CURRENT MONTH (April 2018)
M&A Law
FTC Guidance–Avoiding Antitrust Pitfalls During M&A Negotiations and Due Diligence
By Elizabeth M. Hanus, Husch Blackwell
On March 20, 2018, the Bureau of Competition of the Federal Trade Commission (the FTC) issued guidance re-emphasizing the importance of having proper procedures and safeguards in place when sharing competitively sensitive information during pre-merger negotiations and due diligence. In addition to the risk that such sharing of information could be viewed as evidence of an anticompetitive agreement under Section 1 of the Sherman Antitrust Act or unfair competition under Section 5 of the FTC Act, the FTC notes that pre-merger information sharing could result in unlawful “gun jumping” under the Hart-Scott-Rodino Antitrust Improvements Act (HSR). Gun jumping can occur if the merging parties coordinate their business activities during the HSR pre-merger review period. The FTC acknowledges the need to share information during pre-merger negotiations and due diligence, but given the risks emphasizes the need to not only have proper procedures in place, but enforce them. Further, if any potentially improper information is shared, in addition to immediately stopping the activity, the FTC suggests that counsel should consider informing the FTC.
Delaware Court Denies Motion to Dismiss Shareholders’ Claim in Tesla’s Acquisition of SolarCity
By Nick West, Husch Blackwell
On March 28, 2018, the Delaware Court of Chancery denied a motion to dismiss derivative claims brought by shareholders of Tesla, Inc. (“Tesla”) claiming that Tesla’s directors breached their fiduciary duties in approving a $2.6 billion merger with SolarCity Corporation (“SolarCity”). Elon Musk, Tesla’s Chairman and CEO and holder of 22.1% of its common stock, was a co-founder of SolarCity and served as its Chairman. Musk also held 21.9% of SolarCity’s common stock. SolarCity was a distressed company about to file for bankruptcy when Tesla’s independent directors voted to enter into a merger agreement with SolarCity. The merger was submitted to a shareholder vote, in which approximately 58% of Tesla’s shares, not including Musk’s ownership, voted to approve the merger. In the compliant, Tesla’s shareholders argued that Musk exercised his control over Tesla’s independent directors to approve the acquisition of a distressed SolarCity at the expense of the other shareholders. Defendants argued that the claims were subject to dismal under Corwin v. KKR Financial Holdings, 125 A.3d 304 (Del. 2015) which held that approval of a deal by a majority of disinterested shareholders cleanses the conflicted transaction. Under Delaware law, a shareholder can be considered a controlling shareholder when the shareholder (1) owns more than 50% of the corporation’s voting power or (2) owns less than 50% of the voting power but exercise control over the business affairs of the corporation. The Chancery Court reasoned that Musk “exercised his influence as a controlling stockholder with respect to the acquisition” despite the fact that he was a minority shareholder in Tesla and that “there were practically no steps taken to separate Musk from the Board’s consideration of the Acquisition.” Ultimately, the Court found that the shareholders’ complaint pleaded sufficient facts to support a reasonable inference that Musk was a controlling shareholder and that a majority of the board was not independent of him. The most notable takeaway from the Court’s decision is that a shareholder vote may not be sufficient by itself to shield an action from entire fairness review where the facts evidence control of the board by an single influential shareholder, even if that shareholder does not hold a majority of the corporation’s shares.
International M&A
Akorn Asks Court to Enforce Merger Agreement with Fresnius Kabi
By Tyler Huseman, Bass Berry Sims
On April 23, 2018, Akorn, Inc., a specialty generic pharmaceutical company based in the United States (“Akorn”) announced it had filed a complaint in Delaware Chancery Court asking the court to enforce its definitive merger agreement with Fresenius Kabi AG, a supplier of essential drugs, clinical nutrition products and medical devices, based in Germany (“Fresenius”). The transaction was originally announced on April 24, 2017, and approved by the board of directors of both Akorn and Fresenius at a price of $34.00 per share of Akorn in cash. Akorn shareholders approved the transaction on July 19, 2017. Fresenius announced its intention to terminate the merger agreement on April 22, 2018, citing Akorn’s failure to fulfill closing conditions. Fresenius said it based this decision on, among other factors, material breaches of Food and Drug Administration (“FDA”) data integrity requirements relating to Akorn’s operations. In response, Akorn stated “Fresenius’ attempt to terminate the transaction on the pretext that the findings from the ongoing investigation are a breach of the merger agreement is completely without merit. The previously disclosed ongoing investigation, of which we have voluntarily notified and are in regular communication with the FDA, has not found any facts that would result in a material adverse effect on Akorn’s business and therefore there is no basis to terminate the transaction. The investigation is not a condition to closing and the only remaining condition is approval from the Federal Trade Commission. We intend to vigorously enforce our rights, and Fresenius’ obligations, under our binding merger agreement.”
European Commission to Conduct In-Depth Review of Apple’s Proposed Acquisition of Shazam
By Tyler Huseman, Bass Berry Sims
On April 23, 2018, the European Commission announced it had opened an in-depth investigation of the proposed acquisition of Shazam Entertainment Ltd., a British app developer focused on music and image recognition (“Shazam”) by the global computer and technology giant Apple, Inc. (“Apple”). The transaction was reportedly valued at approximately $400 million. In its release, the European Commission stated that it is “concerned that, following the takeover of Shazam, Apple would obtain access to commercially sensitive data about customers of its competitors for the provision of music streaming services in the European Economic Area. Access to such data could allow Apple to directly target its competitors’ customers and encourage them to switch to Apple Music. As a result, competing music streaming services could be put at a competitive disadvantage. In addition, while at this stage the Commission does not consider Shazam as a key entry point for music streaming services, it will also further investigate whether Apple Music’s competitors would be harmed if Apple, after the transaction, were to discontinue referrals from the Shazam app to them.” Commissioner Margrethe Vestager stated “The way people listen to music has changed significantly in recent years, with more and more Europeans using music streaming services. Our investigation aims to ensure that music fans will continue to enjoy attractive music streaming offers and won’t face less choice as a result of this proposed merger.” The European Commission will have 90 working days to evaluate the transaction and must make a decision before September 4, 2018.
Altice Fined for Failure to Timely Seek and Obtain Merger Approval
By Ben Tarpley, Bass Berry Sims
On April 24, 2018, the European Commission (the “Commission”) announced that it has levied a €124.5 million fine against Altice N.V. (“Altice”) for effectively consummating its June 2015 acquisition of PT Portugal SGPS, S.A. (“PT Portugal”) prior to notifying and obtaining the approval of the Commission. To ensure fair competition and the delivery of timely and accurate decisions, the Commission’s procedural rules require both that it be notified of potential mergers and acquisitions and that the transacting parties suspend the completion thereof until the Commission has passed judgment. According to the Commission, although Altice notified it of Altice’s plan to acquire PT Portugal in February of 2015, Altice effectively implemented the transaction on December 9, 2014, the date on which a purchase agreement was signed that gave Altice significant control over PT Portugal, which Altice subsequently exercised. Per the Commissioner, Margrethe Vestager, the penalty, which Altice plans to appeal, “reflects the seriousness of the infringement and should deter other firms from breaking EU merger control rules.”
Joint Venture
Bridgestone and Goodyear to Form Major Tire Distributor
By Ben Tarpley, Bass Berry Sims
On April 16, 2018, The Goodyear Tire & Rubber Company (“Goodyear”), headquartered in Akron, Ohio, and Nashville, Tennessee-based Bridgestone Americas, Inc. (“Bridgestone”) announced the formation of TireHub, LLC (“TireHub”), what will immediately become one of the largest tire distributors in the United States. TireHub, which will be headquartered in Atlanta, Georgia, will focus on providing tire dealers and retailers access to both Bridgestone’s and Goodyear’s passenger and light truck tires, including premium larger rim diameter tires, through both companies’ existing third-party distribution networks and Goodyear’s company-owned wholesale distribution network. With more than eighty (80) distribution centers and warehouse locations, TireHub will instantly have the scale to reach the vast majority of U.S. retailers, who typically have limited space for inventory, daily, positioning them to meet the needs and expectations of their own customers. TireHub will be independently managed and will offer both Goodyear’s and Bridgestone’s entire collection of products through a single sales force and web-based portal. Subject to customary approvals, the transaction is expected to close in the middle of this year, with each of Bridgestone and Goodyear having a fifty percent (50%) stake in the joint venture.
