Confronting the Peppercorn Settlement in Merger Litigation: An Empirical Analysis and a Proposal for Reform

Shareholder litigation challenging corporate mergers is ubiquitous, with the likelihood of a shareholder suit exceeding 90%. The value of this litigation, however, is questionable. The vast majority of merger cases settle for nothing more than supplemental disclosures in the merger proxy statement. The attorneys that bring these lawsuits are compensated for their efforts with a court-awarded fee. This leads critics to charge that merger litigation benefits only the lawyers who bring the claims, not the shareholders they represent. In response, defenders of merger litigation argue that the lawsuits serve a useful oversight function and that the improved disclosures that result are beneficial to shareholders. This Article offers a new approach to assessing the value of these claims by empirically testing the relationship between merger litigation and shareholder voting on the merger. If the supplemental disclosures produced by the settlement of merger litigation are valuable, they should affect shareholder voting behavior. Specifically, supplemental disclosures that are, in effect, “compelled” by settlement should produce new and unfavorable information about the merger and lead to a lower percentage of shares voted in favor of it. Applying this hypothesis to a hand-collected sample of 453 large public company mergers from 2005-2012, we find no such effect. We find no significant evidence that disclosure-only settlements affect shareholder voting. These findings warrant a reconsideration of Delaware merger law. Specifically, under current law, supplemental disclosures are viewed by courts as providing a substantial benefit to the shareholder class. In turn, this substantial benefit entitles the plaintiffs’ lawyers to an award of attorneys’ fees. Our evidence suggests that this legal analysis is misguided and that supplemental disclosures do not in fact constitute a substantial benefit. As a result, and in light of the substantial costs generated by public company merger litigation, we argue that courts should reject disclosure settlements as a basis for attorney fee awards. Our approach responds to critiques of merger litigation as excessive and frivolous by reducing the incentive for plaintiffs’ lawyers to bring weak cases, but it would have an additional benefit. Current practice drags state court judges into the task of indirectly promulgating disclosure standards in connection with the approval of fee awards. We argue, instead, for a more efficient specialization between state and federal courts in the regulation of mergers: public company merger disclosure should be policed by the federal securities laws while state corporate law focuses on substantive fairness

Confronting the Peppercorn Settlement in Merger Litigation: An Empirical Analysis and a Proposal for Reform

Shareholder litigation challenging corporate mergers is ubiquitous, with the likelihood of a shareholder suit exceeding 90%. The value of this litigation, however, is questionable. The vast majority of merger cases settle for nothing more than supplemental disclosures in the merger proxy statement. The attorneys that bring these lawsuits are compensated for their efforts with a court-awarded fee. This leads critics to charge that merger litigation benefits only the lawyers who bring the claims, not the shareholders they represent. In response, defenders of merger litigation argue that the lawsuits serve a useful oversight function and that the improved disclosures that result are beneficial to shareholders. This Article offers a new approach to assessing the value of these claims by empirically testing the relationship between merger litigation and shareholder voting on the merger. If the supplemental disclosures produced by the settlement of merger litigation are valuable, they should affect shareholder voting behavior. Specifically, supplemental disclosures that are, in effect, “compelled” by settlement should produce new and unfavorable information about the merger and lead to a lower percentage of shares voted in favor of it. Applying this hypothesis to a hand-collected sample of 453 large public company mergers from 2005-2012, we find no such effect. We find no significant evidence that disclosure-only settlements affect shareholder voting. These findings warrant a reconsideration of Delaware merger law. Specifically, under current law, supplemental disclosures are viewed by courts as providing a substantial benefit to the shareholder class. In turn, this substantial benefit entitles the plaintiffs’ lawyers to an award of attorneys’ fees. Our evidence suggests that this legal analysis is misguided and that supplemental disclosures do not in fact constitute a substantial benefit. As a result, and in light of the substantial costs generated by public company merger litigation, we argue that courts should reject disclosure settlements as a basis for attorney fee awards. Our approach responds to critiques of merger litigation as excessive and frivolous by reducing the incentive for plaintiffs’ lawyers to bring weak cases, but it would have an additional benefit. Current practice drags state court judges into the task of indirectly promulgating disclosure standards in connection with the approval of fee awards. We argue, instead, for a more efficient specialization between state and federal courts in the regulation of mergers: public company merger disclosure should be policed by the federal securities laws while state corporate law focuses on substantive fairness

Random Field and Random Anisotropy Effects in Defect-Free Three-Dimensional XY Models

Monte Carlo simulations have been used to study a vortex-free XY ferromagnet with a random field or a random anisotropy on simple cubic lattices. In the random field case, which can be related to a charge-density wave pinned by random point defects, it is found that long-range order is destroyed even for weak randomness. In the random anisotropy case, which can be related to a randomly pinned spin-density wave, the long-range order is not destroyed and the correlation length is finite. In both cases there are many local minima of the free energy separated by high entropy barriers. Our results for the random field case are consistent with the existence of a Bragg glass phase of the type discussed by Emig, Bogner and Nattermann.Comment: 10 pages, including 2 figures, extensively revise

A Floating NAV for Money Market Funds: Fix or Fantasy?

The announcement by the Reserve Primary Fund, in September 2008, that it was “breaking the buck,” triggered a widespread withdrawal of assets from other money market funds and led the U.S. Government to adopt emergency measures to maintain the stability of the short term credit markets. In light of these events, the SEC heightened the regulatory requirements to which money market funds – a three trillion dollar industry -- are subject. Regulators and commentators continue to press for further regulatory change, however. The most controversial reform proposal would eliminate the ability of money market funds to purchase and sell shares at a stable $1/share price. This article argues that the debate over a floating NAV is misguided. First, under current law, money market funds can maintain a$1 share price only under limited conditions. Second, a floating NAV would not achieve the goals claimed by its proponents. Third, and most important, a stable share price is critical to the existence of the money market funds industry. A required floating NAV would eliminate the fundamental attraction of money market funds for investors and, as a result, jeopardize the availability of short term capital. The more important regulatory question, on which existing commentary has not focused, is what happens if an MMF breaks the buck. This article takes the position that this event should neither require the fund to be liquidated nor permit the board unfettered discretion in suspending redemptions. Instead the article proposes two procedural reforms designed to provide flexibility and predictability in these circumstances by allowing a money market fund to convert to a floating NAV and allowing investors to redeem most of their shares without awaiting completion of a fund’s liquidation. In conjunction with a modest amendment requiring improved fund disclosure about the circumstances under which a fund may be unable to maintain a stable share price, these changes will increase liquidity, address the pressures that may lead to a “run,” preserve the economic viability of money market funds, and allow them to respond to the preferences of investors

A Floating NAV for Money Market Funds: Fix or Fantasy?

The announcement by the Reserve Primary Fund, in September 2008, that it was “breaking the buck,” triggered a widespread withdrawal of assets from other money market funds and led the U.S. Government to adopt emergency measures to maintain the stability of the short term credit markets. In light of these events, the SEC heightened the regulatory requirements to which money market funds – a three trillion dollar industry -- are subject. Regulators and commentators continue to press for further regulatory change, however. The most controversial reform proposal would eliminate the ability of money market funds to purchase and sell shares at a stable $1/share price. This article argues that the debate over a floating NAV is misguided. First, under current law, money market funds can maintain a$1 share price only under limited conditions. Second, a floating NAV would not achieve the goals claimed by its proponents. Third, and most important, a stable share price is critical to the existence of the money market funds industry. A required floating NAV would eliminate the fundamental attraction of money market funds for investors and, as a result, jeopardize the availability of short term capital. The more important regulatory question, on which existing commentary has not focused, is what happens if an MMF breaks the buck. This article takes the position that this event should neither require the fund to be liquidated nor permit the board unfettered discretion in suspending redemptions. Instead the article proposes two procedural reforms designed to provide flexibility and predictability in these circumstances by allowing a money market fund to convert to a floating NAV and allowing investors to redeem most of their shares without awaiting completion of a fund’s liquidation. In conjunction with a modest amendment requiring improved fund disclosure about the circumstances under which a fund may be unable to maintain a stable share price, these changes will increase liquidity, address the pressures that may lead to a “run,” preserve the economic viability of money market funds, and allow them to respond to the preferences of investors

Power-law correlations and orientational glass in random-field Heisenberg models

Monte Carlo simulations have been used to study a discretized Heisenberg ferromagnet (FM) in a random field on simple cubic lattices. The spin variable on each site is chosen from the twelve [110] directions. The random field has infinite strength and a random direction on a fraction x of the sites of the lattice, and is zero on the remaining sites. For x = 0 there are two phase transitions. At low temperatures there is a [110] FM phase, and at intermediate temperature there is a [111] FM phase. For x > 0 there is an intermediate phase between the paramagnet and the ferromagnet, which is characterized by a |k|^(-3) decay of two-spin correlations, but no true FM order. The [111] FM phase becomes unstable at a small value of x. At x = 1/8 the [110] FM phase has disappeared, but the power-law correlated phase survives.Comment: 8 pages, 12 Postscript figure

The KT-BRST complex of a degenerate Lagrangian system

Quantization of a Lagrangian field system essentially depends on its degeneracy and implies its BRST extension defined by sets of non-trivial Noether and higher-stage Noether identities. However, one meets a problem how to select trivial and non-trivial higher-stage Noether identities. We show that, under certain conditions, one can associate to a degenerate Lagrangian L the KT-BRST complex of fields, antifields and ghosts whose boundary and coboundary operators provide all non-trivial Noether identities and gauge symmetries of L. In this case, L can be extended to a proper solution of the master equation.Comment: 15 pages, accepted for publication in Lett. Math. Phy

Vlasov equation and collisionless hydrodynamics adapted to curved spacetime

The modification of the Vlasov equation, in its standard form describing a charged particle distribution in the six-dimensional phase space, is derived explicitly within a formal Hamiltonian approach for arbitrarily curved spacetime. The equation accounts simultaneously for the Lorentz force and the effects of general relativity, with the latter appearing as the gravity force and an additional force due to the extrinsic curvature of spatial hypersurfaces. For an arbitrary spatial metric, the equations of collisionless hydrodynamics are also obtained in the usual three-vector form

Statistical Mechanics of an Optical Phase Space Compressor

We describe the statistical mechanics of a new method to produce very cold atoms or molecules. The method results from trapping a gas in a potential well, and sweeping through the well a semi-permeable barrier, one that allows particles to leave but not to return. If the sweep is sufficiently slow, all the particles trapped in the well compress into an arbitrarily cold gas. We derive analytical expressions for the velocity distribution of particles in the cold gas, and compare these results with numerical simulations.Comment: 7 pages, 3 figure

Topological Defects in the Random-Field XY Model and the Pinned Vortex Lattice to Vortex Glass Transition in Type-II Superconductors

As a simplified model of randomly pinned vortex lattices or charge-density waves, we study the random-field XY model on square ($d=2$) and simple cubic ($d=3$) lattices. We verify in Monte Carlo simulations, that the average spacing between topological defects (vortices) diverges more strongly than the Imry-Ma pinning length as the random field strength, $H$, is reduced. We suggest that for $d=3$ the simulation data are consistent with a topological phase transition at a nonzero critical field, $H_c$, to a pinned phase that is defect-free at large length-scales. We also discuss the connection between the possible existence of this phase transition in the random-field XY model and the magnetic field driven transition from pinned vortex lattice to vortex glass in weakly disordered type-II superconductors.Comment: LATEX file; 5 Postscript figures are available from [email protected]