Posted by Peter Lattman, WSJ Law Blog:
How will the SEC handle the more than 100 backdating investigations on its plate? This morning we have a clue. Brocade Communications Systems has agreed to pay a $7 million penalty to settle allegations over improper stock-options grants, making it the first company to pay a fine in connection with the backdating scandal. Here’s the story from the WSJ.
The settlement with the SEC paves the way for similar cases to be resolved. Analog Devices and Mercury Interactive previously announced preliminary settlements that include penalties. According to the WSJ, Brocade struck its deal with the SEC more than a year ago, but as the backdating scandal mushroomed to more than 100 companies, things got held up. (Click here for the WSJ.com’s essential backdating scorecard.)
The backdating probes spurred a lengthy debate among the five SEC commissioners about whether or not backdating warranted a penalty. Among the questions raised: Were shareholders hurt by either the backdating of options or by the deception about how executives were compensated? Were they hurt by the revelation of potential wrongdoing?
In general, levying penalties against companies involved in a financial fraud is a hot-button issue at the SEC. Republican commissioners, in general, have opposed them as a double hit to shareholders, who already have been penalized once by being defrauded. Others, including some Democrats, have argued that penalties serve as deterrents. Whaddya think?
Thursday, May 31, 2007
Wednesday, May 23, 2007
The Buyout Boom
From today's DealBook blog:
The explosive growth of private equity deals is a well-documented trend by now, but some new numbers from Thomson Financial underscore just how enormous the volume of buyouts has become. Consider this: So far this year, the volume of global announced deals involving private equity firms is $447 billion, more than double the volume from the same period in 2006 — a year that was no slouch was far as buyouts were concerned. In the United States, the rise has been even sharper. At $281 billion, U.S. private equity deals have more than tripled from a year ago, boosted by the recent buyouts of Alltel, First Data and others.
Other highlights from Thomson Financial’s latest mergers and acquisitions statistics:
* Private equity deals worldwide have made up more than a fifth of all M&A so far this year, a gain of about 4 percentage points over last year. In the United States, leveraged buyouts account for 35 percent of all activity, up from about 16 percent last year.
* Total merger-and-acquisition volume so far this year is $2.18 trillion, 77 percent above last year at this time. In the U.S., volume is at $802 billion, up 54 percent. In Europe, volume is up 129 percent, at $983.6 billion.
* Strategic deals are up 69 percent, at $1.7 billion worldwide.
* Just two sectors, retail and telecommunications, are lagging behind last year in M&A activity. The recent deal for Texas Pacific Group and a unit of Goldman Sachs to buy wireless provider Alltel may signal a change for that second sector. It was the biggest-ever leveraged buyout of a telecommunications provider and the fifth-biggest L.B.O. of all time.
The explosive growth of private equity deals is a well-documented trend by now, but some new numbers from Thomson Financial underscore just how enormous the volume of buyouts has become. Consider this: So far this year, the volume of global announced deals involving private equity firms is $447 billion, more than double the volume from the same period in 2006 — a year that was no slouch was far as buyouts were concerned. In the United States, the rise has been even sharper. At $281 billion, U.S. private equity deals have more than tripled from a year ago, boosted by the recent buyouts of Alltel, First Data and others.
Other highlights from Thomson Financial’s latest mergers and acquisitions statistics:
* Private equity deals worldwide have made up more than a fifth of all M&A so far this year, a gain of about 4 percentage points over last year. In the United States, leveraged buyouts account for 35 percent of all activity, up from about 16 percent last year.
* Total merger-and-acquisition volume so far this year is $2.18 trillion, 77 percent above last year at this time. In the U.S., volume is at $802 billion, up 54 percent. In Europe, volume is up 129 percent, at $983.6 billion.
* Strategic deals are up 69 percent, at $1.7 billion worldwide.
* Just two sectors, retail and telecommunications, are lagging behind last year in M&A activity. The recent deal for Texas Pacific Group and a unit of Goldman Sachs to buy wireless provider Alltel may signal a change for that second sector. It was the biggest-ever leveraged buyout of a telecommunications provider and the fifth-biggest L.B.O. of all time.
Tuesday, May 22, 2007
Boards More Likely to Oust Underperforming Chief Executives, a Study Finds
A new study examining turnover among top executives has found that corporate boards were nearly three times as likely to pull the trigger on failing chief executives than they were a decade ago.
Nearly one of three chief executives who departed last year were either fired or forced out for performance-related reasons, according to the analysis by the global management consulting firm Booz Allen Hamilton. That compared with roughly one in seven departing executives ousted in 1996.
While the study concluded that the wave of executive turnovers appears to have leveled off from its high point last year, shareholders and boards were still keeping the boss on a short leash.
Go to Article from The New York Times>>
Nearly one of three chief executives who departed last year were either fired or forced out for performance-related reasons, according to the analysis by the global management consulting firm Booz Allen Hamilton. That compared with roughly one in seven departing executives ousted in 1996.
While the study concluded that the wave of executive turnovers appears to have leveled off from its high point last year, shareholders and boards were still keeping the boss on a short leash.
Go to Article from The New York Times>>
Tuesday, May 15, 2007
Tyco to Pay $2.98 Billion to Settle Accounting Suits
By Jef Feeley and Rachel Layne
May 15 (Bloomberg) -- Tyco International Ltd. agreed to pay $2.98 billion to settle investor lawsuits accusing the company of artificially inflating revenue, a move that helps clear the way for the firm to split into three companies.
Tyco, the world's biggest maker of electronic connectors and security systems, agreed today to resolve securities-fraud suits alleging the company overstated its income by $5.8 billion during the tenure of former Chief Executive Officer L. Dennis Kozlowski, according to a filing with the U.S. Securities and Exchange Commission.
The accord, the fourth-largest securities-fraud settlement in U.S. history according to Bloomberg data, comes as Pembroke, Bermuda-based Tyco prepares to dismantle the company built through acquisition by the now-jailed Kozlowski. Shareholder attorney Jay Eisenhofer said the agreement, which still requires court approval, is the largest settlement by a single defendant accused of defrauding investors.
The shareholders are handing over to Tyco their claims against Kozlowski and Swartz in exchange for 50 percent of whatever the company manages to recover from the former executives.
In addition to the cash settlement, Tyco agreed to give investors its right to sue the company's former auditor, PricewaterhouseCoopers, for failing to uncover the fraud, according to a statement issued by Eisenhofer and Richard Schiffrin, who also served as one of the shareholders' lead lawyers.
May 15 (Bloomberg) -- Tyco International Ltd. agreed to pay $2.98 billion to settle investor lawsuits accusing the company of artificially inflating revenue, a move that helps clear the way for the firm to split into three companies.
Tyco, the world's biggest maker of electronic connectors and security systems, agreed today to resolve securities-fraud suits alleging the company overstated its income by $5.8 billion during the tenure of former Chief Executive Officer L. Dennis Kozlowski, according to a filing with the U.S. Securities and Exchange Commission.
The accord, the fourth-largest securities-fraud settlement in U.S. history according to Bloomberg data, comes as Pembroke, Bermuda-based Tyco prepares to dismantle the company built through acquisition by the now-jailed Kozlowski. Shareholder attorney Jay Eisenhofer said the agreement, which still requires court approval, is the largest settlement by a single defendant accused of defrauding investors.
The shareholders are handing over to Tyco their claims against Kozlowski and Swartz in exchange for 50 percent of whatever the company manages to recover from the former executives.
In addition to the cash settlement, Tyco agreed to give investors its right to sue the company's former auditor, PricewaterhouseCoopers, for failing to uncover the fraud, according to a statement issued by Eisenhofer and Richard Schiffrin, who also served as one of the shareholders' lead lawyers.
Friday, May 11, 2007
First Majority for "Say on Pay"
Submitted by: L. Reed Walton, Staff Writer
In the first clear majority vote for the issue, a proposal seeking an annual advisory shareholder vote on executive pay received 57 percent support at Blockbuster, according to the proponent, the New York City Employees' Retirement System (NYCERS).
"We are encouraged by the high level of shareholder support and hope that Blockbuster's board of directors will act swiftly to implement the expressed will of its shareholders," New York City Comptroller William C. Thompson wrote in a press release.
The video-rental company declined to confirm the exact level of support, but company officials did indicate that the NYCERS resolution--along with another shareholder proposal asking the company to eliminate its dual-class share system--was approved at Blockbuster's May 9 annual meeting.
"[The proposals] are non-binding, so our board will take them under advisement," Angelika Torres, director of Blockbuster's investor relations division, told Governance Weekly.
The Blockbuster vote is the highest known support received by any advisory pay vote proposal. The "say on pay" initiative is relatively new, having debuted with seven proposals last year that averaged about 40 percent support. The showing at Blockbuster is noteworthy because the company has not been criticized by prominent investors over its pay practices or faced an investigation into past stock option grants.
In its supporting statement, NYCERS said it wanted an advisory vote to "provide Blockbuster with useful information about whether shareholders view the company’s senior executive compensation, as reported each year, to be in shareholders' best interests."
Management at the Dallas-based company opposed the measure, saying it already provides means by which investors can communicate with the board.
A similar resolution at Verizon Communications may have won more than 50 percent of votes cast at the company's May 3 meeting. Preliminary counts indicate the vote was too close to call at the end of the meeting, and the company said it plans to tabulate the votes and release final results in about two weeks.
At 14 companies this season, pay vote resolutions have averaged 42 percent support, two percentage points higher than in 2006. A proposal by the Needmor Fund, a religious group, won 48.4 percent at Occidental Petroleum on May 4, while a similar measure filed by the AFL-CIO got 49.2 percent support at Merck's meeting on April 24.
All other "say on pay" measures this season have received 47 percent support or lower, with the lowest support level, 30.4 percent, at Coca-Cola on April 18.
More advisory vote proposals are on corporate ballots next week, including JPMorgan Chase on May 15, Northrop Grumman and AMR on May 16, Yum! Brands on May 17, and Time Warner on May 18.
In the first clear majority vote for the issue, a proposal seeking an annual advisory shareholder vote on executive pay received 57 percent support at Blockbuster, according to the proponent, the New York City Employees' Retirement System (NYCERS).
"We are encouraged by the high level of shareholder support and hope that Blockbuster's board of directors will act swiftly to implement the expressed will of its shareholders," New York City Comptroller William C. Thompson wrote in a press release.
The video-rental company declined to confirm the exact level of support, but company officials did indicate that the NYCERS resolution--along with another shareholder proposal asking the company to eliminate its dual-class share system--was approved at Blockbuster's May 9 annual meeting.
"[The proposals] are non-binding, so our board will take them under advisement," Angelika Torres, director of Blockbuster's investor relations division, told Governance Weekly.
The Blockbuster vote is the highest known support received by any advisory pay vote proposal. The "say on pay" initiative is relatively new, having debuted with seven proposals last year that averaged about 40 percent support. The showing at Blockbuster is noteworthy because the company has not been criticized by prominent investors over its pay practices or faced an investigation into past stock option grants.
In its supporting statement, NYCERS said it wanted an advisory vote to "provide Blockbuster with useful information about whether shareholders view the company’s senior executive compensation, as reported each year, to be in shareholders' best interests."
Management at the Dallas-based company opposed the measure, saying it already provides means by which investors can communicate with the board.
A similar resolution at Verizon Communications may have won more than 50 percent of votes cast at the company's May 3 meeting. Preliminary counts indicate the vote was too close to call at the end of the meeting, and the company said it plans to tabulate the votes and release final results in about two weeks.
At 14 companies this season, pay vote resolutions have averaged 42 percent support, two percentage points higher than in 2006. A proposal by the Needmor Fund, a religious group, won 48.4 percent at Occidental Petroleum on May 4, while a similar measure filed by the AFL-CIO got 49.2 percent support at Merck's meeting on April 24.
All other "say on pay" measures this season have received 47 percent support or lower, with the lowest support level, 30.4 percent, at Coca-Cola on April 18.
More advisory vote proposals are on corporate ballots next week, including JPMorgan Chase on May 15, Northrop Grumman and AMR on May 16, Yum! Brands on May 17, and Time Warner on May 18.
Thursday, May 03, 2007
Hedge funds may pose huge market risk: Fed
Could be largest risk since Long-Term Capital Management crisis in 1998 says New York Federal Reserve
May 2 2007: 1:18 PM EDT
NEW YORK (Reuters) -- Hedge funds may now pose the biggest risk of a crisis since 1998, when the implosion of Long-Term Capital Management threatened the global financial system, the New York Federal Reserve said on Wednesday.
The statement represented the bank's sternest warning to date over the possible fate of the $1.4 trillion industry.
"Recent high correlations among hedge fund returns could suggest concentrations of risk comparable to those preceding the hedge fund crisis of 1998," according to a paper written by Tobias Adrian, capital markets economist at the central bank.
Hedge funds, investment pools that are aimed primarily at wealthy investors and institutions, have been very lightly regulated, facing only vague registration requirements.
Their sheer immensity has raised some red flags from policy-makers, with New York Fed President Timothy Geithner among those sounding repeated warnings about the need for cautious lending.
The Fed's latest worry arose from what it described as a rising correlation between the actual returns of hedge funds, which could point to similar trading strategies that excessively concentrate risk on too few market positions.
Still, many officials including Geithner have shied away from calling for explicit regulation, arguing instead that the large banks who lend to hedge funds should police themselves to make sure no one lender gets in too deep.
Hedge funds borrow large sums of money in order to take aggressive bets on financial markets. Many operate heavily in the derivatives market, estimated at around $17 trillion, raising fears about possible future shocks
May 2 2007: 1:18 PM EDT
NEW YORK (Reuters) -- Hedge funds may now pose the biggest risk of a crisis since 1998, when the implosion of Long-Term Capital Management threatened the global financial system, the New York Federal Reserve said on Wednesday.
The statement represented the bank's sternest warning to date over the possible fate of the $1.4 trillion industry.
"Recent high correlations among hedge fund returns could suggest concentrations of risk comparable to those preceding the hedge fund crisis of 1998," according to a paper written by Tobias Adrian, capital markets economist at the central bank.
Hedge funds, investment pools that are aimed primarily at wealthy investors and institutions, have been very lightly regulated, facing only vague registration requirements.
Their sheer immensity has raised some red flags from policy-makers, with New York Fed President Timothy Geithner among those sounding repeated warnings about the need for cautious lending.
The Fed's latest worry arose from what it described as a rising correlation between the actual returns of hedge funds, which could point to similar trading strategies that excessively concentrate risk on too few market positions.
Still, many officials including Geithner have shied away from calling for explicit regulation, arguing instead that the large banks who lend to hedge funds should police themselves to make sure no one lender gets in too deep.
Hedge funds borrow large sums of money in order to take aggressive bets on financial markets. Many operate heavily in the derivatives market, estimated at around $17 trillion, raising fears about possible future shocks
Tuesday, May 01, 2007
Reverberations from Supreme Court patent ruling
From Corporate Dealmaker Forum, May, 1, 2007:
The value of patents has dropped again following a decision by the U.S. Supreme Court in KSR International Co. v Teleflex, Inc. The nation’s highest court evaluated the tenet of “obviousness,” and on Monday reversed a legal test that had been relied upon for 24 years to decide if a patent claim was obvious when considering prior art.
The effect is to broaden the standard for obviousness and make it easier to argue that a patent in invalid. This is the fifth patent case in two years where the Supreme Court has changed patent law with its rulings. While the U.S. Congress tries its hand at patent reform yet again, the court is adjusting the aging patent system through its caseload.
Rachel Krevans, an intellectual property litigation partner in the San Francisco office of Morrison & Foerster LLP, says the ruling should have a greater effect on the electronics industry and little affect on the biotechnology industry.
As the Supreme Court focuses on patents, investors and corporate dealmakers should take note. As more and more of a company’s value derives from intangibles, such as patents, such legislating from the bench could have a profound impact on a portfolio of intellectual property.— Stacey Higginbotham
Read a related article from Bloomberg.com
The value of patents has dropped again following a decision by the U.S. Supreme Court in KSR International Co. v Teleflex, Inc. The nation’s highest court evaluated the tenet of “obviousness,” and on Monday reversed a legal test that had been relied upon for 24 years to decide if a patent claim was obvious when considering prior art.
The effect is to broaden the standard for obviousness and make it easier to argue that a patent in invalid. This is the fifth patent case in two years where the Supreme Court has changed patent law with its rulings. While the U.S. Congress tries its hand at patent reform yet again, the court is adjusting the aging patent system through its caseload.
Rachel Krevans, an intellectual property litigation partner in the San Francisco office of Morrison & Foerster LLP, says the ruling should have a greater effect on the electronics industry and little affect on the biotechnology industry.
As the Supreme Court focuses on patents, investors and corporate dealmakers should take note. As more and more of a company’s value derives from intangibles, such as patents, such legislating from the bench could have a profound impact on a portfolio of intellectual property.— Stacey Higginbotham
Read a related article from Bloomberg.com
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