TheCorporateCounsel.net

This is worth repeating from Friday’s DealLawyers.com Blog: As the conclusion of one of the more closely-watched cases in recent years in the M&A area draws near (see this IR Magazine article for background; Alan Dye also riffed on this Friday in his Section16.net Blog), a number of amicus curiae filings were made available last week, including a letter from Corp Fin Deputy Director Brian Breheny (as transmitted by the SEC’s General Counsel; this is not a Commission amicus brief). We have posted them in the “M&A Litigation Portal” on DealLawyers.com, as follows:

– SEC General Counsel’s Brian Cartwright Transmittal Letter
– SEC Corp Fin Deputy Director’s Brian Breheny Letter
– Prof. Bernard Black’s Response to SEC Staff Letter
– ISDA/SIFMA Amicus Curiae Brief

Here is some analysis from Cliff Neimeth of Greenberg Traurig: In a pending litigation being watched closely by the public M&A bar, institutional activists and target issuers alike, this past Wednesday, in correspondence submitted by Corp Fin Deputy Director Brian Breheny to U.S. District Court (SDNY) Judge Lewis Kaplan, Brian endorsed the view of activist hedge funds – The Children’s Investment Fund (“TCIF”) and 3G Capital Partners (“3G”) – that they were not required under Regulations 13G or 14A to disclose their approximate 12% economic stake in Jacksonville, Florida-based railroad operator CSX Corp. until months after they entered into these arrangements. The hedge fund defendants previously announced their intention and presently intend to elect a short-slate of their five nominees at CSX’ annual meeting scheduled for later this month.

At issue, among many other aspects of the litigation, is the fact that TCIF and 3G were parties to elaborate “swap” and cash-settle derivative arrangements with investment bank counterparties, and that the nature of these contracts did (and do) not confer upon TCIF and 3G any shared or sole voting power over the underlying equity securities. Accordingly, in their view, such arrangements fall outside of the ambit of Section 13(d) and Regulation 13D thereunder until such time as these arrangements are converted into beneficial voting positions.

Although TCIF and 3G, on numerous occassions, announced to the investment community and to CSX directly that they were parties to the swaps and, in fact, made H-S-R (pre-merger notification) filings with the FTC, the absence of a detailed Schedule 13D filing (and subsequent amendments) allegedly enabled them to conduct (over a period of months) a broad range of “coordinating activities” with other institutional holders of CSX, to execute various plans, arrangements and understandings relating to control of CSX, and to otherwise engage in undisclosed “group” activities.

Brian Breheny (expressing the Staff’s position of the appropriate interpretive legal standard and not the position of the SEC’s Commissioners) stated in his letter to Judge Kaplan that “the presence of economic or business incentives that the [swap counterparty] may have to vote the shares as the other party wishes” is insufficient to create the beneficial acquisition of voting power in respect of such shares.

If Judge Kaplan agrees with TCIF’s and 3G’s (and indirectly, Breheny’s amicus) interpretation of the legal standard for disclosure, this would have significant implications for hedge fund activist transaction planners and target companies. If he rules in this direction, it is not unlikely that this may prompt the SEC to accelerate its current assesment of whether Regulation 13D should be amended to broaden its reach to cover these cash-settled (synthetic) arrangements that have become more commonplace over the past several years.

Coupled with the SEC’s e-proxy regime, the current slowdown in traditional economic M&A activity, and the recent Delaware Supreme Court and Delaware Chancery Court decisions in Openwave-Harbinger Capital, Jana Partners-CNET, Levitt Corp.-Office Depot and TravelCenters-Brog (with respect to the efficacy of the advance notice by-laws in those cases), this continues to help fuel an unprecedented level of institutional activism and control contest activity for the forseeable future. This also underscores the need for corporate issuers to examine their “shark repellents” and defensive arsenal.

Broadridge’s Latest E-Proxy Stats

In our “E-Proxy” Practice Area, we have posted the latest e-proxy statistics from Broadridge. As of April 30th:

– 566 companies have used voluntary e-proxy so far (a big leap from 283 at the end of March – understandable since proxy season is in full swing)

– Size range of companies using e-proxy varies considerably; all shapes and sizes (eg. 30% had less than 10,000 shareholders)

– Bifurcation is being used more as the proxy season progresses (but still not all that much); of all shareholders for the companies using e-proxy, now over 10% received paper initially instead of the “notice only” (up from 5% at the end of February)

– 0.85% of shareholders requested paper after receiving a notice; this average is up from 0.45% at the end of March

– 57% of companies using e-proxy had routine matters on their meeting agenda; another 30% had non-routine matters proposed by management; and 13% had non-routine matters proposed by shareholders. None were contested elections.

– Retail vote goes down dramatically using e-proxy (based on 164 meeting results); number of retail accounts voting drops from 21.2% to 5.4% (a 75% drop) and number of retail shares voting drops from 34.3% to 15.8% (a 54% drop)

For the next few days, Dave and I are out speaking in San Diego at the NIRI Annual Conference. My panel deals with e-proxy and I’ll be doing my “usability” bit again – particularly regarding how the proxy card/VIF looks. Take a gander at how this sample (posted in our “E-Proxy” Practice Area) looks like for registered holders. Not too bad. And I’ll be discussing all the other e-proxy related developments that I haven’t yet had a chance to blog about…but will do so in the next few weeks.

And even though he can’t be there himself, Dominic Jones is helping collect Web 2.0 thoughts from conference attendees as it happens. Pretty wild.

Winning the World Series: Cubs Worth More? Or Less?

Friday’s Deal Journal from the WSJ.com included an interview with an economist about how much more the Chicago Cubs would be worth if they won the World Series this year (they are red hot and it’s been 100 years since they last won).

The interview is short and perhaps not complete – but in my opinion, the Cubs would be worth less in the long run if they won. Part of their national mystique is that they are perennial losers. “Maybe next year” is the fan mantra. As someone who grew up down the street from Wrigley Field at a time when they “had it in the bag” – the late ’60s/early ’70s – I personally don’t want to see the streak end…

Speaking of sports, I was bummed to discover in this WSJ article that “Gino” is dead. The “Gino dance” is all the rage at Boston Celtics games this year, based on a clip from a ’70s American Bandstand episode that shows a dancer wearing a “Gino” T-shirt. I went to a game in Boston this year to experience it for myself, but I had seen this clip on YouTube before I went. It’s a classic.

– Broc Romanek