Monday, July 31, 2006

Copper Run Continues

I posted a couple of weeks ago about the deals swirling around the mining industry. As expected, Falconbridge was snatched away from Inco last week by Xstrata, undoing a planned three-way tie-up between Inco, Falconbridge and Phelps Dodge.

Phelps plans to proceed with its friendly acquisition of Inco, but Teck Cominco is trying to crash the party, raising its hostile bid for Inco. Two interesting aspects of this that seem to point to overheating in mining assets: 1) Phelps stock popped up on news that Falconbridge was lost, and shares are up another 8% today on (among other things) hopes that Teck's sweetened offer will keep Phelps from buying Inco; and 2) Teck has improved its offer by upping the cash component. Yes, the latter provides greater certainty that the seller will receive value, but it also suggests that there has been a lot of discussion in these negotiations about how much room there really is for Teck shares to grow after making this acquisition.

Saturday, July 29, 2006

Judges and Consent Decrees

I would add that judicial deference to DOJ in reviewing consent decrees is warranted. Justice does an incredibly thorough, months-long review - the companies involved must turn over thousands of documents, answer pointed interrogatories and generally let DOJ and its investigators and economists dig deep into their businesses. The fact that the remedies in consent decrees sometimes seem mild says less about DOJ's focus on enhancing competition than it does about its assessment of the chances of prevailing in a lawsuit to block the merger. Most mergers - even consolidating ones - are unappealing to a few parties but unlikely to be shot down under current antitrust laws. So, like any litigators seeking to salvage something from a bad case, DOJ will try to get some kind of concession from the merger participants.

Thursday, July 27, 2006

Consent Decree Review

I'm watching with some fascination as the SBC-AT&T and VZ-MCI mergers are going through a rarely-seen kind of judicial review at the very tail end of the merger process. Up to this point, things have proceeded in what I'd call the ordinary course for big consolidating mergers: Post-signing, a Hart-Scott-Rodino review process involving lengthy discussions with DOJ, the production of millions (or tens of millions) of pages of documents, and ultimately the negotiation of a consent decree with DOJ that ends the Department's review. The consent decree obligates the merged company to undertake (or refrain from) certain actions - divesting properties, staying out of certain markets, or, in the case of these deals, keeping open to competition a limited number of fiber optic connections.

The consent decree is a settlement agreement in litigation - upon reaching agreement on the consent decree, the DOJ files a lawsuit in federal court ostensibly seeking to block the merger, and at the same time (or shortly thereafter) files the consent decree "settling" the lawsuit. As this is typically the longest lead time item in a consolidating merger, the parties usually close the deal as soon as the consent decree is filed. Later on - and, importantly, well past closing - a judge reviews the consent decree. It's fair to say that judges have typically shown a great deal of deference to DOJ's findings in approving consent decrees.

Judge Sullivan, reviewing the consent decrees here, is questioning the rationale behind the remedies agreed to by the DOJ. It's possible that he is just carefully fulfilling what he sees as a mandatory duty to review the appropriateness of consent decrees, and that the pleadings filed by the parties were too short on substance for him to do so. But the vocal opposition to these deals - and Sullivan's since-retracted call for evidentiary hearings - keep open the possibility that this may get ugly.

This new judicial toughness under the 2004 Tunney Act amendments also raises a whole new set of considerations in negotiating a consolidating deal. As a buyer, do you insist on being able to hold on closing until any consent decree is approved by a judge? As a seller, what do you need to get out of the deal in order to agree to that? Can either party afford to wait the year-plus period it takes to complete the entire process? SBC and VZ can obviously absorb a certain level of changes to the deals they cut with DOJ, but what happens when a judge imposes changes so onerous they crater the original rationale for the deal? After all, it's not like these companies can go back and recreate the status quo pre-closing without destroying a tremendous amount of value.

Friday, July 21, 2006

Sale of AT&T Wireless

I'm making a foray from blogging into print. I'd originally planned to serialize my tale of the AT&T Wireless auction here, but it will now be published in the next issue of Corporate Dealmaker magazine. Look for that next week. As a first-person account, it's a little different than typical professional magazine fare, and offers a (hopefully) entertaining view of the ups and downs of the daily work involved in completing a massive deal.

Thursday, July 20, 2006


It's been a record-setting year for both M&A transactions and commodity prices, including copper. As often mentioned, at current prices the value of the copper used in a penny exceeds one cent. Naturally, these forces are meeting among the mining companies, where transactions are stacking up and the bidding is fierce.

The best melee going on right now revolves around Canada's Falconbridge: Nickel miner Inco made a friendly overture to acquire Falconbridge, but this has now been trumped by a quasi-hostile bid from Britain's Xstrata. Adding to the amusement is that the Inco proposal is a three-way deal under which both Inco and Falconbridge would be swallowed up into copper giant Phelps Dodge.

With the Falconbridge deal slipping away to Xstrata, other suitors are now swirling around Inco, threatening the Phelps Dodge takeover. Inco has already received a hostile bid from zinc miner Teck Cominco - and more are sure to come. A lot of people are betting that this is the run that will put the lie to the conventional wisdom that mining is a boom-and-bust industry. Time will tell . . .

Saturday, July 15, 2006

Agreements, more

So what kind of agreements can be short and sweet? One big and puzzling category, where time and again I've seen an inordinate amount of attention devoted, is that of agreements that can be terminated by either party at any time on 30 days notice. It's a safe bet these agreements could be shorter; after all, you can't build much else in a business around an ongoing agreement that either party can terminate quickly, so damages for breach are likely to be limited.

Every state has a body of commercial law governing contracts that will apply even with the most minimal of terms. Warranties, implied covenants, etc - for the most part all commonsense principles that we all assume when we enter into deals. At its most basic, a written contract really only need contain those specific and idiosyncratic terms that are important to the parties. That will always include price, term and when certain key events need to take place; it will usually also include a few other matters unique to the circumstances. After that, everything else is just risk shifting.

Thursday, July 13, 2006

More on Agreements

Blogging has taken a bit of a back seat of late, but a long wait in an airport is always a good cure for that, so here goes. I received several messages back responding to my "lopsided" agreement post with the general theme that it's better to keep agreements as brief as possible.

I'm a big believer in that when it comes to term sheets, and I like it in theory when it comes to definitives, but it's not always easy to achieve. Like haiku, it often takes more time to write a short agreement than a rambling one. In the (large) corporate world, the sheer number of people weighing in will often create a longer agreement, and there's no avoiding long agreements in complex transactions.

However - many commercial transactions can be handled with very brief agreements. In fact, you could write the terms on a cocktail napkin, sign and move forward. I've seen cases where the process of turning an otherwise straightforward transaction into a belt-and-suspenders legal agreement has done more than simply cost time and expense: Deals lost, relationships ruined, and lawsuits created over ambiguities in the "legal" agreement that would never have existed had the parties signed a one-page agreement. Sometimes it's best to just sign a brief letter and move on with your real business.