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Jun 8, 2016

DealBook Today's Top Headlines - June 8, 2016: Dell Ruling May Not Affect Buyouts as Much as Feared | The Merger That Wasn't? | Renaud Laplanche Said to Consider Lending Club Takeover

 
Wednesday, June 8, 2016
TODAY'S TOP HEADLINES
By AMIE TSANG
DELL RULING MAY NOT AFFECT BUYOUTS AS MUCH AS FEARED Will a judge's ruling that buyers underpaid for Dell when it was taken private change buyouts more broadly? Probably not, Steven Davidoff Solomon argues in the Deal Professor column.


The purpose of appraisal rights is not to say what a company's market price should have been - it is to give shareholders a remedy if they think the negotiated deal is just not good enough. So the appraisal is based on "fair value," which can have a different meaning to "market price." This difference is at the heart of this decision and courts are struggling to figure out what "fair value" is in light of the emergence of hedge funds specializing in exercising appraisal rights.

The proceedings were historically a corporate finance exercise with each party hiring an expert to value the company. In the case of the Dell buyout, Glenn Hubbard, dean of Columbia's business school and former chairman of the Council of Economic Advisers, calculated the fair value to be $12.68. Brad Cornell, a professor at the University of California, Los Angeles, calculated on behalf of the dissident shareholders that the value was $28.61.

Frustration over this sort of battle among experts has led Delaware courts to change how they calculate appraisal prices. Instead of puzzling through conflicting opinions, judges in recent cases have looked at the merger price to determine if the price was fair. So long as the price paid was negotiated through an arm's-length process, the court deemed this to be fair value. The underlying assumption was that the fairly bargained market price was fair value.

Vice Chancellor J. Travis Laster of the Delaware Court of Chancery found that the process was not entirely complete because the Dell board did not reach out to all parties. He also pointed out that because the pricing was based on a leveraged buyout model, it was not a market price. So the judge determined that the market price was not a reliable one because it showed the price the private equity firm could pay, not one that was "fair value."

So the judge conducted an old-style appraisal proceeding, using a discounted cash flow analysis to compute "fair value" using the expert opinions.

This is why the case is unlikely to be a game changer. The market price is likely to continue to be the price used because it is so difficult to compute "fair value" otherwise. The effect it might have - forcing would-be managers to work hard to justify buying their own companies - would be better for shareholders.
THE MERGER THAT WASN'T? The 2014 merger of Herman Miller, the famed purveyor of classics like the Eames lounge chair, and Design Within Reach, the emporium for sleek modern furnishings, seemed a no-brainer. But a lawsuit brought by two longtime shareholders contends that the $154 million merger never happened at all, Michael J. de la Merced reports in DealBook.

The lead plaintiff, Andrew Franklin, president of UTR, an investment firm, called it "the most-botched merger in Delaware history."

Mr. Franklin and another shareholder, Charles Almond, are seeking unspecified damages and their argument could theoretically lead to the court ordering that the merger be rescinded and DWR carved out of the company. The lawsuit is in the discovery phrase and may not succeed, but it threatens to mar a merger that was seen as an important combination in the world of high-end furniture.

Representatives for Herman Miller and the four men who made up DWR's board declined to comment. In court filings, they denied the allegations and contended that "the plaintiffs suffered no damages."

The plaintiffs say that because of a series of technical mistakes, Herman Miller's agreement to buy Design Within Reach never took effect. A series of moves by DWR's directors, led by Glenn Krevlin, a hedge fund manager, sought to squeeze out minority shareholders, the lawsuit says. The capstone of that campaign proved to be the Herman Miller deal.

Mr. Franklin contends that DWR never successfully carried out a reverse split of its shares, meaning that Herman Miller never collected the roughly 90 percent of the retailers stock needed to carry out the takeover.

"Once you don't know the capital structure, what are these shares worth?" Mr. Franklin asked. "They didn't do the split right."

In February, shareholders received a notice from Design Within Reach acknowledging "defective corporate acts," but contending that it had remedied those mistakes under a provision of Delaware law.

Mr. Krevlin's investment firm had made a $15 million investment in DWR that, along with the 17 percent of DWR it already owned, gave it 91 percent of the retailer.

Several months later, the company de-registered with the Securities and Exchange Commission, ending public filings, but still trading over the counter as a penny stock. In 2010, DWR sought to reduce its total authorized shares from 31.5 million to just 630,000. Mr Franklin argued that while DWR declared the reserve split effective in August 2010, it had not notified minority shareholders of the move. When an agreement was struck with Herman Miller, it said that DWR had 7.5 million authorized shares, with 6.6 million outstanding.

The lawsuit contends that because of failures to comply with Delaware law, DWR had 30 million shares outstanding.
ON THE AGENDA The House Financial Services Committee will hold a hearing on terrorism financing at 9 a.m.
RENAUD LAPLANCHE SAID TO CONSIDER LENDING CLUB TAKEOVER Renaud Laplanche, who helped found Lending Club, has been speaking to private equity firms and banks about financing a buyout of the online lender, Reuters reports, citing people familiar with the matter.

Mr. Laplanche, who left Lending Club after an internal investigation found the company had falsified documentation when selling loans, has approached firms about a possible bid to take the company private. The talks were only preliminary, the sources told Reuters. Mr. Laplanche and Lending Club declined to comment.

It could be difficult for Mr. Laplanche to secure funding while the company is being investigated by both the Justice Department and the New York Financial Services Department. The regulatory issues are already putting pressure on buyers of the company's loans, some of whom have already paused their purchases, squeezing a key source of funding for the company.

On Tuesday, the company abruptly canceled its annual meeting and rescheduled it for June 28, saying it was not yet ready to provide stockholders with a complete report of the state of the company.
MERGERS & ACQUISITIONS »
The courtyard of the Tribune Tower, home of The Chicago Tribune. Gannett has made an offer worth $864 million to acquire the paper's owner, the Tribune Publishing Company, which has rejected the bid.
Gannett Says It Is Determined to Woo Tribune Publishing Tribune Publishing rejected Gannett's latest offer, but its shareholders showed support for the deal, giving Gannett fuel to continue its battle.
Tribune Publishing Vote Hands Board a Rebuke More than 40 percent of shareholders withheld votes for Tribune's slate of directors, virtually unheard of when proxy advisers support the candidates, Jennifer Saba writes in Breakingviews.
Deutsche Börse Workers Demand a Change of Headquarters A group representing Deutsche Börse's workers has demanded that the company formed as part of the proposed takeover of London Stock Exchange Group be based in Frankfurst instead of London, Bloomberg reports, citing a letter to staff and shareholders.
INVESTMENT BANKING »
Jérôme Kerviel in March. A French labor tribunal on Tuesday ordered Société Générale, his former employer, to pay Mr. Kerviel roughly €450,000.
Société Générale Is Ordered to Pay Trader Who Almost Ruined It Jérôme Kerviel persuaded a French labor tribunal that he should not have been fired for his trades, which nearly brought about the demise of the bank.
Sovereign Debt Rule Changes Threaten E.U. Bank Finances Expected changes to regulation could lead to a 30 percent increase in capital requirements for the main banks in the European Union, according to research to be published on Wednesday by the credit rating agency Fitch.
For the latest updates, go to NYTimes.com/DealBook
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PRIVATE EQUITY »
Blackstone Bids to Buy Insurance Broker Acrisure Blackstone Group is in advanced discussions to buy Acrisure, the insurance brokerage, in a deal that could value it at over $2 billion including debt, Reuters reports, citing people familiar with the matter.
HEDGE FUNDS »
Gregory Cohen, an activist investor, is the founder of Rambleside Holdings.
Activist Investors Have a New Favorite Target: REITs Once a relatively quiet backwater, real estate investment trusts are increasingly being shaken up by investors seeking to squeeze out value.
VENTURE CAPITAL »
Salesforce to Invest $50 Million in Start-Ups Salesforce will also create an incubator for early-stage cloud start-ups as part of its push to foster an ecosystem of applications that run on its cloud-computing platform.
LEGAL/REGULATORY »
Republicans' Plan to Dismantle Dodd-Frank Rekindles a Debate Eight years after the financial crisis, easing the oversight of big banks is still on the agenda for some Republicans.
Guy Hands, the founder of the private equity firm Terra Firma Capital Partners, outside a federal court in New York in 2010.
Guy Hands Resumes Legal Fight With Citigroup Over EMI Deal Mr. Hands, the founder of the private equity firm Terra Firma, claims that Citigroup executives misled him before a deal for EMI in 2007.
From left, Peter Biagetti, William Sinnott, Robert Klieger and Marshall Camp, among 22 lawyers lining the benches at a hearing regarding Sumner Redstone's competency.
Sumner Redstone Legal Battle Moves to a Massachusetts Court Two men challenge their dismissals from the trust that will eventually control Sumner Redstone's companies, which include CBS and Viacom.
Two More Top Law Firms Raise Associates' Pay Now, three firms are increasing their pay scales after a nine-year drought for elite junior lawyers.
Arlo Devlin-Brown
Longtime U.S. Prosecutor to Join Covington & Burling The prosecutor, Arlo Devlin-Brown, went after Wall Street giants like SAC Capital before leading the United States attorney's public corruption unit.
Oklahoma Police Find No Evidence of McClendon Suicide Oklahoma City police said on Tuesday that an inquiry had found no evidence suggesting that Aubrey McClendon, the former chief executive of Chesapeake Energy, committed suicide when he died in a car crash in March, but acknowledged that his state of mind at the time was unknowable.
Joseph C. Papa, Valeant's new chief executive, said he realized that the company's business was encountering
Valeant Reports First-Quarter Loss and Cuts Its Forecast Valeant, the pharmaceuticals company facing questions about its business and accounting practices, said it lost nearly $374 million in the quarter.
E-Trade offices in San Francisco.
E-Trade to Introduce Robo-Advisory Service The new service is primarily a "set it and forget it" approach that uses exchange-traded funds and automatic portfolio updating.
About 3,000 refugees will be displaced from a makeshift settlement at an Athens airport to make way for a privatization deal that includes luxury housing, malls and golf courses.
Greece Secures Bailout Money With Airport Real Estate Deal The privatization deal will fulfill a key condition for the money, but it will also displace 3,000 refugees living in a makeshift settlement.
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Why Britain Is Edging Toward 'Brexit' Sometimes, one issue can have a big influence on an election. Immigration may turn out to be that issue on June 23.