Alston & Bird served as legal counsel to the Special Committee of the Board of Directors of Ebix, Inc., a leading international supplier of on-demand software and E-commerce services to the insurance industry, in a definitive merger agreement to be acquired by an affiliate of Goldman, Sachs & Co. in an $820 million transaction, where Ebix shareholders will receive $20 per share in cash.
“With our market-leading servicing platforms and talented team of insurance and technology professionals, Ebix will be well-positioned as a private company to continue to execute on our strategic initiatives and pursue growth opportunities around the world,” said chairman and chief executive officer Robin Raina in a press release.
The Alston & Bird team was led by Justin Howard, co-head of the firm’s Mergers & Acquisitions Group, as well as Scott Ortwein, co-head of the firm’s Corporate Transactions & Securities Group. Also assisting were Dave Brown, Kyle Healy and Sarah Hess for corporate/M&A issues; Richard Grice for leveraged finance issues; and John Shannon and Blake Mackay for employee benefits and executive compensation issues.
Read the full press release from Ebix.
Written by Justin Howard, Partner, Mergers & Acquisitions Group | Alston & Bird LLP
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On October 5, 2010, in In re Cogent the Delaware Court of Chancery denied plaintiff stockholders’ motion for a preliminary injunction seeking to halt the proposed friendly two-step acquisition of Cogent, Inc. by 3M Company. The court found that the Cogent board had not violated its Revlon duties, provided clarity on the appropriate calculation of termination fees, and provided comfort that top-ups may be used to accelerate the time required for closing.
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The United Kingdom’s Panel on Takeovers and Mergers has recently proposed amendments to its Takeover Code that would change the rules regarding hostile offers in order to correct what it called a “tactical advantage” for bidders. The Panel opined that it has “become too easy for ‘hostile’ [bidders] to succeed” and that “short-term” investors (i.e., those investors who buy shares of a target company during the offer period) have unduly influenced the outcome of these hostile offers.
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The Delaware Supreme Court recently issued its opinion affirming the Chancery Court decision in Selectica, Inc. v. Versata, Inc. The Chancery Court held earlier this year that a “poison pill” shareholder rights plan with a 4.99% trigger, implemented by the board of Selectica to protect against the company’s net operating loss carryforwards (NOLs), met the Unocal standard of review and is valid under Delaware law. For a previous discussion by this blog of the Chancery Court’s decision, click here.
Versata and its parent, Trilogy, appealed the Chancery Court decision, asserting that the court erred in applying the Unocal test for enhanced judicial scrutiny and that the NOL poison pill, either individually or in combination with a classified board of directors, had a preclusive effect on the shareholders’ ability to pursue a successful proxy contest for control of the Company’s board. The Supreme Court affirmed the Chancery Court’s conclusion that Unocal is the appropriate test, concluding that (1) the board had reasonable grounds for concluding that the NOLs were an asset worth protecting, and (2) the use of the poison pill was not preclusive or coercive and was a reasonable response in relation to the threat identified. However, the Court cautioned that its holding is fact specific, noting “the fact that the [4.99% poison pill] was reasonable under the specific circumstances of this case, should not be construed as generally approving the reasonableness of a 4.99% trigger in the Rights Plan of a corporation with or without NOLs.”
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At a special meeting held on September 30, the shareholders of Dollar Thrifty voted against the proposed merger with Hertz, by a margin of approximately 8%. Hertz immediately announced that it had “started taking the necessary steps to cease activities related to the acquisition of Dollar Thrifty.” Avis, which has been in a bidding war with Hertz over the course of the summer for control of Dollar Thrifty, had most recently increased its offer to approximately $53 per share of Dollar Thrifty stock. Avis announced yesterday an intention to “diligently pursue antitrust clearance,” while commencing an exchange offer for Dollar Thrifty’s shares at the most recent offer price. Avis also offered publicly to include a $20 million reverse termination fee in a negotiated acquisition agreement with Dollar Thrifty, even though Avis had steadfastly refused to agree to such a fee in previous negotiations with the target. The merger agreement between Hertz and Dollar Thrifty included a reverse termination fee of $44.6 million. Dollar Thrifty announced its intention to continue evaluating other options while operating business as usual.
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On September 23, Avis announced that it has again raised its offer for Dollar Thrifty, this time by raising the cash portion per common share by 12%. The new Avis bid price is valued at about $53 per share, for approximately $1.5 billion in aggregate. The current merger agreement between Dollar Thrifty and Hertz provides the Dollar Thrifty stockholders with about $50.25 per share. Hertz issued a press release on September 24 stating that its current price is its “best and final offer.”
In its press release, Avis was critical of the Dollar Thrifty board of directors, stating: “Dollar Thrifty’s Board continues to disappoint. Not only have they once again failed to engage in any discussions with Avis Budget prior to entering into the new binding agreement with Hertz, but they have also failed to use the renegotiation with Hertz as an opportunity to create a level playing field for all potential bidders.” Will the increased bid bring Dollar Thrifty back to the negotiating table, or perhaps back into the Delaware courts? Avis wrote in its press release that it “would be willing to offer an even higher price in the absence of the break-up fee that Dollar Thrifty’s Board has provided for in its agreement with Hertz.” Dollar Thrifty stockholders are currently scheduled to vote on the proposed merger with Hertz on September 30.
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In a July 2010 letter, the Federal Trade Commission recently warned potential purchasers of certain customer data that the transfer and use of such data could violate the seller’s own privacy policies and, therefore, constitute an unfair or deceptive act or practice in violation of the Federal Trade Commission Act. The Director of the FTC’s Bureau of Consumer Protection, David Vladeck, made this position clear in a letter written to several investors who had expressed a desire to purchase customer data collected by the now defunct XY Magazine and XY.com in a bankruptcy sales process. The letter cautions of the likelihood that sensitive personal information of customers may be used lawfully only in the transaction for which it was collected. Sellers of such customer data, including when the sale is part of a larger business combination, should make certain the sale is permitted by their privacy policies. Purchasers of such customer data need to make certain they perform proper due diligence on the seller’s privacy policies, as well as make certain their plans for using the data post-acquisition will be permissible under the FTC Act.
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Earlier this month in In Re Dollar Thrifty Shareholder Litigation, the Delaware Chancery Court refused to block the proposed merger between Hertz and Dollar Thrifty despite the presence of a higher bid by Avis. The suit seeking to enjoin the proposed merger was brought not by Avis, but by the stockholders of Dollar Thrifty. The stockholder plaintiffs challenged the premium of the Hertz offer (5.5% over the market price) as insufficient and alleged that the board failed to conduct a pre-signing auction or market check.
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As discussed in this blog recently, Barnes & Noble is at the center of a proxy fight between Ron Burkle, billionaire owner of the Yucaipa group of funds that owns approximately 18.7% of B&N common stock, and Leonard Riggio, Chairman of B&N, who controls approximately 29.9% of the equity. Riggio disclosed yesterday that he had exercised options to acquire 990,740 shares, which will enable him to vote all of his stock holdings. The exercise price for the shares was $16.96 per share, exceeding yesterday’s market price for the shares, which closed at $15.35 per share. Burkle has announced that he will seek to replace the three B&N directors who are up for re-election at the September 28, 2010 stockholder meeting, including Chairman Riggio.
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In a decision rendered on August 12, 2010, Yucaipa American Alliance Fund II, L.P. v. Leonard Riggio, the Delaware Chancery Court upheld Barnes & Noble’s poison pill against a challenge from the company’s second largest stockholder, several funds (the “Yucaipa” funds) run by bilionaire Ron Burkle. The opinion establishes that the court is willing to find a poison pill to be a reasonable defense to threatened proxy contests for the election of new directors, and not just to threats of hostile takeovers. The opinion also includes in dicta the view that a poison pill may be unacceptibly preclusive if it does not leave the insurgent stockholder with a fair chance of success. This view is contrary to a view set out in the court’s recent decision in Selectica, Inc. v. Versata Enterprises, Inc., in which the court said a pill is not preclusive unless it “render[s] a successful proxy contest a near impossibility or else utterly moot.”
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A recently decided Delaware Chancery Court decision reinforces the validity and utility of the “poison pill” as a protective device available to a corporate board of directors. In Selectica, Inc. v. Versata Enterprises, Inc., Vice Chancellor John W. Noble upheld the decision of the Selectica board to adopt and use a poison pill to protect against the value of the company’s net operating losses (“NOLs”). The case involves a unique set of facts (among other things, this was the first intentional triggering of the modern poison pill) and offers several important lessons for practitioners.
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The Delaware Court of Chancery’s recent opinion in the case of NACCO Industries v. Applica suggests that the liability of target companies for failing to abide by deal protection provisions in definitive agreements, such as “no shop” and “prompt notice” requirements, may not be limited to a stated termination fee. The Court’s decision is also important for its implications regarding Schedule 13D disclosures. Specifically, the Court held that plaintiffs may validly assert claims for common-law fraud based on false or misleading statements made in Schedule 13D filings. Although it is important to note that the Court addressed these issues in the context of a defendant’s motion to dismiss, and therefore assumed the facts as pleaded and reviewed the claims by a “plaintiff-friendly standard,” the case establishes important lessons for buyers and targets alike.
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Likely reflecting the current negotiating leverage of buyers in today’s M&A market, two recent public company merger agreements include notably buyer-favorable definitions of what constitute “superior” competing bids. The definition is used in determining when the board of directors of a public company target can terminate the merger agreement under a so-called fiduciary out, in order to maximize shareholder value.
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