International M&A

Fiat Chrysler Withdraws Merger Proposal with Groupe Renault

By David Marshburn

On June 6, 2019, Fiat Chrysler Automobiles N.V. (“FCA”), an automobile manufacturer headquartered in England withdrew its offer of merger from French automaker Groupe Renault (“Renault”). Originally submitted on May 27, 2019, FCA’s proposal provided for the two automakers to merge under a Dutch parent company. Each party would have received a 50%ownership of the combined entity, with FCA stockholders also receiving a dividend of approximately $2.8 billion for purposes of mitigating the disparity in market values between the two companies. If completed, the merger would have created the world’s largest global original equipment manufacturer alliance, with the resulting combined FCA-Renault entity becoming the third largest automobile manufacturer in the world.
In a press release issued on June 5, 2019, Renault announced that representatives of the French government asked Renault to postpone its vote on the merger proposal. FCA pulled its offer the following day, expressing concerns that the political conditions in France would not allow for a successful merger of the two companies. However, the French government owns a 15% stake in Renault and dismissed FCA’s assertions, stating that the only approval that had yet to be obtained was from Nissan Motor Co., Ltd., a Japanese alliance partner of Renault. Although the reason for the breakdown in negotiations remains unclear, neither FCA nor Renault has shown any interest in renewing merger talks.

M&A Law

Delaware Chancery Court Denies Motion to Dismiss Investor Suit over Fintech Merger with KCG Holdings

By David Marshburn

On June 21, 2019, the Delaware Chancery Court (the “Court”) published an opinion denying a motion to dismiss a complaint filed by a former stockholder of KCG Holdings, Inc. (“KCG”) related to claims arising from KCG’s merger with Virtu Financial, Inc. (“Virtu”). The derivative lawsuit names KCG, the directors of KCG, Virtu, and Jefferies LLC—financial adviser to both KCG and Virtu—as defendants and alleges that KCG’s directors breached their financial duties in negotiating and approving the merger and that Virtu and Jefferies aided and abetted KCG’s directors in those breaches. The deal was completed on July 20, 2017 and resulted in Virtu acquiring KCG in a cash transaction valued at $20 per share, with a total value of approximately $1.4 billion.

In response to the plaintiff’s complaint, the defendants argued that the Court should apply the deferential business judgment standard of review under Corwin v. KKR Financial Holdings LLC for director actions where a merger was approved by a “fully informed, uncoerced majority of the disinterested stockholders.” The Court found that application of the standard established in Corwin did not require dismissal because the plaintiff successfully alleged facts that support a finding that the stockholder’s vote to approve the merger was not sufficiently informed. In addition to the claim for breach of fiduciary duties, the plaintiff’s claim for civil conspiracy also survived the defendants’ motion to dismiss.

Land & Buildings Issues Letter to Hudson’s Bay Special Committee Criticizing Insider-Led Buyout Proposal

By Lora Wuerdeman

On June 18, 2019, Land & Buildings Investment Management, LLC (“Land & Buildings”), sent a letter to the Special Committee of Independent Directors of Hudson’s Bay Company (“Hudson Bay”), urging the Special Committee not to approve an insider-led buyout (the “Letter”). On June 10, 2019, Hudson Bay issued a press release announcing that its Board of Directors formed a Special Committee to review a proposal from a group of its shareholders for the privatization of the company at a price of C$9.45 per share. The shareholder group collectively owns 57% of the outstanding common shares of Hudson Bay on an as-converted basis. Land & Buildings claims that the proposal is “woefully inadequate” as it materially undervalues the assets of the company. According to Hudson Bay’s CEO, Hudson Bay’s real estate alone is worth as much as C$28 per share. The Letter urged Hudson Bay to hire a “truly independent investment bank” and consider other strategic alternatives for the company “given the iconic nature of [Hudson Bay’s] real estate that would attract a deep potential buyer pool.”

Fashion Acquisition Under Scrutiny by Investors

By Cooper Overcash

On June 7, 2019, James Newman (“Mr. Newman”), a stockholder of Ascena Retail Group (“Ascena”), a conglomerate of women’s fashion brands, filed suit in the United States District Court for the District of New Jersey, alleging that Ascena’s executives mislead investors and withheld critical information regarding Ascena’s acquisition of Ann Inc. (“Ann”) in August of 2015. Specifically, Mr. Newman alleged that Ascena’s executives knew that the acquisition of Ann by Ascena was less favorable than conveyed in their pre- and post-merger public statements.

Mr. Newman alleged that “Ann’s operations were in far worse condition than had been represented to the public” and that “in order to mask the true condition of Ann, [Ascena’s executives] improperly delayed recognizing an impairment charge to the value of Ann’s goodwill and, as a result, Ascena’s reported income and assets were materially overstated and the Company’s financial results were not prepared in conformity with Generally Accepted Accounting Principles.” The relief sought by Mr. Newman stems from the dramatic decrease in Ascena’s stock price following the impairment of Ann’s assets being made public. According to the complaint, once the true condition of Ann and its assets were finally revealed by Ascena executives, Ascena’s stock price dropped 35%.

Investor Challenges $1.3B Sale Due to Conflicts of Interest

By Michael Caine

On June 21, 2019, a class action lawsuit was filed against Cray Inc. (“Cray”), claiming that its proposed merger with Hewlett Packard Enterprise (“HPE”) is “tainted by significant conflicts of interest.” A stockholder of Cray filed the suit after learning that Cray’s current CEO would receive a new employment contract with HPE that would allow him to secure up to $10 million in HPE stock over a three year period. The stockholder asserts that Cray’s relationship with Morgan Stanley creates a conflict of interest because Morgan Stanley served as HPE’s lender and issued a fairness opinion supporting the merger.
Lastly, the suit asserts that certain provisions in the transaction documents provide HPE an opportunity to improve any alternative unsolicited offers and the right to a termination fee of $46 million if Cray pursues an offer from another party,“[ensuring that] no competing offers for [Cray] will emerge.” The proposed merger is expected to close in 2020.



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