit (as of Monday) in the federal district court in St Louis. MO seeking to preserve its independence from the Eurolopers at InBev.
One unusual twist is thatA-B wants to use the US embargo of Cuba as a justification for keeping InBev away. The euros have substantial operations in Cuba, and of course AB isn't allowed to transact business there. Ths, even if the two companies are formally merged they'd have to remain operationally distinct.
To make this a subject for a lawsuit, rather than simpky a "don't sell" pitch to shareholders, A-B has to say that this is material information that InBev is hiding in its efforts to acquire control of A-B at a price that doesn't match the economic realities of the situation.
That is, accordingly, what the complaint does.
InBen "claims it will make St. Louis the North American headquarters for the combined company, a promise it has repeated on numerous occasions since making its unsolicited acquisition offer...."
InBev's North American operations include its Cuban business. So InBev is being less-than-honest with the above cited promise.
An obvious riposts suggests itself. Surely, when the company is combined, the Cuban operations can be shifted (geography notwithstanding) to the European HQ of the resulting behemoth. The bulk of the North American operations would be, roughly, what A-B is now. That was the point of the promise, wasn't it? Not "we'll give you Missourians control of our N.A. operations" but "we'll let you keep control of yours."
Anyway, everything is given a national-security angle nowadays, and we can expect to see more of this.
One unusual twist is thatA-B wants to use the US embargo of Cuba as a justification for keeping InBev away. The euros have substantial operations in Cuba, and of course AB isn't allowed to transact business there. Ths, even if the two companies are formally merged they'd have to remain operationally distinct.
To make this a subject for a lawsuit, rather than simpky a "don't sell" pitch to shareholders, A-B has to say that this is material information that InBev is hiding in its efforts to acquire control of A-B at a price that doesn't match the economic realities of the situation.
That is, accordingly, what the complaint does.
InBen "claims it will make St. Louis the North American headquarters for the combined company, a promise it has repeated on numerous occasions since making its unsolicited acquisition offer...."
InBev's North American operations include its Cuban business. So InBev is being less-than-honest with the above cited promise.
An obvious riposts suggests itself. Surely, when the company is combined, the Cuban operations can be shifted (geography notwithstanding) to the European HQ of the resulting behemoth. The bulk of the North American operations would be, roughly, what A-B is now. That was the point of the promise, wasn't it? Not "we'll give you Missourians control of our N.A. operations" but "we'll let you keep control of yours."
Anyway, everything is given a national-security angle nowadays, and we can expect to see more of this.
Monday, June 23, 2008
BHP/Rio Tinto
In November, the huge Australian mining company BHP Billiton announced a bid to acquire a rival company, the Rio Tinto Group, with a 3-to-1 share swap. In other words, it wanted Rio stockholders to turn in each of their shares for three shares of the new, larger, combined company.
The offer was sweetened a bit in February (3.4 to 1) and in that form is still on the table. Oddly, the prices of the two companies haven't really been trading as if the market finds this offer credible.
If there were a significant amount of arb activity, and a general expectation that the deal would go through, one would expect that the price of a share of Rio stock on the market would be, roughly, 3.4 times the value of a share of BHP stock. So if (just choosing my numbers to make the math easy here) BHP is trading for Aus$40 on a given day, you'd expect to see Rio shares trading for Aus$136.
Why? Because there's a good deal of speculative activity out there that is specifically in the merger arb business. (Sometimes, much less fittingly, called "risk arb," a usage I'll ignore). If the two company's market valuation got out of line, you'd expect the people and institutions in the merger arb business to act on it. Suppose, in may example, BHP is at $40 and Rio is a good deal lower than the valuation implicit in the 3.4 to 1 ratio. Suppose Rio went to $80, which implies a 2:1 ratio. What would happen?
The merger arbs would move in and buy Rio shares like mad. They'd do so in the expectation of being able to trade in each one for their 3.4 shares of BHP -- getting a return of $136 for each investment of $80, an easy $56 if ever there was one. The very fact of their moving in to do this would constitute an increase of demand for the stock of course, increasing its price -- forcing its price up to the level dictated by that 3.4 offer.
To repeat, that's what would happen IF two conditions obtained: there was a general expectation the deal would close, and there was a lot of arb activity.
Apparently one or both of those conditions is missing. Rio is trading at a discount of more than 8% to where it "should" be on such reasoning. Why? I'm guessing the market believes regulators in one or another of the many affected jusridictions will intervene and stop or complicate the deal.
The offer was sweetened a bit in February (3.4 to 1) and in that form is still on the table. Oddly, the prices of the two companies haven't really been trading as if the market finds this offer credible.
If there were a significant amount of arb activity, and a general expectation that the deal would go through, one would expect that the price of a share of Rio stock on the market would be, roughly, 3.4 times the value of a share of BHP stock. So if (just choosing my numbers to make the math easy here) BHP is trading for Aus$40 on a given day, you'd expect to see Rio shares trading for Aus$136.
Why? Because there's a good deal of speculative activity out there that is specifically in the merger arb business. (Sometimes, much less fittingly, called "risk arb," a usage I'll ignore). If the two company's market valuation got out of line, you'd expect the people and institutions in the merger arb business to act on it. Suppose, in may example, BHP is at $40 and Rio is a good deal lower than the valuation implicit in the 3.4 to 1 ratio. Suppose Rio went to $80, which implies a 2:1 ratio. What would happen?
The merger arbs would move in and buy Rio shares like mad. They'd do so in the expectation of being able to trade in each one for their 3.4 shares of BHP -- getting a return of $136 for each investment of $80, an easy $56 if ever there was one. The very fact of their moving in to do this would constitute an increase of demand for the stock of course, increasing its price -- forcing its price up to the level dictated by that 3.4 offer.
To repeat, that's what would happen IF two conditions obtained: there was a general expectation the deal would close, and there was a lot of arb activity.
Apparently one or both of those conditions is missing. Rio is trading at a discount of more than 8% to where it "should" be on such reasoning. Why? I'm guessing the market believes regulators in one or another of the many affected jusridictions will intervene and stop or complicate the deal.
Monday, June 9, 2008
CSX Update
I'm beginning this post while listening to music in my right ear.
I'm on hold as a teleconference is about to begin, sponsored by RiskMetrics. They've brought together representatives from both sides of the TCI/CSX dispute.
FT Alphaville, helping with the hype, has said that this will be a first, "a pixelated and very public showdown between CSX, a container and logistics group, and its activist hedge fund tormentors, TCI and 3G Capital."
On the dais for the railroad, its chairman Michael Ward, its CFO Oscar Munoz, and others.
For the hedge funds: Snehal Amin, founding partner at TCI, and Alexandre Behring, Managing Director at 3G, etc.
Christopher Young will moderate (or referee if it gets good!). He's the head of mergers and acquisitions research at RiskMetrics.
I'm not going to try live blogging. I'll let you know my impressions in tomorrow's entry here, though.
I'm on hold as a teleconference is about to begin, sponsored by RiskMetrics. They've brought together representatives from both sides of the TCI/CSX dispute.
FT Alphaville, helping with the hype, has said that this will be a first, "a pixelated and very public showdown between CSX, a container and logistics group, and its activist hedge fund tormentors, TCI and 3G Capital."
On the dais for the railroad, its chairman Michael Ward, its CFO Oscar Munoz, and others.
For the hedge funds: Snehal Amin, founding partner at TCI, and Alexandre Behring, Managing Director at 3G, etc.
Christopher Young will moderate (or referee if it gets good!). He's the head of mergers and acquisitions research at RiskMetrics.
I'm not going to try live blogging. I'll let you know my impressions in tomorrow's entry here, though.
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