The Global Capital Confidence Barometer is a regular survey of senior executives from large companies around the world, conducted by the Economist Intelligence Unit (EIU) of Ernst & Young. This snapshot of findings gauges corporate confidence in the economic outlook, and identifies boardroom trends and practices in the way companies manage their capital agenda:
- Nearly half (47%) of real estate, hospitality and construction companies surveyed see the global economy declining, compared to 39% that see the economy improving.
- The economic environment for transactions remains challenging, with executives continuing to grow their companies organically and focusing on stability.
For the results of the survey, click here.
U.S. UPDATE – Activist Hedge Funds and Academics Wrongly Oppose Fair Reporting of Accumulations of More Than 5% of a Company’s Shares
- Wachtell Lipton has petitioned the US Securities and Exchange Commission to modernize the blockholder reporting rules under Section 13(d) of the Securities Exchange Act of 1934 to prevent exploitation by stockholder activists and address current market conditions and practices. Among other things, the petition proposed that the time to publicly disclose such block acquisitions be reduced from ten days to one business day.
- Developments in market liquidity and trading – which allow massive volumes of public company shares to be traded in fractions of a second – have made the Section 13(d) reporting regime’s ten-day window obsolete, allowing blockholders to contravene the purposes of the statute by accumulating large, control-implicating positions prior to any disclosure to the market.
- Activist hedge funds and academic commentators have challenged the need for any modifications to the ten-day window, arguing, among other things, that the purported benefits of secret blockholder accumulations mandate that extensive cost-benefit analysis be done before Section 13(d)’s reporting rules are modified in a way that could potentially discourage them. In a paper now available as Columbia Law and Economics Working Paper No. 428 the authors rebut these claims. Further delay in implementing the modest modifications proposed in the Wachtell Lipton petition are a disservice to the principles of market transparency and fairness to all market participants that are the foundation of Section 13(d).
In March 2011, Wachtell Lipton petitioned the SEC to modernize the blockholder reporting rules under Section 13(d) of the Securities Exchange Act of 1934. The petition sought to ensure that the reporting rules would continue to operate in a way broadly consistent with the statute’s clear purposes that an investor must promptly notify the market when it accumulates a block of publicly traded stock representing more than 5% of an issuer’s outstanding shares, and that loopholes that have arisen by changing market conditions and practices since the statute’s adoption over forty years ago could not continue to be exploited by stockholder activists, to the detriment of market transparency and fairness to all security holders. Among other things, the petition proposed that the time to publicly disclose such block acquisitions be reduced from ten days to one business day, given activists’ current ability to take advantage of the ten-day window to accumulate positions well above 5% prior to any public disclosure, in contravention of the clear purposes of the statute.
Activist hedge funds and academic commentators have challenged the need for any modifications to the ten-day window, arguing, among other things, that the purported benefits of secret blockholder accumulations mandate that extensive cost-benefit analysis be done before Section 13(d)’s reporting rules are modified in a way that could potentially discourage them. The Harvard Business Law Review will publish one such piece in a forthcoming issue, and its authors have widely promoted the idea that the existing flawed reporting rules promote corporate governance efficiency and benefit participants in the equity capital markets.
In a paper now available as Columbia Law and Economics Working Paper No. 428 we rebut these claims. In fact, there is no sound reason to question the need for the modernization of Section 13(d)’s reporting rules proposed in our petition. The bases advanced by the blockholder interests opposing these important changes run directly contrary to Section 13(d)’s underlying purpose – “to alert the marketplace to every large, rapid aggregation or accumulation of securities.” It is widely understood that developments in market liquidity and trading – which allow massive volumes of public company shares to be traded in fractions of a second – have made the Section 13(d) reporting regime’s ten-day window obsolete, allowing blockholders to contravene the purposes of the statute by accumulating large, control-implicating positions prior to any disclosure to the market.
Activists and their academic supporters seek to mire any call for reform in regulatory bureaucracy so that nothing ultimately is done, and activists can continue to abuse the gaps in the current system to their advantage. But further delay in implementing the modest modifications proposed in our petition are a disservice to the principles of market transparency and fairness to all market participants that are the foundation of Section 13(d). The time to modernize is now.
LATIN AMERICAN UPDATE – Outbound Investments Into Latin America – A pan-American overview for Chinese investors
This contribution is based on the Guide first published by China Law & Practice, in association with International Financial Law Review, Hong Kong, 2011.
- Latin American markets have put in a stellar performance in recent years and present ever-growing business opportunities to Chinese investors, as China becomes increasingly active and influential in the region.
- Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Mexico, Peru, Uruguay and Venezuela , as with all the other Latin American jurisdictions and mainland China, have a continental legal system. Furthermore, if their legal systems are taken at face value, it becomes apparent that laws seem to be virtually copied from one country to another, a feature that probably stems from their common Spanish legal heritage.
- Nevertheless, the way of applying and enforcing these regulations in the different Latam Countries varies greatly.
- This guide provides a bird’s-eye view of the legal framework for investment in Latin America, as well as a comparison among the opportunities and pitfalls arising from the legal systems of the main economies of the region that become relevant when considering a transaction from China.
AUSTRALIAN UPDATE – Deal Landscape, Deal Structures and Foreign Bidders in Australian Public M&A in 2012
- The Australian public M&A market has seen more restrained activity in the 12 months to 30 June 2012, in line with global trends.
- The energy and resources sectors continue to dominate public M&A in Australia, accounting for about 50% of transactions.
- Success rates for transactions increased to 81% in FY2012, while the percentage of transactions involving competition between bidders dropped to 5%.
- Levels of inbound cross-border public M&A activity decreased moderately with 46% of bidders in FY2012 being based offshore, down from 51% in FY2011.
- Cash only transactions predominated with about 63% of transactions overall being cash-only. Foreign bidders, in particular, favoured cash bids, with 81% of foreign bidders offering cash only in FY2012.
Posted in: Australia, M&A (General), Trends & Statistics
After a return to pre-2008 activity levels in 2011, Australian public merger and acquisition activity dropped in the 12 months to 30 June 2012 (FY2012), with 83 deals announced and $63 billion committed by bidders, down from 104 deals and $79 billion committed in the previous 12 months (FY2011). This is in line with the trend in global merger and acquisition activity over the corresponding periods, with global deal volumes having fallen from USD2,848 billion in FY2011 to USD2,265 billion in FY2012.
Number of transactions by deal value
The energy and resources sectors continue to dominate public M&A in Australia, accounting for about 50% of transactions (by number).Consolidation in the coal sector accounted for a significant proportion of transaction volume, with total transaction volumes exceeding $20 billion. As coal sector consolidation nears an end, it remains to be seen whether energy and resources transactions will continue to dominate Australian public M&A activity in the future.
Private equity participation in public M&A activity also continued to increase in FY2012, with transaction numbers recovering to pre-2008 levels.
Success rates have continued to increase with 81% of announced public M&A transactions completing, up from 70% in FY2011.
The proportion of ‘hostile’ deals launched without initial target board support increased in FY2012 – 48% of all transactions were announced without target board support, up from 37% in FY2011. While initial recommendation by a target board remained a significant factor in success rates, success rates for both friendly and hostile transactions improved in FY2012.
Success rates in ‘hostile’ and friendly deals
Public competition for assets decreased, with only 5% of public M&A transactions in FY2012 involving a contest between rival bidders (down from about 15% in each of FY2010 and FY2011).
Overall, there was a moderate decrease in the level of inbound cross-border public M&A activity with bidders headquartered overseas being involved in 46% of transactions in FY2012, down from 51% in FY2011. Asia-based bidders accounted for an increased proportion of foreign bidders, with a relative decline in the number of bids originating in North America.
Origin of bidders
As in previous years, in FY2012 bidders in transactions exceeding $1 billion were predominantly based offshore, although the proportion of foreign bidders involved in such transactions dropped.
Origin of bidders in transactions over $1 billion
Foreign bidders were successful in 79% of transactions. Bidders based in China (including Hong Kong), in particular, had a successful year in executing Australian public M&A transactions, with the overall number of bids increasing and a success rate of 83% in FY2012.
Success rates for Chinese bidders
Cash only transactions continue to be more popular than ones involving a scrip component, with about 63% of transactions overall being cash-only and 72% of transactions over $1 billion being cash-only. Foreign bidders, in particular, favoured cash bids, with 81% of foreign bidders offering cash only in FY2012.
Debt funding was the main funding source in 49% of all deals with cash consideration in FY2012, up from 32% in FY 2011. This indicates a continuing willingness by financiers to extend credit for Australian assets.
Public M&A transactions remained highly conditional with about 95% of transactions in FY2012 being made subject to conditions.
A number of relatively high-profile transactions involving overseas regulatory approval conditions were the subject of lengthy delays while relevant overseas regulatory authorities conducted their review processes, and in some cases were unable to be consummated. In light of this experience, if a bidder requires that their bid be conditional on the bidder obtaining overseas regulatory approval, Australian boards are likely to seek greater certainty as to the status of the approval process before committing to the transaction.
Deal protection mechanisms, including no-shop/no talk provisions, break fees, lock-ups (eg, commitments by shareholders to accept a bid) and toe-holds (eg, acquisitions of pre-bid shareholdings) continued to play an important role in negotiated transactions.