Barbara A. Bliss et al., Negative Activism, 97 Washington University Law Review (forthcoming)

  • Barbara A. Bliss et al., Negative Activism, 97 Washington University Law Review (forthcoming)

Shareholder activism has become one of the most important and widely studied topics in law and finance. To date, popular and academic accounts have focused on what we call “positive activism,” where activists seek to profit from positive changes in the share prices of targeted firms. In this Article, we undertake the first comprehensive study of positive activism’s mirror image, which we term “negative activism.” Whereas positive activists focus on increasing share prices, negative activists take short positions to profit from decreasing share prices.

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Robert P. Bartlett et al., The Myth of Morrison: Securities Fraud Litigation Against Foreign Issuers, SSRN (2018)

We find that the description of Morrison as a “steamroller” substantially ending litigation against foreign issuers is a myth. Instead, we find that Morrison did not substantially change the type of litigation brought against foreign issuers, which both before and after Morrison focused on foreign issuers with a U.S. listing and substantial U.S. trading volume. While dismissal rates rose post-Morrison we find no evidence that this is related to the decision. Settlement amounts and attorneys’ fees actually rose post-Morrison.

Jonathan R. Macey & Joshua Mitts, Asking the Right Question: The Statutory Right of Appraisal and Efficient Markets, SSRN (2018)

We contend that courts should look at the market price of the securities of a target company whose shares are being valued, unadjusted for the news of the merger, rather than at the deal price that was reached by the parties in the transaction.

Unadjusted market price has two distinct advantages over deal price. First, the unadjusted market price automatically subtracts the target firm’s share of the synergy gains and agency cost reductions impounded in the deal price. This is appropriate to do because dissenting shareholders in appraisal proceedings are not entitled to these increments of value which are supplied by the bidder. Second, the unadjusted market price is unaffected by any flaws in the deal process that led to the ultimate merger agreement. Recently, commentators have contended that deal prices in merger transactions should be ignored in appraisal cases where there are flaws in the process that led to the sale.

Richard H. Thaler, Nudge, not Sludge, 361 Science 431 (2018)

Sunstein and I stressed that the goal of a conscientious choice architect is to help people make better choices “as judged by themselves.” But what about activities that are essentially nudging for evil? This “sludge” just mucks things up and makes wise decision-making and prosocial activity more difficult.

Appraising the ‘Merger Price’ Appraisal Rule

This paper develops an analytic framework combining agency costs, auction design and shareholder voting to study how best to measure “fair value” for dissident shareholders in a post-merger appraisal proceeding. Our inquiry spotlights an approach recently embraced by some courts that benchmarks fair value against the merger price itself, at least in certain situations. As a general matter, the “Merger Price” (MP) rule tends to depress both acquisition prices and target shareholders’ expected welfare relative to both the optimal appraisal policy and several other plausible alternatives. In fact, we demonstrate that the MP rule is strategically equivalent to nullifying appraisal rights altogether. Although the MP rule may be warranted in certain circumstances, our analysis suggests that such conditions are unlikely to be widespread and, consequently, the rule should be employed with caution. Our framework also helps explain why a healthy majority of litigated appraisal cases using conventional fair-value measures result in valuation assessments exceeding the deal price—an equilibrium phenomenon that is an artifact of rational, strategic behavior (and not necessarily an institutional deficiency, as some assert). Finally, our analysis facilitates better understanding of the strategic and efficiency implications of recent reforms allowing “medium-form” mergers, as well as an assortment of (colorfully named) appraisal-related practices, such as blow provisions, drag-alongs, and “naked no-vote” fees.

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Influencing Control: Jawboning in Risk Arbitrage

In an “activist risk arbitrage,” a shareholder attempts to change the course of an announced M&A deal through public campaigns, and profits from improved terms. Compared to conventional (passive) risk arbitrageurs, activists target deals susceptible to managerial conflicts of interest (e.g., going-private and “friendly” deals) and deals with lower announcement premiums. Their presence increases the sensitivity of deal completion to market signals. While they block a significant proportion of planned deals, activist arbitrageurs only modestly decrease the probability that the targets will eventually be acquired (including by a third party). Finally, the strategy yields significantly higher returns than passive arbitrage.

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