Justia Mergers & Acquisitions Opinion Summaries

Towers Watson & Co. (“Towers”) and Willis Group Holdings Public Limited Company (“Willis”) executed a merger agreement with closing conditioned on the approval of their respective stockholders. Although Towers had stronger performance and greater market capitalization, Willis stockholders were to receive the majority (50.1 percent) of the post-merger company. Upon the merger’s public announcement, several segments of the investment community criticized the transaction as a bad deal for Towers and a windfall for Willis. Towers’ stock price declined and Willis’s rose in reaction to the news. Proxy advisory firms recommended that the Towers stockholders vote against the merger, and one activist stockholder began questioning whether Towers’ management’s incentives were aligned with stockholder interests. Also, after announcing the merger, ValueAct Capital Management, L.P. (“ValueAct”), an institutional stockholder of Willis, through its Chief Investment Officer, Jeffrey Ubben, presented to John Haley, the Chief Executive Officer (“CEO”) and Chairman of Towers who was spearheading the merger negotiations, a compensation proposal with the post-merger company that would potentially provide Haley with a five-fold increase in compensation. Haley did not disclose this proposal to the Towers Board. In light of the uncertainty of stockholder approval, Haley renegotiated the transaction terms to increase the special dividend. Towers eventually obtained stockholder approval of the renegotiated merger. The transaction closed in January 2016, and the companies merged to form Willis Towers Watson Public Limited Company (“Willis Towers”). Haley became the CEO of Willis Towers and was granted an executive compensation package with a long-term equity opportunity similar to ValueAct’s proposal. At issue were stockholder suits filed in early 2018. Here, Towers stockholders alleged that Haley breached his duty of loyalty by negotiating the merger on behalf of Towers while failing to disclose to the Towers Board the compensation proposal. The Court of Chancery dismissed the claims, holding that the business judgment rule applied because “a reasonable board member would not have regarded the proposal as significant when evaluating the proposed transaction,” and further holding that plaintiffs had failed to plead a non-exculpated bad faith claim against the Towers directors. To the Delaware Supreme Court, plaintiffs argued the Court of Chancery erred in holding the executive compensation proposal was not material to the Towers Board. To this, the Supreme Court concurred, reversed the Court of Chancery, and remanded for further proceedings. View "City of Fort Myers General Employees' Pension Fund v. Haley" on Justia Law

DFC Global Corporation (“DFC”) provided alternative consumer financial services, predominately payday loans. The 2014 transaction giving rise to this appraisal action resulted in DFC being taken private by Lone Star, a private equity firm. DFC was a highly leveraged company. Its capital structure was comprised of about $1.1 billion of debt as compared to a $367.4 million equity market capitalization, 20 resulting in a debt-to-equity ratio of 300% and a debt-to-total capitalization ratio of 75%. In the years leading up to the merger, DFC faced heightened regulatory scrutiny in the US, UK and Canada. The parties challenged DFC’s valuation for merger purposes. The Delaware Supreme Court surmised DFC wanted the Court to establish a presumption that in certain cases involving arm’s-length mergers, the price of the transaction giving rise to appraisal rights was the best estimate of fair value. The Supreme Court declined to do so, which in the Court’s view had no basis in the statutory text, which gave the Court of Chancery in the first instance the discretion to “determine the fair value of the shares” by taking into account “all relevant factors.” The Supreme Court must give deference to the Court of Chancery if its determination of fair value has a reasonable basis in the record and in accepted financial principles relevant to determining the value of corporations and their stock. Ultimately, the Delaware Supreme Court reversed and remanded the Court of Chancery’s valuation, remanding for the Chancellor to reassess the weight he chooses to afford various factors potentially relevant to fair value, and he may conclude that his findings regarding the competitive process leading to the transaction, when considered in light of other relevant factors, such as the views of the debt markets regarding the company’s expected performance and the failure of the company to meet its revised projections, suggest that the deal price was the most reliable indication of fair value. View "DFC Global Corporation v. Muirfield Value Partners, L.P., et al." on Justia Law

This appeal arose from a merger agreement under which two companies involved in the gas pipeline business, Energy Transfer Equity, L.P. (“ETE”), agreed to acquire the assets of The Williams Companies, Inc., (“Williams”). The Merger Agreement signed by Williams and ETE contemplated two steps: (1) Williams would merge into a new entity, Energy Transfer Corp LP (“ETC”); and (2) the transfer of Williams’ assets to ETE in exchange for Class E partnership units “would” be a tax-free exchange of a partnership interest for assets under Section 721(a) of the Internal Revenue Code. After the parties entered into the Agreement, the energy market suffered a severe decline which caused a significant loss in the value of assets of the type held by Williams and ETE. This caused the transaction to become financially undesirable to ETE. This issue ultimately led to ETE’s tax counsel, Latham & Watkins, LLP (Latham) being unwilling to issue the 721 opinion. Since the 721 opinion was a condition of the transaction, ETE indicated that it would not proceed with the merger. Williams then sought to enjoin ETE from terminating the Merger Agreement. The Court of Chancery rejected Williams’ arguments. After review, the Supreme Court found the Court of Chancery adopted an unduly narrow view of the obligations imposed by the covenants in the Agreement. The Supreme Court agreed with Williams that if a proper analysis of ETE’s covenants led to a conclusion that ETE breached those covenants, the burden would have shifted to ETE to prove that its breaches did not materially contribute to the failure of the closing condition. Since the facts as found by the Court of Chancery were that ETE’s lack of conduct did not contribute to Latham’s decision not to issue the 721 opinion, the Supreme Court was satisfied that when the burden of proving that ETE’s alleged breach of covenants is properly placed on it, ETE did meet its burden of proving that any alleged breach of covenant did not materially contribute to the failure of the Latham condition. The Court also agrees with the Court of Chancery’s finding that ETE was not estopped from terminating the Agreement. Accordingly, the judgment of the Court of Chancery was affirmed. View "Williams Companies, Inc. v. Energy Transfer Equity, L.P." on Justia Law