in re pure brief

7/27/2019 In re Pure Brief

1/7

3/19/2014 7:23:00 AM

In re Pure:

Two possible legal standards to applyo Weinberger/Kahno Solomon/Pathe

Plaintiffs argument:o Since it is essentially the same as a negotiated merger with a

special committee it should be treated like Kahn

It should be judged with EF: prove that there was fairdealing and fair price

Tender offers are in fact coercive; no board negotiatingon the behalf of the minority; so theyre in a bad

position

Defendants argument:o It should be treated like any other insider tender offer under

the Solomon lenient standard

Looks at coercion, not in the way that Lynch does(inherent) but looks at it like the other tender

offer/defensive measure cases

o Coercion: Inherent: when there is concern that minority

stockholders would fear retribution from the 800 lb

gorilla if they dont go through the merger Mere existence of control shareholder constitutes

inherent coercion (whether or not there is a

threat, they just know it could happen)

Structural: when the control shareholder forces theminority to accept the deal and doesnt offer any real

choice of opting out

Situation like the one in the original Unocal (twotier front end loaded tender offer; if you reject the

initial offer you wind up with something worse on

the back end; so you are coerced into tendering)

Problem Strine focuses on in his analysis ofthe Solomon decision

o Why isnt there structural coercion here:


2/7

It is conditioned on all uninterested parties having achoice; so if there is a majority of that group, you have

to have this

THOMAS REASON: the font end of the offer is the sameas the back end of the offer; and Unocal hasguaranteed contractually that they will execute the back

end immediately after the front end

o Why isnt there inherent coercion: It is conditioned on the majority of the minority

provision; the provision is inadequate; that is the only

change that Strine makes

A choice to tender is the same as the choice tovote

It protects the minority shareholders because they willvote in their own best interest

Does this fully and completely address theconcern that they may be afraid of? No

It is the best of bad options; there is still anissue of getting the same positive action;

they only have appraisal rights, you cant

challenge the merger under a short form

merger because of Glassmano What is the key fact in this case/most all cases involving

public companies, that changes the way we analyze

everything

%age of institutional shareholders They should have research, and knowledge, and

shouldnt be able to be easily coerced

Subcategory of institutional investors with activistinvestors; they will actively oppose deals if they view

them as unfair in terms of what is being offered to the

shareholders

o Footnote 24 (pg 202 of supplement) Statement of intent is clear to expose it to potential

liability if it would obtain 90% and not constitute the

merger at the short term price


3/7

Disclosure:o Special committee is limited to just accepting/rejecting the

deal

o Allows the controlling shareholder to not hide anything fromthe minority

Key to the legitimacy of the vote; institutions matter,they are informed, and their votes are what makes a

difference, so we have to ensure that company

disclosures are accurate

Only problem: this then creates a big area for disputeover the companys disclosures

So what is the test (pg 201)o Control sh has to make full disclosure and engage in a

nonstructurally coercive offer

It must be subject to a nonwaivable majority of theminority

If it was waivable, after the tender offer wentthrough, they could just accept the new amt of

shares and complete the offer

Cant be dropped key to protection Prompt short form merger at the same price if it obtains

more than 90% of shares Controlling stockholder cannot make any retributive

threats

Role of special committees here:o We need them!!!

Federal disclosure obligation 14b9 (requires company tospeak about the offer; SOMEONE)

Probably not a good plan to have the conflictedboard speak

Someone has to do the basic leg work IB of committee has to do the fairness opinion They do a good job and arent as manipulated

here

Change that Strine requires the company to make in this trxn


4/7

o That the company change the language of the majority ofminority condition to get rid of any insiders; only

noninterested parties now; so that the CEO/COO (the largest

minority stockholders) unable to block the trxn

What is the payoff?o The control sh gets a completed tender offer short form

merger

You wont have these class actions and intense judicialreview which comes up during EF

o You get BJR Footnote 19 (pg 200)

o Lynch: how much risk there is in litigation for a company toactively choose this option

o If you have a special committee maybe applying the BJRinstead of just shifting burden in EF

o First signal that maybe we should change Kahn Gilson and Gordon (pg 203)

o Merge the Kahn and Pure doctrine into oneo Squeeze outs

Higher premiums under the strict standards is better PURE IS ACTUALLY THE WAY WE ANALYZE TENDER OFFERS NOW

o KNOW THIS TEST; KNOW IT WELLHF:

Over 100 HF that engage in shareholder activismo They have over 100 billion in equity capital to invest (5%,

multiple 100 billion by 20 2 trillion MV companies)

Activist HF: 3-5 stockso Large blocks that they holdo Not all are activists in each company, they may have buy and

hold investments in some companies

How do we find out what they holdo 13d

The only ongoing disclosure obligations at activist HFhave with respect to holdings

o This biases what we see publicly


5/7

5% threshold HFo Secondary disclosure scheme: Williams Act 13f

This is highly lagged Big battle over the exact requirements of 13d

o State the objective in holding the stock Pg 3 of the handout

Governance: exec pay too high, board structurenot independent enough

Pg 4: What is it that they do?o Communicate with mgmt.

Not harmless, usually a prelude to something moresignificant a plan for improvement and change

Unlike 14a8; they have a ton of money, and they wantto spend more to come up with a plan


6/7

3/19/2014 7:23:00 AM


7/7

3/19/2014 7:23:00 AM

in re pure brief

Documents