To say that we are in a state of uncertainty is one of the few certainties I know. But I would say that the odds of at least a partial repeal of Dodd-Frank certainly improved, whether it be in the form of the “Financial Choice Act” (see this Cooley blog for a summary of the provisions) – or perhaps even a stronger rebuke to Dodd-Frank. Here are other open questions:
– How fast would a repeal come? Companies are preparing to comply with the adopted pay ratio rules now – even though disclosure wouldn’t be seen until 2018.
– What will be the fate of the SEC’s disclosure effectiveness project? It’s seemingly non-partisan. But the SEC may be busy with rulemakings mandated by this shift in power to deal with projects they started themselves for quite some time…
– Does the sole sitting GOP SEC Commissioner – Mike Piwowar – become the SEC Chair? There is precedent for a non-lawyer in that role (ie. Arthur Levitt; Piwowar is an economist). Piwowar almost certainly will become interim Chair once Chair White vacates her seat. It might take a while for a Trump Presidency to tap new agency heads, as that is the norm. As noted in this WSJ article, former Commissioner Paul Atkins is heading up the President-elect’s transition team that oversees the SEC, CFTC & other financial regulators that historically operate independently of the White House…
– I used to think a “risk factor” for political instability & unrest was reserved only for non-US jurisdictions. Will we see some in the US now?
Recently, Corp Fin posted this no-action response to Apple about “engage multiple outside independent experts or resources from the general public to reform its executive compensation principles and practices.” The retail investor proponent – Jing Zhao – appears to have represented himself in rebutting the company’s (i)(3), (i)(6) and (i)(7) arguments. Corp Fin’s response to the ordinary business argument is that “the proposal focuses on senior executive compensation.”
The proponent’s supporting statement cites Professor Thomas Piketty of France, the darling of the income inequality movement. There likely will be more income inequality-oriented proposals in the coming years…
In this no-action letter, Apple also lost its battle to exclude a proxy access shareholder proposal from Jim McRitchie…
Crowdfunding: So Where’s the Crowd?
This blog from Montgomery McCracken’s Ernie Holtzheimer reviews the first five months of crowdfunding under Regulation CF. So far, the results have been underwhelming:
In its first thirty days, Reg CF got off to a promising start with forty companies raising a total of about $2 million. Although the total amount of money raised was not large by Uber’s standards, the number of offerings was more than double the amount of Reg A offerings made between 2009 and 2012. Since the first month, however, only ten more companies have filed a Reg CF offering, leading to the question – where is the crowd?
Reg CF’s critics point to its $1 million funding cap as a reason for this lackluster performance. And some companies seem to be opting to use new Reg A+ – with its much higher funding limits – instead of Reg CF.
Poll: How Many Comp Consultants Should Apple Hire?
Keying off the shareholder proposal mentioned above, please participate in this anonymous poll:
This DLA Piper memo discusses the early returns from the DOJ’s pilot program to encourage FCPA self-reporting and cooperation, and identifies a new enforcement approach – “declinations with disgorgement.” Consistent with the previously disclosed terms of the program, companies avoiding prosecution have agreed to disgorge all profit realized from their violations. Two recent cases in which the DOJ has elected not to pursue FCPA prosecutions also had several other features in common:
In each instance the DOJ cited the fact that the company self-disclosed. But of seeming equal importance were the robustness of the companies’ internal investigations and the sweeping remediation undertaken. Rounding out the reasons for DOJ’s decision to bring no charges were the agreement to disgorge all profits, which each company agreed not to use for any tax deduction or to accept reimbursement from insurance or any other source, and the obligation to continue to fully cooperate.
The obligation to continue full cooperation includes providing “all known relevant facts about the individuals involved in or responsible for the misconduct,” who are expressly carved out of the declination and could still face prosecution.
SEC: Fix Compliance Program Fast to Avoid FCPA Monitor
This BakerHostetler memo shares some important advice from Kara Brockmeyer, Chief of the SEC’s FCPA Unit:
For a company that violated the FCPA, but wishes to avoid a monitor, the company should be making immediate improvements to its compliance program to prevent future violations so that at the end of the investigation it will be able to demonstrate a track record of having an effective program that is working to prevent violations.
Even a state of the art compliance program will not be effective in convincing the SEC not to impose a monitor if the program has been in place only two months. As Brockmeyer noted, “the late to the party company [in implementing effective compliance measures] is much more likely to get a monitor imposed.”
This November-December issue of the Deal Lawyers print newsletter was just posted – & also sent to the printers – and includes articles on:
– Disclaimers & Limits on Claims Outside of the Contract
– Due Diligence: Patient Protection & Affordable Care Act Considerations
– FCC Licenses: The Forgotten Stepchildren of M&A
– Reverse Break-Up Fees: Move Along, Nothing to See Here
– The Takeaways: Two Chancery Decisions on Informed, Uncoerced Stockholder Approval
Remember that – as a “thank you” to those that subscribe to both DealLawyers.com & our Deal Lawyers print newsletter – we are making all issues of the Deal Lawyers print newsletter available online. There is a big blue tab called “Back Issues” near the top of DealLawyers.com – 2nd from the end of the row of tabs. This tab leads to all of our issues, including the most recent one.
And a bonus is that even if only one person in your firm is a subscriber to the Deal Lawyers print newsletter, anyone who has access to DealLawyers.com will be able to gain access to the Deal Lawyers print newsletter. For example, if your firm has a firmwide license to DealLawyers.com – and only one person subscribes to the print newsletter – everybody in your firm will be able to access the online issues of the print newsletter. That is real value. Here are FAQs about the Deal Lawyers print newsletter including how to access the issues online.
On the heels of Corp Fin’s announcement back in January that it would no longer scan & post glossy annual reports on Edgar, Corp Fin issued this CDI on Wednesday (note that the CDI is unnumbered):
Question: Exchange Act Rule 14a-3(c) and Rule 14c-3(b) require registrants to mail seven copies of the annual report sent to security holders to the Commission “solely for its information.” A similar provision in Form 10-K requires certain Section 15(d) registrants to furnish to the Commission “for its information” four copies of any annual report to security holders. Can a registrant satisfy these requirements by means other than physical delivery or electronic delivery pursuant to Rule 101(b)(1) of Regulation S-T?
Answer: Yes. The Division will not object if a company posts an electronic version of its annual report to its corporate web site by the dates specified in Rule 14a-3(c), Rule 14c-3(b) and Form 10-K respectively, in lieu of mailing paper copies or submitting it on EDGAR. If the report remains accessible for at least one year after posting, the staff will consider it available for its information.
This is good news as there has been a ton of confusion, as evident from a few threads in our “Q&A Forum” over the years (see #8728 and #7894). Companies have had the option to Edgarize their annual report & have that count as furnishing the 7 copies for a while – but that’s a real hassle & can be costly with graphics, etc. So this is an early holiday present from the Staff. I’ll be posting an updated “Annual Report & 10-K Wrap Handbook” next week – including addressing the issue that I just blogged on the “Proxy Season Blog” about “The NYSE Doesn’t Think ‘Proxy Materials’ Includes the Glossy Annual Report?“…
You might wonder what the Corp Fin Staff does with all those glossy annual reports over the years. They’re stuffed into metallic cabinets & rarely touched – at least back in my day (when the ’34 Act reviews were fairly rare). There was a stir back then after Mustang Ranch tried to go public in ’89 – and I can’t remember what the filing was, perhaps the red herring – but it was in a cabinet for some reason & created a stir…
Form S-3’s “Baby Shelfs”: A New CDI
As noted in this Cooley blog, Corp Fin also issued this new CDI 116.25 about Form S-3’s General Instructions I.B.1 to I.B.6 a few days ago:
Question: An issuer with less than $75 million in public float is eligible to use Form S-3 for a primary offering in reliance on Instruction I.B.6, which permits it to sell no more than one-third of its public float within a 12-month period. May it sell securities to the same investor(s), with a portion coming from a takedown from its shelf registration statement for which it is relying on Instruction I.B.6 and a portion coming from a separate private placement that it concurrently registers for resale on a separate Form S-3 in reliance on Instruction I.B.3, if the aggregate number of shares sold exceeds the Instruction I.B.6 limitation that would be available to the issuer at that time?
Answer: No. Because we believe that this offering structure evades the offering size limitations of Instruction I.B.6, the securities registered for resale on Form S-3 should be counted against the issuer’s available capacity under Instruction I.B.6. Accordingly, an issuer may not rely on Instruction I.B.3 to register the resale of the balance of the securities on Form S-3 unless it has sufficient capacity under Instruction I.B.6 to issue that amount of securities at the time of filing the resale registration statement. If it does not, it would need to either register the resale on Form S-1 or wait until it has sufficient capacity under that instruction to register the resale on Form S-3.
17 Years of Cubs Programs
Growing up near Wrigley Field, I’m gloating with this 10-second video displaying my 17 years of Cubs programs (went to Lane Tech High after Walt Disney Magnet for grade school):
Here’s the inside cover of the 1958 program. Back when you could order a cheese sandwich for only a quarter & a beer was just 10¢ more…
In this edition of “Strange But True Corporate Stories,” we present Hexagon – a Swedish company that held its quarterly earnings call last week. The company had good news to report – sales & earnings were both up. Was there any bad news? No, nothing really. . . well . . .maybe there’s this one tiny issue that wasn’t worth mentioning during the call:
Swedish measurement technology firm Hexagon has defended the time it took to announce the arrest of its chief executive for alleged insider trading after it came to light he was under arrest during last week’s earnings call with analysts.
After being detained in Sweden on Oct. 26, Ola Rollen was allowed by the Swedish Economic Crime Authority to present Hexagon’s third-quarter results in a conference call on Oct. 28, the agency told Reuters on Tuesday, adding two of its police officers were with Rollen during the call. Analysts on the call were not told Rollen had been arrested or that police were in the room.
The company finally announced – three days after the conference call – that authorities had accused its CEO of insider trading in connection with an investment in a Norwegian company.
My favorite part of this story is the idea of two police officers sitting with the CEO while he was on the conference call. I’m sorry, but I can’t get the picture of Joe Friday & Bill Gannon out of my head.
Board Survey: Positive Trends on Cybersecurity
According to this BDO survey, boards are becoming more engaged on cybersecurity issues, investments to defend against cyber-attacks are increasing, and more companies are putting cyber-breach response plans in place.
Approximately three-quarters (74%) of public company directors report that their board is more involved with cybersecurity than it was 12 months ago and 80% say they have increased company investments during the past year to defend against cyber-attacks, with an average budget expansion of 22 percent. This is the third consecutive year that board members have reported increases in time and dollars spent on cybersecurity. The survey also identified improvements in the number of boards with cyber-breach response plans in place (from 45% to 63%).
That’s the good news. The bad news is that only 27% of companies surveyed are sharing information about cyber-attacks with entities outside of their business – a practice that needs to become more prevalent for the safety of critical infrastructure and national security, particularly at larger organizations.
“You’re Fired!”: Board Governance & CEO Turnover
This Stanford study starts with the proposition that one measure of good governance is a board’s willingness to terminate an underperforming CEO, & then looks into what governance characteristics result in stricter board oversight of the CEO. The study concludes that companies are likely to terminate an underperforming CEO, and identifies the following governance factors associated with stricter CEO monitoring:
– Independent/outside directors
– Experienced/engaged directors
– Significant institutional ownership
– Companies with access to replacement candidates
The study also suggests that “busy boards” – those where a majority of the directors serve on three or more boards – provide worse CEO oversight & are less likely to fire an underperforming CEO.
Here’s 8 things I learned at my “Proxy Disclosure Conference” last week in Houston (video archives now available):
1. My experiment with post-panel commentaries was well-received. These were 10-minute sessions with two different experts than the ones that were on the original panel – and the duo of post-panel commentators highlighted what was most important. And filled in some holes.
2. For the longer panels, I gave silly musical intros for each panelist. For Brian Breheny, I said that he could “dispense life wisdom in 5 words or less.” Then I asked him to dispense some. His wisdom was spot on: “Oh, I wasn’t ready for that.” Perfect! Isn’t that truly what life is all about!!!
3. During the “SEC All-Stars” panel, I loved listening to the five former senior Corp Fin Staffers analyze what the next composition of SEC Commissioners might look like. It could be a real shake-up and not resemble any past Commission ever – which could truly impact how the SEC does business!
4. I broke up the long morning with a relaxing 5-minute guided meditation for everyone. It should be a “must” for all conferences. It raises the positive energy in the room, brings stress levels down & improves focus.
5. Most of my panelists have worked over 10 years together at this conference. Their chemistry can’t be beat – enabling them to deliver practical guidance within the shorter & shorter timeframes that I provide them. Tough to fit in 17 panels in a 9-hour day (with 75 minutes devoted to lunch). But many of my afternoon panels are quite short – forcing the speakers get right to the point.
6. Similarly, these panelists have mastered the art of providing their written talking points in straight-forward bullet points – resulting in 180 pages worth of valuable course materials. I believe that bullet points are easier to learn compared to long, drawn-out narrative. It’s also easier to take notes on.
7. Each year, Dave & Marty make their annual 10-minute gag session funnier than the last. Last year, it was the “CEO pay ratio” puppet show. This year, we got more cowbell!
8. Nearly all of the in-person attendees are in-house folks – while nearly all of the folks who watch by video are from law firms. Conference trivia!
See ya next year in Washington DC, where the conference will be held in mid-October! It’s gonna be a big one with pay ratio coming online…
Revenue Recognition: Start Planning Now
This blog – and these memos posted in our “Revenue Recognition” Practice Area – make it clear that your accounting teams should be already planning for compliance with the new standard that must be implemented 15 months from now…
We have posted the transcript for our recent webcast: “Virtual-Only Annual Meetings: Nuts & Bolts.” The agenda included:
– Overview of Virtual-Only Meetings (& How Many Companies Do Them)
– Options When Holding a Virtual-Only Meeting
– Voting Safeguards for Virtual-Only Meetings
– Concerns Over Holding Virtual-Only Meetings
– Contingency Planning for Snafus
– Location of Inspector of Elections During Virtual-Only Meetings
– Who Should Sign Off on Changing Format to Virtual-Only
– Timeline & Preparations for Virtual Meetings
– Preparing for the Q&A
– Board & Auditor Roles During Meeting
– Shareholder Proposals Against Virtual Meetings
– Lessons Learned
Yesterday, ISS announced the latest release of its governance ratings product – which also was renamed to “QualityScore” from “QuickScore.” Here’s the 139-page technical document. In addition to board diversity and board refreshment areas being added, one area that appears to have been updated involves proxy access – with subscribers now being able to view the details of a company’s proxy access bylaw provision.
Last year, ISS included a question on proxy access, but that was “zero weighted” & was included for informational purposes only. This year, it counts. The QualityScore will give credit to a company for having proxy access – but the existence of any “problematic provisions”- e.g. counting mutual funds under common management as separate shareholders under the aggregation limit, requiring a pledge to hold shares past the annual meeting date, providing the board with broad & binding authority to interpret the proxy access provision or combinations of other problematic provisions – could be deemed sufficient to “nullify the proxy access right” & result in no credit being given. See this Gibson Dunn blog for a larger summary of the changes.
As noted in this blog from Davis Polk’s Ning Chiu, the data verification period began yesterday – and runs through November 11th. QualityScores will be published on November 21st.
By the way, with this rebranding to “ISS QualityScore,” it now has made more name changes than Jefferson Airplane. My favorite was GRid 2.0…although CGQ was nice…
“Hulk-O-Mania” Redux: New Questions on 3rd Party Litigation Funding
If you follow high-brow websites like TMZ and “The Hollywood Reporter” as religiously as I do, you’re no doubt up-to-speed on the controversy surrounding billionaire Peter Thiel’s funding of Hulk Hogan’s recent invasion of privacy suit against Gawker Media. The Hulkster rang the bell to the tune of $140 million in that lawsuit, but Thiel’s role in the case has focused new attention on third-party litigation funding – and that attention hasn’t been limited to the media.
As this D&O Diary blog points out, a pair of recent court decisions in Pennsylvania & Delaware have raised new questions about the legal issues that have long surrounded litigation funding arrangements:
One of the most interesting and important recent litigation-related developments has been the rise of third-party litigation funding. An important part of this development has been the more or less general view that there is nothing improper about these kinds of arrangements and, in particular, that litigation funding does not represent improper champerty or maintenance, as long as the actual plaintiff continues to control the case.
However, a recent decision from a Pennsylvania appellate court suggests that the somewhat unusual litigation funding arrangement involved in an attorney fee dispute was “champertous” and therefore invalid. This decision and another recent decision from Delaware nullified the specific funding arrangements presented to the courts in those cases; the question is what these decisions may say about litigation funding in general.
Some of the broad-brush language employed by the courts in these two cases might cause concern to litigation funders. However, each of these cases involved highly unusual circumstances – the funding arrangements the courts were asked to review were very different from the straightforward funding structures that litigation funding firms typically employ.
Our November Eminders is Posted!
We have posted the November issue of our complimentary monthly email newsletter. Sign up today to receive it by simply inputting your email address!
The SEC recently announced insider trading charges against a board member (who also happens to be a lawyer) who allegedly purchased securities of a target company during a board committee meeting where the deal was being discussed. Here’s an excerpt from the SEC’s press release:
According to the SEC’s complaint, Cope learned confidential details about the planned merger during a board executive committee meeting on Jan. 5, 2016, and proceeded to place his first order to purchase Avenue Financial stock while that executive committee meeting was still in progress. He allegedly placed four more orders within an hour after the meeting ended.
If proven to be true, that’s just. . . wow.
The stock exchanges’ computer surveillance of trades make it so easy to catch insider traders in situations like these that it’s kind of amazing to me that people keep trying. Anyone who has ever done a deal has seen that FINRA inquiry letter that identifies people who engaged in unusual trading around the time of the announcement & asks if anyone on the deal team had any contact with them. These lists are rarely short & they definitely let you know that Big Brother is watching.
The fact that people still roll the dice in this kind of environment reminds me of what Director Joel Coen said about where the title of the Coen Brothers first movie – Blood Simple – came from. He said that the title came from a Dashiell Hammett story: “It’s an expression he used to describe what happens to somebody psychologically once they’ve committed murder. . . They go ‘blood simple’ in the slang sense of ‘simple,’ meaning crazy.”
Poll: Insider Trading in Target Company’s Stock
survey software
John & Broc: Corporate Officer Liability
Broc & I had a lot of fun taping our 5th “news-like” podcast. This 6-minute podcast is about corporate officer liability & the World Series battle of Cubs v. Indians. I highly encourage you to listen to these podcasts when you take a walk, commute to work, etc.
This podcast is also posted as part of our “Big Legal Minds” podcast series. Remember that these podcasts are also available on iTunes or Google Play (use the “My Podcasts” app on your iPhone and search for “Big Legal Minds”; you can subscribe to the feed so that any new podcast automatically downloads…
Yesterday, ISS released draft policy changes for comment in 15 areas spanning the globe (based on these survey results from constituents) – the deadline for comment is November 10th. It’s expected that ISS will release its final policies in late November (although burn rate thresholds & pay-for-performance quantitative concern thresholds are typically announced through updated FAQs in mid-December; here’s info about the ISS policy process).
For US companies, there are several significant proposals to be aware of:
Director elections:
1. Director election vote recommendations for directors at companies that impose undue restrictions on shareholders’ ability to amend bylaws:
– ISS proposes to amend its director election policy to include a provision to issue adverse vote recommendations on governance committee director elections where companies have placed “undue” restrictions on shareholders’ ability to amend the company’s bylaws.
– Examples of these restrictions include the outright prohibition on the submission of binding shareholder proposals, or share ownership requirements or holding periods in excess of SEC Rule 14a-8.
– Adverse vote recommendations will continue until the restrictions are completely lifted.
2. Director election vote recommendations for directors that have taken unilateral board actions or maintain unequal voting rights:
– ISS proposes to clarify its director election policy to state that, upon a company holding an IPO with a multi-class capital structure with unequal voting rights or other problematic governance provisions, ISS will generally issue adverse director vote recommendations unless there is a “reasonable” sunset provision on the unequal structure or the problematic provisions.
– The key change is that ISS will no longer consider the results of shareholder votes on problematic features when issuing vote recommendations; instead, ISS will only consider the inclusion of “reasonable” sunset provisions.
US-listed cross-market companies (companies listed in the US, but incorporated outside):
1. General share issuance proposals at companies listed in the US, but incorporated outside the US:
– ISS proposes to recommend in favor of general share issuance authorities up to 20 percent of currently issues capital, as long as the duration of the issuance authority is reasonable and clearly disclosed.
2. Executive compensation proposals at companies listed in the US, but incorporated outside the US:
– ISS proposes to implement, on a case-by-case basis, US policy in the evaluation of all compensation proposals on the ballots of companies listed in the US, but incorporated elsewhere.
– For proposals where there is no applicable US policy, the ISS policy from the country requiring the ballot item will be used.
– For clarification, say-on-pay proposals from most markets will be evaluated under the US Management Say-on-Pay voting policy.
Failure to Detect Fraud: EY Pays $12 Million Fine
Recently, EY agreed to pay $12 million to the SEC for failure to detect auditing fraud at a client. The client paid a $140 million penalty to the SEC for using deceptive income tax accounting…
Happy 25th! A Tear-Jerker…
Proving that some good things do happen on Facebook, here’s a note that my son in college posted about our 25th wedding anniversary this week:
A child’s parents are their first glimpse into the world of human interaction, the primary source in their subconscious thesis on how to deal with other people. Lucky then, that my social foundations are anchored in a relationship such as the one you two have – one born from love, empathy, and mutual respect.
The decency with which you treat each other is something I’ve learned a great deal from, and the effort you give to make each other happy is something I strive to replicate every day. You’ve taught me that any kind of relationship, whether it be a friendship or a romantic endeavor, isn’t something you passively observe – but is instead something you work on and maintain. It takes time, energy, and genuine care.
25 years later and Dad’s still tearing up at dinner about how much he loves Mom. That’s pretty hard to beat. If I’m lucky enough to find even half of what the two of you have, I would count myself as blessed.
Happy 25th Anniversary Mom and Dad, sending love and laughter on your special day!
Yesterday, the SEC proposed amendments to the proxy rules that would require parties in a contested election to use universal proxy cards that would include the names of all director nominees. The proposal would permit shareholders to vote by proxy for their preferred combination of board candidates – as they could do if they attended the meeting & voted in person. Here’s the 243-page proposing release (and see Ning Chiu’s blog).
The proposed rules would:
– Allow shareholders to vote for the nominees of their choice by requiring proxy contestants to provide shareholders with a universal proxy card including the names of both management & dissident nominees.
– Enable parties to include all nominees on their universal proxy cards by changing the definition of a “bona fide nominee” in Rule 14a-4(d).
– Eliminate the Rule 14a-4(d)(4)’s “short slate rule,” since dissidents would no longer need to round out partial slates with management’s nominees.
– Require proxy contestants to notify each other of their respective director candidates by specific dates.
– Require dissidents to solicit shareholders representing at least a majority of the voting power of shares entitled to vote on the election of directors.
– Require proxy contestants to refer shareholders to the other party’s proxy statement for information about that party’s nominees and inform them that it is available for free on the SEC’s website.
– Require dissidents to file their definitive proxy statement with the SECby the later of 25 calendar days prior to the meeting date or five calendar days after the registrant files its definitive proxy statement.
The SEC also proposed amendments to Rule 14a-4(b), which would require proxy cards to include an “against” voting option for director elections when that vote has a legal effect, & also enable shareholders to “abstain” in a director election governed by a majority voting standard.
The ability to provide a “withhold” voting option when an “against” vote has legal effect would be eliminated. In addition, the proposed amendments to Item 21(b) of Schedule 14A would require disclosure about the effect of a “withhold” vote in an election of directors.
SEC Modernizes Rules 147/504 – & Rule 505 of Reg D Goes Poof!
The changes to the Rule 147 safe harbor include amendments updating Rule 147 & adoption of a new Rule 147A:
– Amended Rule 147 will remain a safe harbor under Section 3(a)(11) of the Securities Act, so that issuers may continue to use the rule for offerings relying on current state securities law exemptions.
– New Rule 147A – which is based on the SEC’s general exemptive authority under Section 28 of the Act – will be identical to Rule 147, except that it would not condition the safe harbor on Section 3(a)(11)’s requirement that offers be made only to in-state residents & would permit companies to be organized out-of-state. Sales would continue to be permitted only to in-state residents.
The amendments to Regulation D are intended to facilitate regional offerings. The final rules amend Rule 504 to increase the amount of securities that may be offered and sold from $1 million to $5 million. The rules also apply “bad actor” disqualifications to Rule 504 offerings. In light of the changes to Rule 504, the final rules repeal Rule 505 of Regulation D.
Amended Rule 147 and new Rule 147A will be effective in 150 days; revised Rule 504 will be effective in 60 days; and the repeal of Rule 505 will be effective in 180 days – all timed from publication in the Federal Register.
My Favorite Deal: Take Me Out to the Ballgame
Watching the Indians & Cubs in the World Series brings back a lot of memories – not only of baseball, but of my favorite deal. Most sports fans would give a kidney to spend a couple of months hanging out with – or just around – their favorite teams. I had that chance in 1998, when I was part of the underwriters’ counsel team for the Cleveland Indians’ initial public offering.
Working on that deal is still the most fun I’ve ever had practicing law – and there were plenty of legal challenges as well. The best part of the deal was that we were in the loop on trades, contract extensions, etc. well before everybody else was. You can keep your million dollar stock tips – this is the kind of material non-public information that I want!
Corp Fin took an interest in our deal too – or at least a couple of the reviewers did. On the day the deal priced, we’d asked to go effective at 4:00 pm, but by 4:30, we still hadn’t heard from the reviewer. I called my counterpart at company counsel, and she placed a couple of calls to the Staff to check on the status.
Finally, she called me around 4:45 to let me know that she’d spoken with the SEC, and we were effective. She was laughing when she told me this. When I asked why, she said the reviewers were apologetic for not calling sooner – but they had been distracted arguing about who was the best right hand power hitter in the American League.
The deal was criticized at the time, but investors got a pretty good return when the Dolan family purchased the team less than two years later – the 1998 IPO price was $15.00, and the team sold in early 2000 for more than $22.00 per share. However, there was another investment angle to the IPO – the memorabilia factor. I confess to setting aside some prospectuses for myself – and that turned out to be a pretty good investment too.
