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JANUARY 2013
Legal Focus
have unfortunate consequences for shareholders of target companies.
Indeed, despite recent criticism from the courts, we continue to see overly cozy relationships between companies and bankers that issue purportedly independent financial opinions. In order to maintain the integrity of the financial markets and to protect investors, there must be a mechanism for addressing this dangerous conflict of interest.
What do you think congress will do in response?
Delaware has a long standing and well developed body of law surrounding the rights and duties in the M&A context. The Delaware Court of Chancery and Delaware Supreme Court are the acknowledged experts in the field. These courts have and will continue to provide monitoring to weed out meritless cases while providing the necessary relief where breaches have occurred. In the wake of a financial crisis fuelled by conflicts of interest and unregulated markets, shareholders deserve more protection, not less. We hope voters who invest in the capital markets and have weathered the successive waves of financial crises and frauds in recent years will tell their legislators that they oppose any attempt by the corporate lobby to weaken investor safeguards.
What do you think should be done?
The proliferation of litigation will require additional efforts to ensure efficient coordination of these actions. In particular, some mechanism needs to be adopted to deal with the issue of multi-jurisdictional litigation. The courts of Delaware have made clear that the issues that arise in the M&A context involve fundamental questions of Delaware corporate law where the company is incorporated there. Comity must be shown by courts in other jurisdictions to this view. Additionally, we would not be opposed to reforms designed to streamline the selection of lead plaintiffs encouraging shareholders who, based on resources, size of investment, experience of counsel, etc., are best equipped and motivated to prosecute these cases on an expedited basis could promote judicial efficiency and the filing of meritorious suits--a shared interest of shareholder plaintiffs, corporate defendants and the courts.
Have there been any recent M&a litigations that have had an effect on the M&a market? If so, please explain.
The litigation involving the acquisition of El Paso Corporation by Kinder Morgan illustrates the kinds of conflicts of interest that are now seen so commonly in transactional litigation. In the merger, El Paso’s financial advisor, Goldman Sachs, had a significant ownership interest in the buyer, Kinder Morgan. Additionally, a key team member of the Goldman team advising on the transaction had a personal ownership interest in Kinder Morgan. Although he denied a request to enjoin the transaction, Chancellor Strine of the Delaware Court of Chancery was highly critical of the arrangement due in large part to the misaligned incentives it created. Since this case, bankers are on notice that their conflict policies must be designed to learn of any similar problematic ownership interests and to take appropriate steps to eliminate the conflict if they do exist.
What do you think 2013 holds for M&a?
With the uncertainty of the election behind us, the market may begin to come out of the slow down we saw in 2012. Numerous acquisitions in the healthcare field are likely. Global financial issues will continue to have a dampening effect, but the availability of capital should fuel an uptick in merger and acquisition activity. LM
contact details:
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christine S. azar tel: 302-573-2530
Email: cazar@labaton.com
Michael W. Stocker tel: 212-907-0882
Email: mstocker@labaton.com