CURRENT MONTH (December 2018)
International M&A
European Commission Conditionally Approves Thales’ €4.8-billion Bid for Gemalto
By Lora Wuerdeman
On December 11, 2018, the European Commission (the “Commission”) approved the €4.8 billion proposed acquisition of international digital security company, Gemalto (“Gemalto”) by French aerospace and defense company, Thales (“Thales”). Since Thales and Gemalto are the two largest manufacturers of general-purpose hardware security modules (“HSMs”), the Commission’s approval is conditioned upon Thales’ commitment to sell its global general-purpose HSMs business, nShield. According to Commissioner Margrethe Vestager, who is in charge of competition policy, “[t]he importance of data security solutions to protect critical social, commercial or personal information is increasing. Today’s decision allows the creation of a strong European player in this market, while still ensuring that the merger will not prevent customers from continuing to enjoy fair prices and innovative products.” Thales and Gemalto originally announced the transaction on March 27, 2017. Thales’ made an all cash offer to the holders of issued and outstanding shares in Gemalto for €51.00 per share. By combining their businesses, Gemalto and Thales intend to create a global player in digital security. Thales and Gemalto expect the transaction to close shortly after all regulatory clearances have been secured which is expected to occur in the first quarter of 2019. They have currently obtained eight of the fourteen required clearances.
M&A Law
Justice Department Requires Divestures to Abate Antitrust Concerns in Gray Television’s Merger with Raycom Media
By Chris Johnson
On December 14, 2018, the United States Department of Justice (the “DOJ”) announced that it will require Gray Television Inc. (“Gray”), and Raycom Media Inc. (“Raycom”), to divest television stations in nine markets in order to resolve an antitrust challenge to Gray’s proposed $3.6 billion merger with Raycom.
Shortly after the merger was announced, the DOJ simultaneously filed a civil antitrust suit to block the merger and offered a proposed settlement to resolve the suit that would remedy the alleged harms of the merger through divestitures. Without the required divestitures, the DOJ believes the proposed merger could harm cable subscribers and small businesses. Specifically, the DOJ was concerned with the amount of “Big Four” affiliate stations (NBC, CBS, ABC, or FOX) Gray would own in each of the markets likely resulting in higher cable and satellite bills for millions of Americans. In addition, the DOJ feared the merged company would be able to charge local businesses and other advertisers artificially inflated prices for spot advertising.
If approved by the court, the divestitures required by the DOJ would require Gray to sell the Big Four affiliate stations owned by either Gray or Raycom in each of the nine markets where their Big Four affiliate ownership overlaps.
Administrative Law Judge Upholds FTC Challenge to Tronox Acquisition of Cristal
By David Marshburn
On December 14, 2018, Administrative Law Judge, D. Michael Chappell, issued an initial decision upholding the Federal Trade Commission’s (“FTC”) challenge of the proposed merger between Tronox Limited, a mining and inorganic chemical manufacturer (“Tronox”), and the National Titanium Dioxide Company Limited, the national industrialization company owned by the Kingdom of Saudi Arabia (“Cristal”). If completed, the proposed deal—which provided for Tronox to acquire Cristal for $1.67 billion and a 24 percent stake in the combined entity—would have resulted in the merger of the world’s two largest titanium dioxide producers.
In its administrative complaint originally issued on December 5, 2017, the FTC alleged Cristal’s merger with Tronox would violate Section 7 of the Clayton Act, along with Section 5 of the FTC Act, which prohibits mergers or acquisitions that may have the effect of substantially lessening competition or tending to create a monopoly. Upon establishing the relevant market at issue, which consists of chloride process titanium sales in the United States and Canada, Judge Chappell found that the FTC provided sufficient evidence to prove the proposed merger had the potential to substantially reduce competition, both by resulting in increased market concentration and by increasing the likelihood of anticompetitive coordinated effects. After finding the FTC established a prima facie case, Judge Chappell also concluded that Tronox had failed to rebut the FTC’s proof either by demonstrating that entry into or expansion of the relevant market by competitors would counteract the likely anticompetitive effects, or by demonstrating the potential for synergies or efficiencies produced by the acquisition that would suffice to justify the merger’s likely anticompetitive effects. As a result of the initial decision, Tronox and Cristal must terminate their proposed agreement and cease taking any direct or indirect actions to complete the transaction.
Delaware Chancery Approves Deal Ending Starz Merger Suit
By JP Barker
On December 10, 2018, the Delaware Chancery Court approved the settlement of a class action suit in connection with the 2016 $4.4 billion sale of Starz Entertainment LLC (“Starz”) to Lion’s Gate Entertainment Corp. (“Lion’s Gate”). The class action suit claimed the merger between Starz and Lion’s Gate was structured to benefit a controlling shareholder (the “Shareholder”), in part by disproportionately converting portions of the Shareholder’s Starz stock into voting Lion’s Gate stock, while converting other Starz shareholders’ stock into non-voting Lion’s Gate stock. The class action suit also alleged Starz CEO and other board members breached their duty to Starz shareholders, and were aided and abetted by Lion’s Gate, along with the Shareholder.
Under the 2016 merger deal, shareholders were to receive $18 per share, along with .6784 non-voting shares of Lion’s Gate stock – a total value of $35.52 per share. On the other hand, the Shareholder’s class of Lion’s Gate stock was converted for $7.21 per share, along with 1.2642 shares of Lions Gate, of which half where voting shares. The Shareholder’s conversion value, not including the value attributable to receiving voting shares, totaled $39.86 per share.
Vice Chancellor Glasscock was in favor of the settlement because the settlement made provisions for the pursuit of funds required to pay shareholders, without closing off other avenues for challenges or appeal for those who object or claim they are harmed by the provisions.
Delaware Supreme Court Affirms Chancery Court Decision Allowing Termination of $4.75 Billion Merger Agreement Based on Material Adverse Effect
By Casey Kidwell
On December 7, 2018, the Delaware Supreme Court (the “Court”) affirmed the Delaware Chancery Court’s (the “Chancery Court”) landmark decision in Akorn, Inc. v. Fresenius Kabi AG, allowing Akorn, Inc. (“Buyer”) to terminate its merger agreement (“Agreement”) with Fresenius Kabi AG based on a material adverse effect (“MAE”). The Court determined the factual record supported the Chancery Court’s decision and agreed the Buyer suffered a MAE that violated the Agreement’s closing conditions.
This marks the first time the Court has approved the termination of a merger agreement based on a MAE and reinforces the practical takeaways from the Chancery Court’s decision, including: (i) the target business is to be assessed on its own rather than including any value related to potential synergies; (ii) a target value decline of 20% or more is likely sufficient to be considered a MAE; (iii) assessments of a decline in performance should be measured on a year-over-year basis; and (iv) entry of new competitors causing the target to lose business is evidence of a durational downturn rather than a seasonal change. Buyers will be sure to cite the Chancery Court’s opinion in defense of future suits by targets claiming wrongful termination of a merger agreement based on a MAE as the landmark decision contains a number of useful guideposts for counsel and business executives alike to determine whether a MAE occurred.
