M&A in 2013: Litigation Issues Affecting Mergers & Acquisitions

M&A in 2013: Litigation Issues Affecting Mergers

& Acquisitions

Peter Stokes and Mark Oakes

Fulbright & Jaworski L.L.P. 98 San Jacinto Blvd., Ste 1100

Peter A. Stokes

Partner

Fulbright & Jaworski, L.L.P. Austin, TX

Speakers

Mark Oakes

Senior Associate

Fulbright & Jaworski, L.L.P. Austin, TX

Continuing Education Information

 If you are requesting CLE credit for this

presentation, please complete the evaluation that Fulbright will send via email tomorrow.

 If you are viewing a recording of this web seminar, most state bar organizations will only allow you to claim self-study CLE. Please refer to your state’s CLE rules. If you have any questions regarding CLE approval of this course, please contact your bar administrator.

 If you should have any questions regarding credit, please email Terra Worshek at

Administrative Information

 Today’s program will be conducted in a listen-only mode. To ask an online question at any time

throughout the program, simply click on the question mark icon located on the tool bar in the bottom right side of your screen. We will try to answer your

question during the session if time permits.

 Everything we say today is opinion. We are not dispensing legal advice, and listening does not establish an attorney-client relationship. This

discussion is off the record. Anything we say cannot be quoted without our prior express written

Multi-Jurisdiction Litigation

 Possible suits (1) in state and federal court

where the target is located and (2) in the target’s state of incorporation

 Additional risks (and costs) created by

multi-forum litigation

 Defense strategies to address the multi-forum

issue

 Pros/cons of forum selection clauses and

Financial Advisor Conflicts

 It is not uncommon for a target’s financial

advisor to have ties to the acquiring company or a potential bidder

 Such ties may create conflicts of interest that will

be carefully scrutinized by Delaware courts

 Certain conflicts may increase the risk of (1) an

order enjoining a shareholder vote and (2) a viable post-closing damages claim

Financial Advisor Conflicts (Cont’d)

 El-Paso/Kinder Morgan

• The target’s financial advisor: (1) owned 19% of the acquiring company; (2) controlled two board seats on the acquiring

company; and (3) the lead banker for the target’s financial advisor owned stock in the acquiring company

• The target hired a second financial advisor to address the potential conflict

• The Delaware Chancery Court denied a request to enjoin the transaction, but in doing so held that the plaintiffs had a

reasonable probability of success in a post-merger damages claim

Financial Advisor Conflicts (Cont’d)

 Del Monte

• The target’s financial advisor had earned $66 million in fees from the acquiring company during the prior 2 years

• The target’s financial advisor wanted to participate in providing financing to the buyer and delayed disclosure of this fact to the target

• The financial advisor encouraged the acquiring company to partner with another interested bidder in violation of a no teaming agreement and without consulting with the target

• The court enjoined the shareholder vote and certain deal protection provisions for twenty days

Financial Advisor Conflicts (Cont’d)

 Takeaways:

•

whether conflicts of interest exist

•

•

when a conflict becomes apparent, but a second advisor is not a panacea

Controlling Stockholder Transactions

 Heightened standard of review – entire fairness

 Special committee must be “functioning” and

should have power to negotiate and consider alternate transactions

 Recent cautionary tales in controlling

stockholder context – Southern Peru Copper Corporation

Proxy Disclosure Issues

 Once the target company issues its proxy

statement, plaintiffs typically amend their claims to allege that the company failed to disclose all

material information pertaining to the merger

 Common disclosure demands include: (1) financial projections; (2) information regarding financial

advisor compensation and prior relationships with the advisor; (3) prior indications of interest and

written offers; and (4) additional details regarding the fairness opinion

Proxy Disclosure Issues (Cont’d)

 The risk of inadequate disclosure is a temporary

injunction postponing the shareholder vote

 Hot button disclosure issues include (1) whether

to disclose financial projections provided to the financial advisor and (2) disclosure of alleged financial advisor conflicts of interest

 The consequences of mooting the claims with an

amended proxy – potential award to plaintiff of attorneys’ fees

Settlement-Related Issues

 Potential benefits of settlement verses the cost

 Importance of the settling plaintiff showing that it

adequately investigated its claims

 Viability of non-opt-out disclosure-only

settlements in light of recent Delaware and Texas decisions

Post-Closing Damages Claims

 Historical reluctance to pursue post-closing

damages claims

 Aggressive pursuit of post-closing damages

claims may become more common in light of (1) increased scrutiny of disclosure-only

settlements; (2) unwillingness of judges to enjoin transactions; and (3) settlement pressure

Peter A. Stokes

Partner

Fulbright & Jaworski, L.L.P. Austin, TX

Mark Oakes

Senior Associate

Fulbright & Jaworski, L.L.P. Austin, TX

Continuing Education Information

 If you are requesting CLE credit for this

presentation, please complete the evaluation that Fulbright will send via email tomorrow.

 If you are viewing a recording of this web seminar, most state bar organizations will only allow you to claim self-study CLE. Please refer to your state’s CLE rules. If you have any questions regarding

CLE approval of this course, please contact your bar administrator.

 If you should have any questions regarding credit, please email Terra Worshek at