Thompson, Samuel, Jr.

English

University of Miami School of Law

University of Miami Law SchoolInstitutional RepositoryUniversity of Miami Law Review7-1-2000Introduction to Workshop on Emerging Issues inMergers & Acquisitions and Tribute to JosephFlomSamuel Thompson Jr.Follow this and additional works at: http://repository.law.miami.edu/umlrPart of the Corporation and Enterprise Law CommonsThis Article is brought to you for free and open access by Institutional Repository. It has been accepted for inclusion in University of Miami LawReview by an authorized administrator of Institutional Repository. For more information, please contact library@law.miami.edu.Recommended CitationSamuel Thompson Jr., Introduction to Workshop on Emerging Issues in Mergers & Acquisitions and Tribute to Joseph Flom, 54 U. Miami L.Rev. 689 (2000)Available at: http://repository.law.miami.edu/umlr/vol54/iss4/2University of Miami Law ReviewVOLUME 54 JULY 2000 NUMBER 4Introduction to Workshop on Emerging Issuesin Mergers & Acquisitions and Tribute toJoseph FlomSAMUEL THOMPSON, JR.*In celebration of the new millennium, the University of Miami'sFourth Annual Institute on Mergers and Acquisitions added a specialWorkshop on Emerging Issues in Mergers & Acquisitions and Tribute toJoseph Flom. The Institute, which was held in February 2000, is co-chaired by Harvey A. Goldman, of Steel Hector & Davis, DennisHersch, the head of the Mergers and Acquisition Department at DavisPolk & Wardwell, and myself. We decided that this workshop, whichwas added as a bonus third day to our traditional two-day program,would have an academic orientation, and we enlisted the assistance ofProfessor John Coffee, the Adolf A. Berle Professor of Law at theColumbia University Law School, and one of the Nation's leadingprofessors of corporate and securities law, in structuring the program.This special issue of the University of Miami Law Review containsthe papers presented at the workshop. I thank the Law Review, andparticularly Guillermo Levy, the Project Editor, for undertaking thisproject.In structuring the workshop, we wanted both to honor Joseph H.Flom, a senior partner at Skadden, Arps, Slate, Meagher & Flom, for hismany years of cutting edge practice in the mergers and acquisitions areaand to have him actively participate in the program. Flom, who isdescribed by Bruce Wasserstein in his book Big Deal as "more than adistinguished lawyer; ... a business prophet,"1 agreed to participate pro-vided the program was properly "shaped." He made it clear from thestart that he would only be associated with a substantive program; he* Professor and Director of Center for the Study of Mergers and Acquisitions, University ofMiami School of Law.1. BRUCE WASSERSTEIN, BIo DEAL 460 (1998).UNIVERSITY OF MIAMI LAW REVIEWquickly suggested that one of the sessions focus on ethical issues inmergers and acquisitions; and he indicated that he wanted to participatein the ethics session.His suggestion led to a lively panel discussion at the workshopfocusing on a series of hypothetical situations presenting ethical issuescommonly faced by both lawyers and investment bankers active in themergers and acquisitions area. The panel, which was moderated byLouis Kaden of Davis Polk & Wardwell, consisted of the followingleading mergers and acquisitions deal lawyers, litigators, and ethicsexperts: Barry S. Alberts, Schiff, Hardin & Waite; Professor AnthonyV. Alfieri, Director, Center for Ethics and Public Service, University ofMiami School of Law; Chancellor William T. Allen, Professor of Lawand Business, New York University, and Wachtell, Lipton, Rosen &Katz (of counsel); Arthur Fleischer, Jr., Fried, Frank, Harris, Shrive &Jacobson; Joseph Flom, Skadden, Arps, Slate, Meagher & Flom, LLP;James Freund, Skadden, Arps, Slate, Meagher & Flom, LLP (of coun-sel); Edward Labaton, Goodkind Labaton Rudoff & Suchanow LLP;The Honorable Andrew Moore, Wasserstein & Perella; and Robert H.Mundheim, Shearman & Sterling (of counsel).The ethics hypotheticals and the panel discussion are analyzed in anarticle in this special issue entitled Ethical Issues Faced by Lawyers andInvestment Bankers in Mergers and Acquisitions: A Problem Approachand Report of Panel Discussion,2 which is written by Barry S. Albertsand myself.Joe Flom also agreed to present at the workshop his views on thepast, present and future of mergers and acquisitions. His outstandingpresentation, which is reflected in his article in this issue entitled Merg-ers and Acquisitions: The Decade in Review,3 was commented on by thefollowing preeminent mergers and acquisitions scholars, practitioners,and investment bankers: Chancellor William T. Allen; Professor Ber-nard Black, Stanford Law School; Chancellor Williams B. Chandler III,Delaware Court of Chancery; H. Rodgin Cohen, Sullivan & Cromwell;Arthur Fleischer Jr.; James Freund; and The Honorable AndrewMoore. Professor Black's comment, The First International Wave (andthe Fifth and Last U.S. Wave),4 on Flom's presentation is included inthis issue.2. Barry S. Alberts & Samuel C. Thompson, Jr., Ethical Issues Faced by Lawyers andInvestment Bankers in Mergers and Acquisitions: A Problem Approach and Report of PanelDiscussion, 54 U. MIAMI L. REV. 687 (2000).3. Joseph Flom, Mergers and Acquisitions: The Decade in Review, 54 U. MIAMI. L. REV.753 (2000).4. Bernard Black, The First International Wave (and the Fifth and Last U.S. Wave), 54 U.MIAMI. L. REV. 799 (2000) [hereinafter Black, International Wave].[Vol. 54:689INTRODUCTIONFlom also concurred in Professor Coffee's recommendation that weinvite Professor John Coates of the Harvard Law School to present apaper focusing on his continuing research into defensive tactics. Fortu-nately, Professor Coates agreed, and he made a thought-provoking pres-entation on his views concerning the efficacy of defensive tactics. Thefollowing nationally-recognized mergers and acquisitions academics,practitioners and jurist commented on Professor Coates's paper: R.Franklin Balotti, Richards, Layton & Finger; Professor Ronald J. Gilson,Stanford Law School & Columbia Law School; Professor Jeffrey N.Gordon, Columbia Law School, Vice Chancellor Jack B. Jacobs, Dela-ware Court of Chancery; and Professor Roberta Romano, Yale LawSchool. Professor Coffee moderated the session.Professor Coates's presentation is reflected in his article in thisissue entitled Empirical Evidence on Structural Takeover Defenses:Where Do We Stand?5 This issue also contains the following commentson Professor Coates's article: Professor Coates is Right. Now PleaseStudy Stockholder Voting, by Frank Balotti and Travis Laster;6 PoisonPills and the European Case by Jeffrey Gordon;7 and Comments onContestability, by Vice Chancellor Jack Jacobs.8 The final article in thisspecial workshop issue is Jim Freund's Dinner Tribute to Joe Flom,'which Freund, a long-time partner of Flom's, delivered at a workshopdinner honoring Flom.The balance of this introduction contains brief observations on eachof the articles in this issue.Coates, Where Do We Stand? In this article, Professor Coates chal-lenges the findings of both "event studies," which many academics haverelied on in concluding that defensive tactics such as poison pills harm atarget's shareholders, and "premium studies," which many practitionershave relied on as support for the proposition that poison pills benefit atarget's shareholders. He explains that his "critique shows that, contraryto the views of either camp, such studies do not provide strong supporteither for opposing or supporting takeover defenses." 10He explains that one of the reasons that the pill adoption orannouncement date, which has been the focus of most event studies is5. John C. Coates IV, Empirical Evidence on Structural Takeover Defenses: Where Do WeStand?, 54 U. MIAMI L. REv. 783 (2000) [hereinafter Coates, Where Do We Stand?].6. R. Franklin Balotti & J. Travis Laster, Professor Coates is Right. Now Please StudyStockholder Voting, 54 U. MiAMi. L. REV. 819 (2000).7. Jeffrey N. Gordon, Poison Pills and the European Case, 54 U. MiAMi. L. REV. 839(2000).8. Jack Jacobs, Comments on Contestability, 54 U. MIAMI. L. REV. 847 (2000).9. James Freund, Dinner Tribute to Joe Flom, 54 U. MIAMI. L. REV. 853 (2000).10. Coates, supra note 5, at 785.2000]UNIVERSITY OF MIAMI LAW REVIEWnot important is that virtually "all Delaware firms ... have a 'shadowpill' in place, written or not, and takeovers of such firms have beenrestrained by a set of 'shadow restrictions' .. . on transfer of control to ahostile bidder."'" He further points out that because of the interactionamong various defenses it may be difficult to study a single defense,such as the adoption of a pill. In analyzing the premium studies, heacknowledges that the studies demonstrate that there is a correlationbetween pills and deal premiums but he goes on to say that this might bea classic example of "correlation not proving causation."' 2 He adds that"[n]one of the [premium] studies offers any explanation of the mecha-nism by which pills cause higher premiums. '"13Professor Coates reaches the following policy conclusions: (1)"Institutional shareholders should be aware of the fact that half the tradi-tional academic case (at least) against defenses stands on shaky ground.... ,114 (2) "Boards ... should not be permitted to rely without caveaton pill premium studies to support a decision to adopt or not adopt a pillat a given point in time,"' 5 and (3) "Delaware courts . . .should takesome comfort from the fact that they resisted strong academic arguments...to push them to dramatically repudiate pills and other structuraldefenses."16Balotti and Laster, Coates is Right. In this article, the authors agreewith Professor Coates that "as a practical matter all Delaware corpora-tions effectively have poison pills ... ."I7 They also question whether itis possible for event studies to draw "meaningful conclusions aboutpoison pills because it is not clear that the market, including marketprofessionals, understands fully the evolving standards that govern theuse of pills and other defensive measures under Delaware law.""8 Sec-tion Three of this article contains an excellent review of the leadingcases bearing on the use of defensive tactics. This review demonstratessome of the nuances that permeate this very complex area of the law andfairly supports the authors' proposition that the market is not informa-tionally efficient when it comes to assessing the likely outcome of casesbrought by bidders or stockholders that seek to compel a target board ofdirectors to redeem a defensive measure such as a pill in support of a11. Id. at 791.12. Id. at 795.13. Id.14. Id. at 797.15. Id.16. Id.17. Balotti & Lester, supra note 6, at 820.18. Id. at 823.[Vol. 54:689INTRODUCTIONtakeover attempt. '9 The authors conclude that pills are here to stay andthat since "[s]tockholder voting is the central issue in today's takeoverbattles, 2 ° scholars should turn their efforts to studying voting behavior.Gordon, The European Case. Professor Gordon, who agrees withProfessor Coates's position regarding "shadow pills," reasoned that "aspills became commonplace so that all firms had one, actual or virtual,the announcement of pill adoption was merely a signal, often ambigu-ous, of managerial intentions, rather than an event that changed the tar-get's vulnerability to takeover."' 21 Professor Gordon also points out thatif the European Union's proposed Thirteenth Directive on TakeoverBids is adopted along the lines of the UK model, "many troublesomebidder tactics" 22 that the pill is designed to prevent would not be possi-ble. He adds that "[i]n particular, [the Thirteenth Directive] would sub-stitute a mandatory bid for the pill's protection against creeping tenderoffers and partial bids."23 Pursuant to the mandatory bid concept, a bid-der that crosses a particular threshold of stock ownership in a target,such as thirty percent, is required to extend a bid for all of the target'sshares at the highest price paid for the shares within a certain timeperiod. Professor Gordon also points out that the Thirteenth Directive"would prohibit all non-shareholder approved post-bid defensive mea-sures, which substitute for the pill's appeal as non-destructive. '24 Bynon-destructive, he means that pills, unlike defenses such as the sale of atarget's crown jewels, do not destroy the value of a target's assets.Jacobs, Comments. In his comment, Vice Chancellor Jacobs dis-cusses the potential impact of "scientific evidence" concerning the eco-nomic effect of pills on two recent pill cases he presided over inDelaware: Carmody v. Toll Brothers2 and Mentor Graphics v. Quick-turn Design Systems, Inc. 26 Toll Brothers dealt with a dead hand pilland Quickturn addressed a delayed redemption pill, which is a morelimited form of dead hand pill. Both pills had the effect of tying thehands of any new board that might be seated as a result of a successfulproxy contest or consent solicitation.In Toll Brothers, he denied a motion to dismiss a challenge to thepill and in Quickturn, he held that the delayed redemption feature was a19. Id.20. Id. at 837.21. Gordon, supra note 7, at 841.22. Id. at 842.23. Id.24. Id.25. 723 A.2d 1180 (Del. Ch. 1998).26. 728 A.2d 25 (Del. Ch. 1998), affd sub. nom., Quickturn Design Systems, Inc. v. Shapiro,721 A.2d 1281 (Del. Super. Ct. 1998).20001UNIVERSITY OF MIAMI LAW REVIEWviolation of the directors' fiduciary duties. The Delaware SupremeCourt affirmed his decision in Quickturn, but on the grounds that thedelayed redemption feature was fundamentally inconsistent with thedirectors' statutory obligation to manage the firm.Judge Jacobs points out that, in Quickturn, he was required to take"expert testimony about the likely deterrent effect of the 'no hand'poison pill and 'delayed redemption' by-law on the public shareholders'reaction to a hostile takeover bid that offered a modest premium.'"27 Hegoes on to say: "How useful it would have been if the cause and effectrelationship, i.e., the deterrent force of the pill, could be determined withscientific accuracy, and thereby avoid the uncertainties of conventionalfact-finding in a specialized area in which most judges have no personalexpertise."28 He further laments that although Professor Coates "faultsthe methodologies used in the prior studies as flawed in their design, hedoes not ... propose a methodology that avoids those flaws. '"29Alberts and Thompson, Ethical Issues. This article focuses onfourteen ethical issues arising out of a hypothetical fact pattern involvingfirst, the acquisition of the stock of a closely held corporation; second, amerger of equals involving two publicly held corporations; and finally, ahostile tender offer for one of the merging companies. The articlereviews the basic authorities bearing on the particular issues andattempts to capture the refined and nuanced views expressed by the pan-elists on the various issues. The hypotheticals demonstrate that therecan be a large overlap between issues involving ethics and issues involv-ing common law and securities fraud. As the authors conclude, a "mis-step can lead not only to sanctions for violation of ethical standards butalso to liability for breach of fiduciary or statutory duties."30Flom, Decade in Review. In this article, Joe Flom not only reviewsthe mergers and acquisitions scene during the 1990's, but also makesinsightful observations about each of the past merger waves and setsforth predictions about the future of mergers and acquisitions. One ofhis most interesting observations about the growth of mergers and acqui-sitions in the 1990's is that while the "growth in the total value of trans-actions [was] dramatic,"'" there was also a similar dramatic growth inthe market capitalization of traded companies. He also makes the obser-vation that a "common element of each [of the four previous mergerwaves] was that it waxed during periods of high liquidity and waned27. Jacobs, supra note 8, at 850-851.28. Id. at 851.29. Id.30. Alberts & Thompson, supra note 2, at 752.31. Flom, supra note 3, at 754.[Vol. 54:689INTRODUCTIONwith a fall-off in the stock market and illiquidity in the financing mar-ket."' 32 In predicting the future of mergers and acquisitions, he sets outnumerous factors that "presage ... even stronger growth in mergers andacquisitions activity. '33Black, International Wave. Professor Black persuasively arguesthat the current merger wave, which is the fifth U.S. merger wave, is thefirst international merger wave. He points out that a "growing percent-age of takeovers are cross-border, major stock markets are increasinglylinked, and U.S. takeover activity is under 45% of the worldwidetotal. ' 34 He goes on to say that the "international flavor of the currentmerger wave will almost surely be even more prominent in the nextwave, whenever that may be."' 35 And, he argues that when the nextwave arrives "it will no longer maker any sense to talk about Americanmerger waves at all. Instead, we will come to see the current wave asthe first international merger wave, and its predecessor (the fourth wave)as the last distinctively American merger wave."36Freund, Dinner Tribute. Jim Freund's dinner tribute to Joe Flomshows not only Joe's greatness as a lawyer and his obviousentrepreneurial spirit, but demonstrates his unswerving commitment tothe ethical practice of the law. In emphasizing this point, Jim says: "Itwasn't accidental that our firm went through all the craziness of the'80's - smack in the center of the action, with demanding clients andquestionable proposals abounding - without a single mark against ourname. Joe's ethics were absolutely beyond reproach. '37Thank you Joe Flom for making this workshop truly special.32. Id. at 776.33. Id. at 794.34. Black, supra note 4, at 799.35. Id. at 801.36. Id.37. Freund, supra note 10, at 856.2000]

Introduction to Workshop on Emerging Issues in Mergers & Acquisitions and Tribute to Joseph Flom

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Introduction to Workshop on Emerging Issues in Mergers & Acquisitions and Tribute to Joseph Flom

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