Carl Icahn and ImClone pull off $6 billion merger agreement with Eli Lilly

Eli Lilly & Co. has agreed to buy ImClone Systems Inc. in an agreement and plan of merger (link is to sample merger agreements, as the Eli Lilly – ImClone merger agreement hasn’t been made public yet) for more than $6 billion.  The merger would broaden Eli Lilly’s pipeline of cancer treatments and represents a blow to Bristol-Myers Squibb, which had marketed ImClone’s cancer drug Erbitux under a Development, Promotion and Marketing Agreement.

 

The deal prices ImClone at $70 per share in cash, more than 50% higher than its price in July before Bristol-Myers made its first bid.  Both boards have approved and recommended that ImClone stockholders tender their shares.  ImClone’s chairman, Carl Icahn, who owns about 14% of ImClone stock, has agreed to vote in favor of the Lilly deal.  Icahn had taken over the position back in 2006, at which time the stock was trading in the mid-$30/share range.

 

The agreement and plan of merger has not yet been made publicly available, but if you need to find other merger agreements or marketing agreements drafted by top law firms, you can find them at www.RealDealDocs.com.

Citigroup – Wachovia Exclusivity Agreement Dispute

There were some major developments over the weekend in the attempted Citigroup acquisition of Wachovia’s banking operations.  Wells Fargo stepped in on Thursday with what many consider to be a superior proposal (search through merger agreements clauses for superior proposals here) for all of Wachovia’s assets, only to have Citigroup claim that it has an exclusivity agreement with Wachovia (see the alleged citigroup-wachovia-exclusivity-agreement here).  This copy of the exclusivity agreement was faxed out of the New York office of Davis Polk according to the fax number at the top of the document – I’ll leave that for someone else to chase down.

Citigroup was able to obtain a preliminary injunction halting the Wells Fargo acquistion from a New York state court judge late Saturday night, although this ruling was temporarily blocked by a federal district court on Sunday, with a hearing scheduled for Tuesday.

Exclusivity agreements (also known as no shop agreements) are commonly entered into in conjunction with merger agreements, and as the name suggests they are generally used to provide a buyer with protections that the potential seller won’t be able to continue to shop around for a better deal.  The strength of the protections is a matter for negotiation, but it’s generally agreed that there are certain “fiduciary outs” for the seller in the event that the company to be acquired receives a superior proposal. 

The Citigroup-Wachovia exclusivity agreement, assuming it is valid, bars Wachovia from seeking out another buyer, providing information to another buyer, or entering into talks that might enable another buyer to make a bid.  Wells Fargo has claimed that it did not receive any new information from Wachovia and that it had simply continued its analysis from previously received information, so there was no violation by Wachovia of the exclusivity agreement.  Wells Fargo had reportedly passed on the Wachovia deal in late September based on concerns about Wachovia’s troubled loan portfolio.

A potentially major reason for Wells Fargo’s change of heart – the IRS changed a regulation which may make it increasingly likely that stronger banks will continue to snap up troubled smaller institutions.  Under the change, banks may take tax deductions on loan losses recorded as a result of a takeover.  Assuming this applies to the estimated $74 billion in loan costs that Wells anticipates, this could have a favorable tax impact running into the tens of billions of dollars for Well.s

Citigroup and Wachovia deal falling apart as Wells Fargo steps in

I had to re-read this alert twice, it was so surprising. 

 

 

Citigroup is pushing hard, with the support of regulators, to finalize its $2.2 billion asset purchase agreement (samples linked, actual agreement not available yet) for the banking operations of Wachovia, but it seems that Wachovia’s board has now thrown its support to what it considers a superior proposal from Wells Fargo.

 

Under the new deal, Wells Fargo would acquire all of Wachovia’s assets including its vast deposit network, its huge brokerage business and its investment management division for a reported $15 billion.  Wells Fargo had walked from the discussions late Sunday night after it uncovered issues around part of Wachovia’s loan portfolio, but it is back with the support of Wachovia’s board.

 

Citigroup is working to enforce what it claims is are exclusivity or no shop agreements with Wachovia (also links to samples), while Wachovia is publicly embracing the Wells deal.  The Fed, meanwhile, is in a tough position, as it continues to back the Citigroup deal, in spite of the fact that the Citigroup requires loan guaranties from the Fed, while the Wells Fargo deal does not.  In any event, both Citigroup and Wells Fargo are raising capital to cover their own portfolio losses while fighting over the Wachovia assets.

 

A Wells Fargo – Wachovia combination would once again dramatically alter the landscape, returning Citigroup to a second tier retail banking player and giving Wells Fargo enormous access to retail and brokerage branches on the East coast in particular.  Interestingly, Wells Fargo had indicated as late as early September that it preferred to do a small deal, if any, but the buying opportunities have simply been too good.  I recall that Wells Fargo’s Chairman and former CEO Dick Kovacevich said he felt “like a kid in a candy store” 2 weeks ago.  More undoubtedly to come.

No Merger or IPO exits for venture backed companies

The downturn in the financial markets has another victim – exits are way down for venture backed companies.

Dow Jones VentureSource reported Tuesday that mergers and acquisitions activity and initial public offerings for venture-backed companies are on pace to close out the year at their lowest level in the past ten years.  Only one company went public in the third quarter, compared to 11 in the third quarter last year, and there were only 247 acquisitions of venture backed companies in the first nine months of 2008, down 25% from the 327 acquired in the first three quarters of 2007.  In just the third quarter, there were only 66 mergers or acquisitions, down 45% from the 116 deals in the quarter from one year ago.  These deals are typically structured as asset purchase agreements or stock purchase agreements.

I’ve written about potential upticks in strategic merger activity separately as the lack of cheap debt was forcing private equity to the sidelines, but it appears that this is not the case.  We’ll have to wait and see what happens.

One thing is sure, though.  As exits continue to be tougher to achieve, and as they take an average of nearly nine years to achieve instead of the 5-6 we saw in the late 1990s, it’s likely that deals will be tougher to get and deal terms are likely to change as venture capital investors look for alternative mechanisms to liquidity.  And if you need money right now, watch out.  In our board meeting with our venture investors last week, it was clear that a large number of entrepreneurial firms were going to fail in the next several months due to a lack of funding more than any other cause.  That’s tough to hear, because frequently the VC-funded model is to spend to buy growth as aggressively as possible, with the explicit objective to do another funding round after certain milestones are achieved.  Funding risk has always been there, but with the chair pulled out from a lot of companies that followed this model, lots of jobs are going to be lost.

Joint Venture Agreements – an update on ours

A few months ago I wrote about our experience to date with joint venture agreements.  In addition to providing a brief background on joint venture agreements, and in particular the differences between joint venture agreements and, say,  strategic alliance agreements, and then I discussed the joint venture agreement that we had entered into with a technology partner.

The basis for the joint venture was that they had spent years building and refining a technology to find and download court filings from federal district courts from across the country, so that lawyers, professionals, and the general public could search across all the federal district courts to research every federal civil case to find out if specific companies or individuals had been involved in litigation.  This is very complementary to another product of ours for civil litigators, called www.SmartRules.com.

We have a lot more depth when it comes to understanding the attorney market, based on our other products, including www.RealPractice.com and www.RealDealDocs.com, which provides searchable access to millions of agreements and contracts, as well as agreement clause search.

In any event, enough background.  How are we doing today?

Well, we anticipated a soft product launch by the beginning of October, and it looks like we’re about 45 days behind schedule.  Lessons learned so far:

1. The success of the joint venture needs to be somebody’s job for things to get done on time.  Seems obvious, actually, but each of the joint venture partners needs to be fully engaged for success.  We’ve each consciously made prioritization decisions, and our respective day jobs have pushed the product launch back a bit.
2. Make sure the roles are clearly defined.  We’ve done a good job here for the work that has been done.
3. Reiterate and highlight the goals to be achieved.  This helps with the prioritization of the project, and in part goes back to #1 above.

We’re still encouraged by the opportunity, and we’re looking forward to introducing you to www.CourtCasesOnline.com shortly!

Citibank takes out Wachovia in an asset purchase agreement

In what has truly become a Darwinian process of survival of the fittest, or at least the barely standing,  Citibank won a bidding war with Wells Fargo and is acquiring Wachovia Bank in an all stock asset purchase agreement (links to sample asset purchase agreements here, as the actual transaction hasn’t been publicly filed yet). 

For only $2.2 billion in stock, Citigroup is acquiring Wachovia’s enormous deposit network, $300 billion worth of Wachovia’s loan portfolio and about $53 billion in Wachovia debt.  As part of a separate arrangement with the Federal Deposit Insurance Corporation, the FDIC will be responsible for anything in excess of $42 billion in losses on that loan portfolio.

Portions of Wachovia will remain independent and publicly traded, such as its brokerage business, which acquired A.G. Edwards last year for $6.7 billion, and its Evergreen investment management division, which has nearly $250 billion in assets under management.

Citigroup and some of the other large surviving banks, such as Bank of America and JPMorgan Chase, are clearly making very aggressive moves to buy market share for bargain basement promises.  Along the way, they are needing to recapitalize as well to cover losses in their own portfolios as well as their newly acquired businesses.  To help finance the asset purchases, Citigroup is raising $10 billion through a sale of common stock, slashed its dividend, and it has been working to divest itself of some $400 billion in assets in a move to reorganize and focus on what it sees to be its core growth opportunities.  Lots of operating and financial risk there, if you ask me.

Draft of $700 Billion Bailout Plan released

The latest draft of the $700 Billion bank bailout was released this afternoon.  Here’s the draft-of-bailout-plan-september-28-2008, which has yet to be passed into law.

The informal but somewhat urgent deadline for passage was 6 pm Eastern time, so that it was released prior to the opening of the Asian markets.  As of 7 pm Eastern (the time of this writing), it does not appear that the plan has been finalized.

Key elements of the plan include:

• As reported earlier this week, the $700 billion would be disbursed in stages, with $250 billion made available immediately for the Treasury’s use.
• Curbs will be placed on executive compensation plans for executives at companies that sell mortgage assets to Treasury. These include a $500,000 limitations on the tax deductibility of executive salaries for companies that participate in the plan. 
• An oversight board will be created, which will include the Federal Reserve chairman, the Securities and Exchange Commission chairman, the Federal Home Finance Agency director and the Housing and Urban Development secretary.
• The Treasury is allowed in certain situations to exercise an option to take ownership stakes in participating companies.
• Treasury may establish an insurance program to guarantee certain assets for companies purchased prior to March 14, 2008.  These assets include certain mortgage-backed securities.
• Another provision requires the president to propose legislation to recoup losses from the financial industry if the rescue plan results in net losses to taxpayers five years after the plan is enacted.

 

More details will be posted as they become available.

 

 

 

Manufacturing Agreements show continued life

In spite of the credit crunch and the economic slowdown, the good news is that we continue to see lots of activity in terms of new filings of legal agreements which denote continued economic activity.  It’s of course an imperfect measure, but it’s yet another important reminder that not everything has frozen up in the past several months.  We haven’t gone back and compared it to historic levels as we have with, say, merger agreements or pooling and services agreements, which are far less prevalent than they were during the credit and private equity boom of 2-3 years ago.  However, in reviewing a few different categories of recently filed agreements and contracts, we see continued signs of life.

For example, in the case of manufacturing agreements or supply agreements, we’ve seen dozens of new agreements made publicly available in the past couple of months.  Many of these agreements have been drafted by top law firms, and I’ve posted links to samples and previews in case you need to review and leverage agreements for your own research and drafting requirements.

WaMu CEO makes $14 million in 3 Long Weeks

Washington Mutual Chief Executive Alan Fishman was hired on September 7 to replace former WaMu CEO Kerry Killinger and help turn the troubled savings and loan around.  Little could be done in three weeks, and some would argue that given their troubled loan portfolio it would have taken years to work out, if at all.  In any event, federal regulators stepped in to seize the bank last night, and they immediately turned Washington Mutual over to JPMorgan Chase in an asset purchase deal.  This followed a quiet run on WaMu deposits in the past couple of weeks in which depositors took out some $16 billion.

So while I don’t blame Fishman for his package, which is pretty typical of the big bank CEO employment agreements we see all the time, he gets to take out a little bit more than your average depositor, and I do think he’s making out like a prince.  Here’s how it breaks down according to the SEC filing discussing his compensation (his personal employment or severance agreement are not available, but I have linked to some sample employment contracts as well as a sample termination or severance agreement):

• A signing bonus of $7.5 million
• On his termination, 2.5 times his base salary, for a total of $2.5 million
• On his termination, his full first year bonus, equal to $3.65 million
• Relocation bonuses and other payments under their executive benefits plans

 

Total compensation under these packages is approximately $14 million, which excludes the value, if any, he might receive under his option grants in the Washington Mutual Equity Incentive Plan, as well as the cost of any income tax liability he might incur if his payments are subject to excise taxes (see my post on IRS Section 409a for additional information).  Not a bad month.

Here are some links to review and search across thousands of executive employment agreements or termination and severance agreements written by top law firms.  I’ve also provided a link to an agreements and contracts site which allows you to do free searching for specific agreement clauses and provisions, and for anyone who wants to see my previous post on severance agreements during the big Wall Street shakedown, help yourself.

California Ban on Texting while Driving to become Law

Effective January 1, 2009, it will be illegal to use a wireless phone device to write, send or read text messages while operating a motor vehicle.  Violators caught text messaging while driving will be fined $20 for a first offense and $50 for any violations after that, although court imposed fees would increase the cost of a first offense to nearly $100.

This is an important back-fill law to the previously imposed ban effective July 1, 2008 to prohibit the hand-held use of cell phones while driving.  In discussing the pending law, its author, Sen. Joe Simitian, indicated that while it would have been logical to include the ban on texting in the earlier ban on the use of hand-held phone devices while driving, the concern was that this would have provided another excuse to put off passage of the original cell phone ban.

My view?  While my heart would like to agree with Republicans that existing laws against negligent driving should cover this obviously dangerous activity, you could apply the same logic to not running stop signs, and I see drivers every day (still!) yammering on the phone with both hands or sending text messages while driving.  Perhaps the publicity around the new law will remind people that it’s far too easy to get lost in a text conversation, or catching up on my blog posts, as the car in front of you suddenly comes to a stop…!!