Do Fairness Opinion Valuations Contain Useful Information?

We analyze target firm valuations disclosed in the fairness opinions of negotiated mergers between 1998 and 2005. On average, acquirer advisors exhibit a greater degree of valuation optimism than do target advisors. Top-tier advisors produce more accurate valuations than lower-tier advisors, but valuation accuracy is unrelated to the contingency structure of advisory fees. The stock price reactions to merger announcements and to the public disclosure of fairness opinions are positively related to the difference between target firm valuations contained in the fairness opinion and the merger offer price. We conclude that fairness opinions contain information not previously available to market participants.

Characterization of the Role of R7-RGS Proteins in Mammalian Retina and Vision

ABSTRACT OF THE DISSERTATION Characterization of the Role of RGS7-family Proteins in Mammalian Retina and Vision by Matthew David Cain Doctor of Philosophy in Biology and Biomedical Sciences Molecular Cell Biology Washington University in St. Louis, 2014 Professor Kendall J. Blumer, Chairperson GPCR/G protein signaling is a critical component of neuronal signal transduction and function. G protein signaling is regulated by a family of regulator of G protein signaling (RGS) proteins that act as GTPase activating proteins (GAPs) for Gα subunits. In the retina, the R7-RGS family of RGS proteins which specifically act as GAPs toward Gi/o, are critical regulators of phototransduction and ON bipolar cell light responses in the outer retina. While R7-RGS proteins are expressed throughout the inner retina, their function there is unknown. The goal of this dissertation project is to characterize R7-RGS regulation on retina function and vision. This dissertation is divided into four parts: i) analysis of inner retinal function in mature and developing R7BP-/- retinas, ii) characterization of composition and localization of R7-RGS/R7BP complexes in the dorsal lateral geniculate nucleus (dLGN), iii) characterization of blockade of RGS regulation of Gi2 and Go subunits on outer retina function, and iv) preliminary analysis of the effect of RGS6 ablation on vision. In part i), we found that R7BP is expressed in starburst amacrine cells (SAC) and retinal ganglion cells (RGC). R7BP regulates mesopic RGC light responses and glutamatergic wave burst duration in mature and developing retina, respectively. In part ii), we found that R7PB is expressed in the dLGN. R7BP interacts with RGS6 and RGS7 in lateral geniculate nucleus lysates, but is not necessary for their membrane localization. In part iii), outer retinal phenotypes of RGS-insensitive Gi2 and Go mutant mice were characterized. RGS regulation of Gi2 is necessary for normal rod light responses. Heterozygous expression of RGS-insensitive Go subunits was not sufficient to perturb ON bipolar cell light responses or dendritic morphology. In part iv), we found that RGS6 is expressed in starburst amacrine cells. RGS6 localization to SAC plexi is independent of R7BP. We demonstrated that, although dispensable for normal phototransduction or ON bipolar light responses, RGS6 is necessary for normal spatial vision. Based on these findings, we suggest that RGS regulation of Gi/o signaling is necessary for normal retinal function and that R7-RGS proteins regulate inner retinal function. Additionally, we identified several new candidate circuits to further explore R7-RGS function in the visual system

Earnouts: A Study of Financial Contracting in Acquisition Agreements

We empirically examine earnout contracts, which provide for contingent payments in acquisition agreements. Our analysis reveals considerable heterogeneity in the terms of earnout contracts, i.e. the potential size of the earnout, the performance measure on which the contingent payment is based, the period over which performance is measured, the frequency with which performance is measured, and the form of payment for the earnout. Consistent with the costly contracting hypothesis, we find that the terms of earnout contracts are associated with measures of target valuation uncertainty, target growth opportunities, and the degree of post-acquisition integration between target and acquirer. We conclude that earnouts are structured to minimize the costs of adverse selection and moral hazard in acquisition negotiations.

Mootness Fees

In response to a sharp increase in litigation challenging mergers, the Delaware Chancery Court issued the 2016 Trulia decision, which substantively reduced the attractiveness of Delaware as a forum for these suits. In this Article, we empirically assess the response of plaintiffs\u27attorneys to these developments. Specifically, we document a troubling trend-the flight of merger litigation to federal court where these cases are overwhelmingly resolved through voluntary dismissals that provide no benefit to the plaintiff class but generate a payment to plaintiffs\u27counsel in the form of a mootness fee. In 2018, for example, 77% of deals with litigation were challenged in federal court, and in 63% of litigated cases, plaintiffs\u27 attorneys received a mootness fee. This compares with 2014, when only 4% of deals with litigation had a filing in federal court and no mootness fees were awarded. The rise of the mootness fee and the shift to federal court raise several issues, including a lack of transparency in the quality and resolution of merger cases and an increased potential for blackmail litigation. These problems are compounded by the willingness of some courts to permit the payment of a mootness fee in connection with corrective disclosures that are immaterial but possibly helpful, a standard that we argue is unworkable and increases the potential for vexatious litigation. We argue that the widespread payment of mootness fees reflects an inappropriate tax on the judicial system and corporations

The Shifting Tides of Merger Litigation

In 2015, Delaware made several important changes to its laws concerning merger litigation. These changes, which were made in response to a perception that levels of merger litigation were too high and that a substantial proportion of merger cases were not providing value, raised the bar, making it more difficult for plaintiffs to win a lawsuit challenging a merger and more difficult for plaintiffs\u27 counsel to collect a fee award. We study what has happened in the courts in response to these changes. We find that the initial effect of the changes has been to decrease the volume of merger litigation, to increase the number of cases that are dismissed, and to reduce the size of attorneys\u27 fee awards. At the same time, we document an adaptive response by the plaintiffs\u27 bar. Merger cases are being filed in other state courts or in federal court, presumably in an effort to escape the application of the new Delaware rules. This responsive adaptation offers important lessons about the entrepreneurial nature of merger litigation and the limited ability of the courts to reduce the potential for litigation abuse. In particular, we find that plaintiffs\u27 attorneys respond rationally to these changes by shifting their filing patterns, and that defendants respond in kind. We argue, however, that more expansive efforts to shut down merger litigation, such as through the use of fee-shifting bylaws, are premature and create too great a risk of foreclosing beneficial litigation. We also examine Delaware\u27s dilemma in maintaining a balance between the rights of managers and shareholders in this area

The Myth of \u3ci\u3eMorrison\u3c/i\u3e: Securities Fraud Litigation Against Foreign Issuers

Using a sample of 388 securities fraud lawsuits filed between 2002 and 2017 against foreign issuers, we examine the effect of the Supreme Court\u27s decision in Morrison v. National Australia Bank Ltd. We find that the description of Morrison as a steamroller, substantially ending litigation against foreign issuers, is a myth. Instead, we find that Morrison did not significantly change the type of litigation brought against foreign issuers, which, both before and after this case, focused on foreign issuers with a U.S. listing and substantial U.S. trading volume. Although dismissal rates rose post-Morrison, we find no evidence that this was related to the decision. Settlement amounts and attorneys\u27 fees remained unchanged post-Morrison. We use these findings to theorize that Morrison was primarily a preemptive decision about standing that firmly delineated the exposure of foreign issuers to U.S. liability in response to the Vivendi case, which sought to expand the scope of liability for foreign issuers whose shares traded primarily in non-U.S. venues. When Morrison is placed in its true context, it is justified as a decision in line with administrative and court actions that have historically aligned firms\u27 U.S. liability to be proportional to their U.S. presence. Although Morrison had this defining effect, it did not change the litigation environment for foreign issuers, which was the oft-cited import of the decision. More generally, our analysis of Morrison underscores how the decision has been mistakenly characterized as a case primarily about extraterritoriality rather than standing

Mootness Fees

In response to a sharp increase in litigation challenging mergers, the Delaware Chancery Court issued the 2016 Trulia decision, which substantively reduced the attractiveness of Delaware as a forum for these suits. In this Article, we empirically assess the response of plaintiffs’ attorneys to these developments. Specifically, we document a troubling trend—the flight of merger litigation to federal court where these cases are overwhelmingly resolved through voluntary dismissals that provide no benefit to the plaintiff class but generate a payment to plaintiffs’ counsel in the form of a mootness fee. In 2018, for example, 77% of deals with litigation were challenged in federal court, and in 63% of litigated cases, plaintiffs’ attorneys received a mootness fee. This compares with 2014, when only 4% of deals with litigation had a filing in federal court and no mootness fees were awarded. The rise of the mootness fee and the shift to federal court raise several issues, including a lack of transparency in the quality and resolution of merger cases and an increased potential for blackmail litigation. These problems are compounded by the willingness of some courts to permit the payment of a mootness fee in connection with corrective disclosures that are immaterial but possibly helpful, a standard that we argue is unworkable and increases the potential for vexatious litigation. We argue that the widespread payment of mootness fees reflects an inappropriate tax on the judicial system and corporations. Although we argue that a shift to federal courts is appropriate for litigation challenging the adequacy of merger disclosure, we maintain that a successful shift requires the federal courts to police the quality and resolution of merger litigation carefully. We conclude that federal courts should require that the payment of mootness fees be subject to judicial review. We further argue that the payment of a mootness fee should be conditioned on litigation resulting in a material corrective disclosure—the same legal standard required by Trulia. We propose that the Federal Rules of Civil Procedure be amended to implement these requirements or alternatively that federal judges use their inherent authority to adopt these requirements. We ultimately view these changes as necessary to limit frivolous litigation and provide for transparency and judicial oversight of the litigation process

The Shifting Tides of Merger Litigation

In 2015, Delaware made several important changes to its laws concerning merger litigation. These changes, which were made in response to a perception that levels of merger litigation were too high and that a substantial proportion of merger cases were not providing value, raised the bar, making it more difficult for plaintiffs to win a lawsuit challenging a merger and more difficult for plaintiffs\u27 counsel to collect a fee award. We study what has happened in the courts in response to these changes. We find that the initial effect of the changes has been to decrease the volume of merger litigation, to increase the number of cases that are dismissed, and to reduce the size of attorneys\u27 fee awards. At the same time, we document an adaptive response by the plaintiffs\u27 bar. Merger cases are being filed in other state courts or in federal court, presumably in an effort to escape the application of the new Delaware rules. This responsive adaptation offers important lessons about the entrepreneurial nature of merger litigation and the limited ability of the courts to reduce the potential for litigation abuse. In particular, we find that plaintiffs\u27 attorneys respond rationally to these changes by shifting their filing patterns, and that defendants respond in kind. We argue, however, that more expansive efforts to shut down merger litigation, such as through the use of fee-shifting bylaws, are premature and create too great a risk of foreclosing beneficial litigation. We also examine Delaware\u27s dilemma in maintaining a balance between the rights of managers and shareholders in this area

Does Revlon Matter? A Empirical and Theoretical Study

We empirically examine whether and how the doctrine of enhanced judicial scrutiny that emerged from Revlon and its progeny actually affects M&A transactions. Combining hand-coding and machine-learning techniques, we assemble data from the proxy statements of publicly announced mergers between 2003 and 2017 into a dataset of 1,913 unique transactions. Of these, 1,167 transactions were subject to the Revlon standard, and 553 were not. After subjecting this sample to empirical analysis, our results show that Revlon does indeed matter for companies incorporated in Delaware. We find that in Delaware, Revlon deals are more intensely negotiated, involve more bidders, and result in higher transaction premiums than non-Revlon deals. However, these results do not hold for target companies incorporated in other jurisdictions that have adopted the Revlon doctrine. Our results shed light on the implications of the current state of uncertainty surrounding Revlon and provide some direction for courts going forward. We theorize that Revlon is a monitoring standard whose effectiveness depends upon the judiciary’s credible commitment to intervene in biased transactions. The precise contours of the doctrine are unimportant as long as the judiciary retains a substantive avenue for intervention. Recent Delaware decisions in C&J and Corwin have been criticized for overly restricting Revlon, but we suggest that such concerns are overstated so long as Delaware judges continue to monitor the substance of transactions. Thus, in applying these decisions, Delaware judges should focus not on procedural aspects but the substantive component of transactions, which Revlon initially sought to regulate