Guhan Subramanian

Joseph H. Flom Professor of Law and Business

H. Douglas Weaver Professor of Business Law, Harvard Business School

Biography

Guhan Subramanian is the Joseph H. Flom Professor of Law and Business at Harvard Law School and the H. Douglas Weaver Professor of Business Law at Harvard Business School.  He is the first person in the history of Harvard University to hold tenured appointments at both HLS and HBS.  At HLS he teaches courses in negotiations and corporate law.  At HBS he teaches in several executive education programs, such as Strategic NegotiationsChanging The Game, Making Corporate Boards More Effective, Mergers & Acquisitions, and the Advanced Management Program.   He is the faculty chair for the JD/MBA program at Harvard University and the Vice Chair for Research for the Harvard Program on Negotiation. Prior to joining the Harvard faculty he spent three years at McKinsey & Company.

Professor Subramanian's research explores topics in corporate governance, corporate law, and negotiations.  He has published articles in the Stanford Law Review, the Yale Law Journal, the Harvard Business Review, and the Harvard Law Review, among other places.  His most recent publications include “Deal Process Design in Management Buyouts” (2016) in the Harvard Law Review and “The New Look of Deal Protection” (2017) with Fernan Restrepo in the Stanford Law Review. Ten of his articles have been selected as being among the “top ten” articles published in corporate and securities law in their respective years, among the 400+ articles that are published each year, by scholars in the field.  The two-volume treatise Law & Economics of Mergers & Acquisitions, which includes 33 “seminal” articles from the field over the past 45 years, contains four of his articles, more than from any other scholar.  His article “Corporate Governance 2.0” was selected as a McKinsey Award finalist, for best article published in the Harvard Business Review in 2015.  His book Dealmaking: The New Strategy of Negotiauctions (W. W. Norton 2011), which synthesizes the findings from his research and teaching, has been translated into Chinese (Mandarin), German, Japanese, Portuguese, and Spanish.  He is also a co-author of Commentaries and Cases on the Law of Business Organization (Aspen 4th ed. 2012), a leading textbook in the field of corporate law.

Professor Subramanian has been involved in major public-company deals such as Oracle’s $10 billion hostile takeover bid for PeopleSoft, Cox Enterprises’ $9 billion freeze-out of the minority shareholders in Cox Communications, Exelon’s $8 billion hostile takeover bid for NRG, Bank of America’s $4 billion acquisition of Countrywide, the $26 billion management buyout of Dell, Inc., and Valeant’s $48 billion hostile takeover bid for Allergan.  He also advises individuals, boards of directors, and management teams on issues of dealmaking and corporate governance.  Over the past 10 years he has been involved as an advisor or expert witness in deals or situations worth over $150 billion in total value.  He is a director of LKQ Corporation (NASDAQ: LKQ), a Fortune 500 company in the automotive sector.

Professor Subramanian holds degrees in Law, Economics, and Business from Harvard University.

Areas of Interest

Fernán Restrepo & Guhan Subramanian, The New Look of Deal Protection, 69 Stan. L. Rev. 1013 (2017).
Categories:
Corporate Law & Securities
Sub-Categories:
Corporate Law
,
Mergers & Acquisitions
Type: Article
Abstract
Deal protection in mergers and acquisitions (M&A) deals evolves in response to Delaware case law and the business goals of acquirers and targets. We construct a new sample of M&A deals from 2003 to 2015 to identify four such areas of evolution in current transactional practice: (1) termination fee “creep,” which was pervasive in the 1980s and 1990s, seems to have gone away by the 2000s; (2) match rights, which were unheard of in the 1990s, became ubiquitous by the 2010s; (3) asset lockups, which disappeared from the landscape for thirty years, have reemerged, though in a “new economy” variation; and (4) practitioners have begun implementing side agreements to the deal that have a commercial purpose along with a deal protection effect. We offer three recommendations for how the Delaware courts should approach this “new look” to the deal protection landscape. First, courts should clarify that lockups must survive Unocal /Unitrin “preclusive” or “coercive” analysis in addition to Revlon “reasonableness” review. Second, Delaware courts should apply basic game theory to identify the deterrent effect of match rights and new economy asset lockups. And third, Delaware courts should take a functional approach to deal protection, meaning that collateral provisions that have a deal protection effect should be scrutinized under deal protection doctrine, even if these agreements have a colorable business purpose as well.
Guhan Subramanian, Deal Process Design in Management Buyouts, 130 Harv. L. Rev. 590 (2016).
Categories:
Corporate Law & Securities
,
Banking & Finance
Sub-Categories:
Secured Transactions
,
Corporate Law
,
Shareholders
,
Corporate Governance
,
Mergers & Acquisitions
Type: Article
Abstract
Management buyouts (MBOs) are an economically and legally significant class of transaction: not only do they account for more than $10 billion in deal volume per year, on average, but they also play an important role in defining the relationship between inside and outside shareholders in every public company. Delaware courts and lawyers in transactional practice rely heavily on “market-check” processes to ensure that exiting shareholders receive fair value in MBOs. This Article identifies four factors that create an unlevel playing field in that market check: information asymmetries, valuable management, management financial incentives to discourage overbids, and the “ticking-clock” problem. This taxonomy of four factors allows special committees and their advisors to assess the degree to which the playing field is level in an MBO, and (by extension) the extent to which a market canvass can provide a meaningful check on the buyout price. This Article then identifies more potent deal process tools that special committees can use to level the playing field: for example, contractual commitments from management that allow the board to run the process; pre-signing rather than post-signing market checks; information rights rather than match rights; ex ante inducement fees; and approval from a majority of the disinterested shares. This Article also identifies ways that the Delaware courts can encourage the use of these more potent devices when appropriate: through the threat of entire fairness review, the application of Revlon duties, and the weight given to the deal price in appraisal proceedings. The result would be improved deal process design in MBOs and improved capital formation in the economy overall.
Guhan Subramanian, Corporate Governance 2.0, Harv. Bus. Rev., Mar. 2015, at 96.
Categories:
Corporate Law & Securities
Sub-Categories:
Corporate Governance
,
Corporate Law
,
Shareholders
Type: Article
Abstract
Corporate Governance 2.0 is not quite a clean-sheet redesign of the current system, but a back-to-basics reconceptualization of what sound corporate governance means. It is based on three core principles: 1. Boards should have the right to manage the company for the long term. 2. Boards should install mechanisms to ensure the best possible people in the boardroom. 3. Boards should give shareholders an orderly voice. The shift is vital in the United States, where the power of shareholders has increased over the past ten years and the natural instinct of boards is to cave to activist demands. Over the long term, a Corporate Governance 2.0 perspective would transform corporate governance from a never-ending conflict between boards and shareholders to a source of competitive advantage in the marketplace.
Bo Becker, Daniel Bergstresser & Guhan Subramanian, Does Shareholder Proxy Access Improve Firm Value? Evidence from the Business Roundtable's Challenge, 56 J.L. & Econ. 127 (2013).
Categories:
Corporate Law & Securities
,
Government & Politics
Sub-Categories:
Corporate Governance
,
Shareholders
,
Corporate Law
,
Securities Law & Regulation
,
Administrative Law & Agencies
Type: Article
Abstract
We use the Business Roundtable’s challenge to the Securities and Exchange Commission’s (SEC’s) 2010 proxy access rule as a natural experiment to measure the value of shareholder proxy access. We find that firms that would have been most vulnerable to proxy access, as measured by institutional ownership and activist institutional ownership, lost value on October 4, 2010, when the SEC unexpectedly announced that it would delay implementation of the rule in response to the Business Roundtable’s challenge. We examine intraday returns and find that the loss of value occurred just after the SEC’s announcement on October 4. We find similar results for July 22, 2011, when the U.S. Court of Appeals for the District of Columbia Circuit ruled in favor of the Business Roundtable. These findings are consistent with the view that financial markets placed a positive value on shareholder access, as implemented in the SEC’s 2010 rule.
Fernán Restrepo & Guhan Subramanian, The Effect of Prohibiting Deal Protection in M&A: Evidence from the United Kingdom, 61 J.L. & Econ. (forthcoming 2018).
Categories:
Corporate Law & Securities
,
International, Foreign & Comparative Law
Sub-Categories:
Mergers & Acquisitions
,
European Law
Type: Article
Abstract
Since 2011, the U.K. has prohibited all deal protections – including termination fees – in M&A deals. Prior to 2011, the U.K. permitted termination fees up to 1% of deal value and there was no prohibition on other protection devices. We examine the effect of this regulatory change on deal volumes, the incidence of competing offers, deal jumping rates, deal premiums, and completion rates in the U.K., relative to the other European G-10 countries. We find that M&A deal volumes in the U.K. declined significantly in the aftermath of the 2011 Reforms, relative to deal volumes in the European G-10 countries. We find no countervailing benefits to target shareholders in the form of higher deal premiums or more competing bids. Completion rates and deal jumping rates also remained unchanged. We estimate that the incidence-rate ratio of U.K. deals to non-UK deals after the reform was approximately 50% the incidence-rate ratio of U.K. deals to non-U.K. deals prior to the reform. In addition, we estimate USD 19.3 billion in lost deal volumes per quarter in the U.K. relative to the control group due to the 2011 Reforms, implying a quarterly loss of USD 3.2 billion for shareholders of U.K. companies. Our results suggest that deal protections provide an important social welfare benefit by facilitating the initiation of M&A deals.
Guhan Subramanian, Using the Deal Price for Determining “Fair Value” in Appraisal Proceedings, in Corporate Contract in Changing Times: Is the Law Keeping Up? (Univ. Chi. Press forthcoming 2017).
Categories:
Corporate Law & Securities
Sub-Categories:
Mergers & Acquisitions
,
Corporate Law
Type: Book
Abstract
This Essay presents new data on appraisal litigation and appraisal outs. I find that appraisal claims have not meaningfully declined in 2016, and that perceived appraisal risk, as measured by the incidence of appraisal outs, has increased since the Dell appraisal in May 2016. After reviewing current Delaware appraisal doctrine, this Essay proposes a synthesizing principle: if the deal process involves an adequate market canvass, meaningful price discovery, and an arms-length negotiation, then there should be a strong presumption that the deal price represents fair value in an appraisal proceeding; but if the deal process does not have these features, deal price should receive no weight. This approach would represent a middle-ground between the competing approaches advanced by twenty-nine law, economics, and finance professors in the DFC Global appraisal, currently on appeal to the Delaware Supreme Court.
Fernán Restrepo & Guhan Subramanian, Freezeouts: doctrine and perspectives, in Research Handbook on Mergers and Acquisitions (Claire A. Hill & Steven Davidoff Solomon eds., 2016).
Categories:
Corporate Law & Securities
Sub-Categories:
Mergers & Acquisitions
Type: Book
Fernán Restrepo & Guhan Subramanian, The Effect of Delaware Doctrine on Freezeout Structure & Outcomes: Evidence on the Unified Approach, 5 Harv. Bus. L. Rev. 205 (2015).
Categories:
Corporate Law & Securities
Sub-Categories:
Mergers & Acquisitions
Type: Article
Guhan Subramanian, Delaware's Choice, 39 Del. J. Corp. L. 1 (2014).
Categories:
Corporate Law & Securities
Sub-Categories:
Corporate Governance
,
Corporate Law
,
Shareholders
Type: Article
Abstract
This Article first documents the shift to annual elections of all directors at most U.S. corporations,and argues that the alternative of “ineffective” staggered boards would have been more desirable, as a policy matter, but is now a missed opportunity. Using this experience on staggered boards as a motivating case study, the Article then examines a policy choice regarding Section 203 of the Delaware General Corporation Law. Four facts are uncontested: (1) in the 1980s, federal courts established the principle that Section 203 must give bidders a “meaningful opportunity for success” in order to withstand scrutiny under the Supremacy Clause of the U.S. Constitution; (2) federal courts upheld Section 203 at the time, based on empirical evidence from 1985- 1988 purporting to show that Section 203 did in fact give bidders a meaningful opportunity for success; (3) between 1990 and 2010, not a single bidder was able to achieve the 85% threshold required by Section 203, thereby calling into question whether Section 203 has in fact given bidders a meaningful opportunity for success; and (4) perhaps most damning, the original evidence that the courts relied upon to conclude that Section 203 gave bidders a meaningful opportunity for success was seriously flawed-so flawed, in fact, that even this original evidence supports the opposite conclusion: that Section 203 did not give bidders a meaningful opportunity for success. The constitutionality of Section 203 is therefore “in play,” and, with the decline of the poison pill, a new constitutional challenge against Section 203 will eventually come. Delaware could avoid this showdown by lowering Section 203’s 85% threshold to 70%. Like the middle-ground approach on staggered boards, this amendment-to a single number-would also represent good policy: facilitating high-premium offers that attract a supermajority.
Bo Becker & Guhan Subramanian, Improving Director Elections, 3 Harv. Bus. L. Rev. 1 (2013).
Categories:
Corporate Law & Securities
Sub-Categories:
Corporate Governance
,
Shareholders
,
Corporate Law
Type: Article
Abstract
It is well known that U.S. director elections are largely a formality: incumbents typically nominate themselves, for elections that are almost always uncontested, and are re-elected with virtual certainty. The result, as illustrated by the recent debacle at J.P. Morgan Chase, is what one might expect: directors who are elected not for their qualifications but rather because shareholders simply have no other choice. In the aftermath of the 2008/2009 financial crisis, efforts were made to improve corporate democracy. The introduction of majority voting, the introduction of eProxy rules, and elimination of broker voting of uninstructed shares were predicted to dramatically improve the vibrancy of the director election process. Our analysis, based primarily on data from the 2007–2011 proxy seasons, indicates that these reforms have been ineffective in achieving their stated goals. Specifically, we find that: (1) only two incumbent directors who did not receive a majority of the votes cast have actually left their boards; (2) not a single insurgent candidate has made use of eProxy; and (3) only one director election outcome has changed due to the elimination of broker voting of uninstructed shares. We also find no evidence that these reforms have influenced the “shadow” negotiation between the board and major shareholders in favor of shareholders. In contrast to these reforms, our research suggests that a properly designed proxy access regime has the potential to meaningfully improve the director election process at U.S. corporations.
William T. Allen, Reinier Kraakman & Guhan Subramanian, Commentaries and Cases on the Law of Business Organization (Aspen 4th ed. 2012).
Categories:
Corporate Law & Securities
Sub-Categories:
Business Organizations
,
Corporate Law
,
Mergers & Acquisitions
,
Securities Law & Regulation
,
Corporate Governance
Type: Book
Abstract
Acting through others : the law of agency -- The problem of joint ownership : the law of partnership and related entities -- The corporate form -- The protection of creditors -- Normal governance : the voting system -- Normal governance : the duty of care -- Conflict transactions : the duty of loyalty -- Executive compensation -- Shareholder lawsuits -- Transactions in control -- Fundamental transactions : mergers and acquisitions -- Public contests for corporate control -- Trading in the corporation's securities.
Guhan Subramanian, A New Era for Raiders, Harv. Bus. Rev., Nov. 2010, at 34.
Categories:
Corporate Law & Securities
Sub-Categories:
Mergers & Acquisitions
,
Shareholders
,
Corporate Law
Type: Article
Abstract
The article presents information on corporate methods of preventing hostile takeovers by corporate raiders, such as the poison pill strategy. It is noted that some of these techniques have become less popular and effective. An argument is presented that Section 203 of the corporate code of Delaware, which has been in force since 1988, could be overturned, which would further reduce antitakeover protections for the majority of U.S. firms.
Guhan Subramanian, Steven Herscovici & Brian Barbetta, Is Delaware's Antitakeover Statute Unconstitutional? Evidence from 1988-2008, 65 Bus. Law. 753 (2010).
Categories:
Corporate Law & Securities
Sub-Categories:
Corporate Law
,
Corporate Governance
,
Business Organizations
,
Mergers & Acquisitions
,
Securities Law & Regulation
,
Shareholders
Type: Article
Abstract
Delaware’s antitakeover statute, codified at Section 203 of the Delaware corporate code, is by far the most important antitakeover statute in the United States. When it was enacted in 1988, three bidders challenged its constitutionality under the Commerce Clause and the Supremacy Clause of the U.S. Constitution. All three federal district court decisions upheld the constitutionality of Section 203 at the time, relying on evidence indicating that Section 203 gave bidders a “meaningful opportunity for success,” but leaving open the possibility that future evidence might change this constitutional conclusion. This Article presents the first systematic empirical evidence since 1988 on whether Section 203 gives bidders a meaningful opportunity for success. The question has become more important in recent years because Section 203’s substantive bite has increased, as Exelon’s recent hostile bid for NRG illustrates. Using a new sample of all hostile takeover bids against Delaware targets that were announced between 1988 and 2008 that were subject to Section 203 (n=60), we find that no hostile bidder in the past nineteen years has been able to avoid the restrictions imposed by Section 203 by going from less than 15% to more than 85% in its tender offer. At the very least, this finding indicates that the empirical proposition that the federal courts relied upon to uphold Section 203’s constitutionality is no longer valid. While it remains possible that courts would nevertheless uphold Section 203’s constitutionality on different grounds, the evidence would seem to suggest that the constitutionality of Section 203 is up for grabs. This Article offers specific changes to the Delaware statute that would preempt the constitutional challenge. If instead Section 203 were to fall on constitutional grounds, as Delaware’s prior antitakeover statute did in 1986, it would also have implications for similar antitakeover statutes in thirty-two other U.S. states, which along with Delaware collectively cover 92% of all U.S. corporations.
Guhan Subramanian, Steven Herscovici & Brian Barbetta, Is Delaware's Antitakeover Statute Unconstitutional? Further Analysis and a Reply to Symposium Participants, 65 Bus. Law. 799 (2010).
Categories:
Corporate Law & Securities
,
Government & Politics
,
Constitutional Law
Sub-Categories:
Corporate Governance
,
Corporate Law
,
Mergers & Acquisitions
,
Shareholders
,
Securities Law & Regulation
,
State & Local Government
Type: Article
Guhan Subramanian, Negotiauctions: New Dealmaking Strategies for a Competitive Marketplace (W.W. Norton 2010).
Categories:
Banking & Finance
Sub-Categories:
Commercial Law
Type: Book
Abstract
Today's increasingly competitive marketplace is filled with business transactions that include elements of both negotiations and auctions, yet the received wisdom on deal-making treats these two mechanisms separately. Leading dealmaking scholar Guhan Subramanian explores the ubiquitous situation in which negotiators are "fighting on two fronts"--Across the table, of course, but also on the same side of the table with known, unknown, or possible competitors. Delving into case studies as diverse as buying a house, haggling over the rights to the television show Frasier, and selling "toxic" assets into the U.S. government's bailout fund, Subramanian combines meticulous research, field experience, and classroom-tested strategies to create an indispensable guide for anyone involved in buying or selling everything from cars to corporations. (From the Publisher)
William T. Allen, Reinier Kraakman & Guhan Subramanian, Commentaries and Cases on the Law of Business Organization (Aspen 3rd ed. 2009).
Categories:
Corporate Law & Securities
Sub-Categories:
Business Organizations
,
Corporate Governance
,
Corporate Law
,
Mergers & Acquisitions
,
Shareholders
,
Securities Law & Regulation
Type: Book
Abstract
Introduction to the law of enterprise organization -- Acting through others : the law of agency -- The problem of joint ownership : the law of partnership -- The corporate form -- Debt, equity, and economic value -- The protection of creditors -- Normal governance : the voting system -- Normal governance : the duty of care -- Conflict transactions : the duty of loyalty -- Shareholder lawsuits -- Transactions in control -- Fundamental transactions : mergers and acquisitions -- Public contests for corporate control -- Trading in the corporation's securities.
Guhan Subramanian, Go-Shops vs. No-Shops in Private Equity Deals: Evidence and Implications, 63 Bus. Law. 729 (2008).
Categories:
Corporate Law & Securities
Sub-Categories:
Mergers & Acquisitions
,
Shareholders
,
Securities Law & Regulation
Type: Article
Abstract
Go-shop provisions have changed the way in which private equity firms execute public-company buyouts. While there has been considerable practitioner commentary on go-shops in the three years since they first appeared, this paper presents the first systematic empirical evidence on this new dealmaking technology. Contrary to the claims of prior commentators, I find that: (1) go-shops yield more search in aggregate (pre- and post-signing) than the traditional no-shop route; (2) pure go-shop deals, in which there is no pre-signing canvass of the marketplace, yield a higher bidder 17% of the time; and (3) target shareholders receive approximately 5% higher returns through the pure go-shop process relative to the no-shop route. I also find no post-signing competition in go-shop management buyouts (MBOs), consistent with practitioner wisdom that MBO's give incumbent managers a significant advantage over other potential buyers. Taken as a whole, these findings suggest that the Delaware courts should generally permit go-shops as a means of satisfying a sell-side board's Revlon duties, but should pay close attention to their precise structure, particularly in the context of go-shop MBOs.
Guhan Subramanian, The Emerging Problem of Embedded Defenses: Lessons from Air Line Pilots Ass’n, Int'l v. UAL Corp., 120 Harv. L. Rev. 1239 (2007).
Categories:
Legal Profession
,
Corporate Law & Securities
,
Government & Politics
,
Labor & Employment
Sub-Categories:
Corporate Governance
,
Corporate Law
,
Fiduciaries
,
Courts
,
Judges & Jurisprudence
,
State & Local Government
,
Labor Law
,
Biography & Tribute
Type: Article
Abstract
How should courts regulate contract terms with nonshareholder constituencies that have an antitakeover effect? On one hand, contracts formed in the ordinary course of business would seem to be at the very core of operational decisionmaking, over which courts have traditionally exercised deferential business judgment review. On the other hand, contracts can have antitakeover effects, and takeover defenses have long been subject to heightened “intermediate” scrutiny under Delaware corporate law due to the “omnipresent specter” that boards may be acting to entrench themselves. Despite the seemingly fundamental nature of the question, it has, to my knowledge, been addressed only once in U.S. corporate law. The case was ♦Air Line Pilots Ass'n, International v. UAL Corp.♦, which involved the short-lived business strategy of UAL, the parent of United Airlines, in the mid-1980s. Fortunately, the judge was Richard Posner, writing for a Seventh Circuit panel. Judge Posner affirmed a district court ruling that certain contractual provisions in a United Airlines collective bargaining agreement with its machinists' union violated Delaware corporate law. In doing so, Judge Posner suggested an approach toward “embedded defenses” that was not Delaware corporate law at the time but has increasingly become Delaware law over the past fifteen years. Like many great judges, Judge Posner was ahead of his time. This Commentary proposes a general approach toward embedded defenses that draws heavily from Judge Posner's approach in ♦UAL♦. Such an approach will be important as boards increasingly engage in “defense substitution” away from the most important takeover defense of the past twenty years, the poison pill.
Guhan Subramanian, Bargaining in the Shadow of PeopleSoft’s (Defective) Poison Pill, 12 Harv. Negot. L. Rev. 41 (2007).
Categories:
Corporate Law & Securities
Sub-Categories:
Mergers & Acquisitions
,
Shareholders
,
Corporate Law
Type: Article
Abstract
This Commentary is part of a dealmaking symposium on the Oracle-PeopleSoft contest from 2003-2004. The facts of the case are described in Millstone & Subramanian (2005). This Commentary examines Oracle's alternatives and PeopleSoft's potential responses in the fall of 2004. I demonstrate that certain defects in the design of PeopleSoft's poison pill made a deliberate pill trigger a plausible course of action for Oracle at this critical juncture. This radical maneuver becomes even more attractive because Oracle had made the negotiated acquisition route extremely expensive for itself by revealing that it had $26 per share in its pocket nine months earlier. Even if Oracle had not actually triggered PeopleSoft's poison pill, threatening this maneuver would have given Oracle bargaining power that it could have used to pay a lower price in its negotiated acquisition. The Commentary closes with implications of this analysis for practitioners, boards of directors, and the Delaware courts.
William T. Allen, Reinier Kraakman & Guhan Subramanian, Commentaries and Cases on the Law of Business Organization (Aspen 2nd ed. 2007).
Categories:
Corporate Law & Securities
Sub-Categories:
Business Organizations
,
Corporate Governance
,
Corporate Law
,
Mergers & Acquisitions
,
Securities Law & Regulation
,
Shareholders
Type: Book
Abstract
Introduction to the law of enterprise organization -- Acting through others: the law of agency -- The problem of joint ownership: the law of partnership -- The corporate form -- Debt, equity, and economic value -- The protection of creditors -- Normal governance: the voting system -- Normal governance: the duty of care -- Conflict transactions: the duty of loyalty -- Shareholder lawsuits -- Transactions in control -- Fundamental transactions: mergers and acquisitions -- Public contests for corporate control -- Trading in the corporation's securities.
David Millstone & Guhan Subramanian, Oracle v. PeopleSoft: A Case Study, 12 Harv. Negot. L. Rev. 1 (2007).
Categories:
Corporate Law & Securities
Sub-Categories:
Corporate Law
,
Mergers & Acquisitions
Type: Article
Abstract
This case describes Oracle's hostile takeover bid to acquire PeopleSoft, which began with an unsolicited cash tender offer at $16.00 per share in June 2003 and ended with a negotiated deal at $26.50 per share in December 2004. Novel questions of corporate law are raised by the prolonged use of a poison pill against a structurally non-coercive, all-cash, fully-financed offer; as well as PeopleSoft's unprecedented Customer Assurance Program (CAP), which promised PeopleSoft customers between two and five times their money back if Oracle acquired PeopleSoft and then reduced support for PeopleSoft products. This case study will be published as part of a dealmaking symposium in the Harvard Negotiation Law Review, followed by commentaries from practitioners involved in the deal, judges, and academics.
Guhan Subramanian, Post‐Siliconix Freeze‐Outs: Theory and Evidence, 36 J. Legal Stud. 1 (2007).
Categories:
Corporate Law & Securities
,
Disciplinary Perspectives & Law
Sub-Categories:
Corporate Governance
,
Corporate Law
,
Shareholders
,
Securities Law & Regulation
,
Mergers & Acquisitions
,
Empirical Legal Studies
Type: Article
Abstract
At approximately the same time that the Sarbanes‐Oxley Act increased the costs associated with being a public company, important Delaware case law created a difference in the standard of judicial review for the two basic methods of freezing out minority shareholders. While a freeze‐out executed as a statutory merger is subject to stringent “entire‐fairness” review, the Delaware Chancery Court held in In re Siliconix Shareholders Litigation that a freeze‐out executed as a tender offer is not. This paper presents the first systematic empirical evidence on post‐Siliconix freeze‐outs. Using a new database of all Delaware freeze‐outs executed in the 4 years after Siliconix was decided, I find that minority shareholders achieve significantly lower abnormal returns, on average, in tender‐offer freeze‐outs relative to merger freeze‐outs. I discuss the doctrinal and policy implications of these findings in a companion paper.
Guhan Subramanian, Takeover Defenses and Bargaining Power, 17 J. Applied Corp. Fin. 85 (2005).
Categories:
Corporate Law & Securities
Sub-Categories:
Mergers & Acquisitions
,
Corporate Law
Type: Article
Abstract
For decades, academics have claimed that even friendly acquisitions are negotiated in the “shadow” of a hostile takeover bid. But interviews with senior M&A investment bankers provide a different picture of negotiated acquisitions. Determining which version is more representative of most deals is important because the academic assumption has been a main pillar of attempts to justify poison pills and other takeover defenses as ways of increasing the bargaining power of target companies' managements and the premiums received by their shareholders. This article shows that takeover defenses can be justified as a value-maximizing control device in a simplified model with one buyer and one seller. But after taking account of four realities that are present in many if not most corporate M&A deals—alternatives away from the negotiating table (i.e., other potential targets), high costs of launching a hostile bid, information disparities, and managers with divided loyalties—the author demonstrates that only a fraction of friendly acquisitions are in fact negotiated in the shadow of a hostile takeover threat. This conclusion is reinforced by both empirical evidence and the commentary of M&A practitioners presented in the article.
Guhan Subramanian, Fixing Freezeouts, 115 Yale L.J. 2 (2005).
Categories:
Corporate Law & Securities
Sub-Categories:
Shareholders
,
Corporate Law
,
Corporate Governance
,
Mergers & Acquisitions
Type: Article
Abstract
Freezeout transactions, in which a controlling shareholder buys out the minority shareholders, have occurred more frequently since the stock market downturn of 2000 and the Sarbanes-Oxley Act of 2002. While freezeouts were historically executed as statutory mergers, recent Delaware case law facilitates a new mechanism--freezeout via tender offer--by eliminating entire fairness review for these transactions. This Article identifies two social welfare costs of the current doctrinal regime. First, the tender-offer-freezeout mechanism facilitates some inefficient (value-destroying) transactions by allowing the controller to exploit asymmetric information against the minority. Second, the merger-freezeout mechanism deters some efficient (value-increasing) transactions because of the special committee's veto power against the deal. These negative wealth effects are unlikely to be resolved through private contracting between the controller and the minority in the corporate charter. Rather than advocating patchwork reforms to correct these problems, this Article proposes a return to first principles of corporate law in the freezeout context. The result of this re-grounding would be a convergence in judicial standards of review for freezeouts and the elimination of the efficiency loss that is inherent in the existing doctrine.
Guhan Subramanian, The Disappearing Delaware Effect, 20 J.L. Econ. & Org. 32 (2004).
Categories:
Corporate Law & Securities
,
Government & Politics
Sub-Categories:
Corporate Law
,
Business Organizations
,
State & Local Government
Type: Article
Abstract
Refining and extending the methodology introduced by Daines (2001), I present evidence that small Delaware firms were worth more than small non-Delaware firms during the period 1991–1996 but not afterwards. I also present evidence that larger firms, which comprise 98% of my sample by size, exhibit no Delaware effect for any year during the period 1991–2002. Thus the Delaware effect “disappears” when examined over time and when examined for firms that are economically meaningful. These new contours of the Delaware effect suggest that the benefit associated with Delaware incorporation was an order of magnitude smaller than estimated by Daines (2001) during the early 1990s, and nonexistent by the late 1990s. The trajectory of the Delaware effect further suggests that it cannot provide support for the “race to the top” view of regulatory competition, as some commentators have argued, and may in fact provide support for the “race to the bottom” view. Finally, the findings presented here identify two puzzles: (1) Why did small Delaware firms exhibit a positive Delaware effect during the early 1990s but larger firms did not? (2) Why did this effect disappear in the late 1990s? I identify doctrinal changes in Delaware corporate law in the mid-1990s, increased managerial incentives to sell during this period, and a cohort selection effect during the 1980s as potential explanations.
Guhan Subramanian, Bargaining in the Shadow of Takeover Defenses, 113 Yale L.J. 621 (2003).
Categories:
Corporate Law & Securities
Sub-Categories:
Corporate Law
,
Corporate Governance
,
Mergers & Acquisitions
Type: Article
Abstract
The bargaining power hypothesis has been voiced more frequently over the past few years as other shareholder-focused arguments in favor of takeover defenses, such as protection against "structural coercion" and protection against "substantive coercion," have been rendered less important through federal and state intervention or challenged by recent empirical evidence. Yet despite its venerable heritage and recent revitalization, the bargaining power hypothesis has generally been asserted by defense proponents and conceded by defense opponents, never subjected to a careful theoretical analysis or a comprehensive empirical test. This Essay attempts to fill this gap. I use negotiation-analytic tools to construct a model of bargaining in the "shadow" of takeover defenses. This model identifies the conditions that must exist in order for the bargaining power hypothesis to hold in a particular negotiated acquisition. I demonstrate that the bargaining power hypothesis only applies unambiguously to negotiations in which there is a bilateral monopoly between buyer and seller, no incremental costs to making a hostile bid, symmetric information, and loyal sell-side agents. These conditions suggest that the bargaining power hypothesis is only true in a subset of all deals, contrary to the claim of some defense proponents that the hypothesis applies to all negotiated acquisitions.
Guhan Subramanian, The Drivers of Market Efficiency in Revlon Transactions, 28 J. Corp. L. 691 (2003).
Categories:
Corporate Law & Securities
Sub-Categories:
Corporate Governance
,
Corporate Law
,
Fiduciaries
,
Mergers & Acquisitions
,
Securities Law & Regulation
,
Shareholders
Type: Article
Abstract
In this Commentary I present evidence from our seventeen years of experience with Revlon that is consistent with the view that incentives to search have remained strong in the U.S. market for corporate control (MCC), despite this potential “Revlon Problem.” I then identify three potential explanations for this finding: small net first-bidder costs, preemptive bidding, and heterogeneous buyers. These three “drivers” might explain how value-creating transactions were achieved in the 1990s MCC despite the potentially onerous requirements of Revlon.
Lucian A. Bebchuk, John C. Coates & Guhan Subramanian, The Trouble with Staggered Boards: A Reply to Georgeson's John Wilcox, 11 Corp. Governance Advisor 17 (2003).
Categories:
Corporate Law & Securities
Sub-Categories:
Mergers & Acquisitions
,
Corporate Governance
Type: Article
Abstract
In recent work, we presented evidence indicating that staggered boards have adverse effects on target shareholders. John Wilcox, the Vice-Chair of Georgeson, recently published a critique of our work, urging shareholders to support staggered boards. We respond in this article to Wilcox's critique and explain why it does not weaken in any way our analysis of staggered boards. The study criticized by Wilcox, "The Powerful Antitakeover Force of Staggered Boards: Theory, Evidence, and Policy," 54 Stanford Law Review 887-951 (2002), is available at http://ssrn.com/abstract=304388. In a separate reply, "The Powerful Antitakeover Force of Staggered Boards: Further Findings and a Reply to Symposium Participants," 55 Stanford Law Review 885-917 (2002), which is available at http://ssrn.com/abstract=360840, we respond to several other responses to our original study and present additional evidence that confirms its conclusions.
Guhan Subramanian, The Influence of Antitakeover Statutes on Incorporation Choice: Evidence on the “Race” Debate and Antitakeover Overreaching, 150 U. Pa. L. Rev. 1795 (2002).
Categories:
Corporate Law & Securities
Sub-Categories:
Mergers & Acquisitions
,
Corporate Law
,
Shareholders
Type: Article
Abstract
Commentators have long debated whether competition among states for corporate charters represents a race to the top or a race to the bottom. Race-to-the-top advocates have recently gained ground in this debate on the basis of the general migration to Delaware in the 1990s and empirical evidence suggesting that Delaware incorporation increases shareholder wealth. This article uses second-generation state antitakeover statutes to shed additional light on this debate. I use a new database of reincorporations from the 1990s to show that managers generally migrate to (and fail to migrate away from) typical antitakeover statutes Given the robust econometric evidence that these statutes increase managerial agency costs and reduce shareholder wealth, my results generally support the race-to-the-bottom view. However, I also find that managers migrate away from the more severe antitakeover statutes in Massachusetts, Ohio, and Pennsylvania. This finding introduces the possibility for "overreaching" in the corporate charter marketplace and suggests important limits on the race to the bottom. The results have implications for recent developments in corporate charter competition in both the United States and the European Union.
Lucian A. Bebchuk, John C. Coates & Guhan Subramanian, The Powerful Antitakeover Force of Staggered Boards: Theory, evidence, and policy, 55 Stan. L. Rev. 885 (2002).
Categories:
Corporate Law & Securities
Sub-Categories:
Corporate Governance
,
Corporate Law
,
Mergers & Acquisitions
Type: Article
Abstract
Staggered boards, which a majority of public companies now have, provide a powerful antitakeover defense, stronger than is commonly recognized. They provide antitakeover protection both by (i) forcing any hostile bidder, no matter when it emerges, to wait at least one year to gain control of the board and (ii) requiring such a bidder to win two elections far apart in time rather than a one-time referendum on its offer. Using a new data set of hostile bids in the five-year period 1996-2000, we find that not a single hostile bid won a ballot box victory against an 'effective' staggered board (ESB). We also find that an ESB nearly doubled the odds of remaining independent for an average target in our data set, from 34% to 61%, halved the odds that a first bidder would be successful, from 34% to 14%, and reduced the odds of a sale to a white knight, from 32% to 25%. Furthermore, we find that the shareholders of targets that remained independent were made worse off compared with accepting the bid and that ESBs did not provide sufficient countervailing benefits in terms of increased premiums to offset the costs of remaining independent. Overall, we estimate that, in the period studied, ESBs reduced the returns of shareholders of hostile bid targets on the order of 8-10%. Finally, we show that most staggered boards were adopted before the developments in takeover doctrine that made ESBs such a potent defense. Selected by academics as one of the “top ten” articles in corporate/securities law for 2002, out of 350 articles published in that year.
Lucian A. Bebchuk, John C. Coates & Guhan Subramanian, The Powerful Antitakeover Force of Staggered Boards: Further Findings and a Reply to Symposium Participants, 55 Stan. L. Rev. 885 (2002).
Categories:
Corporate Law & Securities
Sub-Categories:
Mergers & Acquisitions
,
Corporate Governance
Type: Article
Abstract
This paper develops and defends our earlier analysis of the powerful antitakeover force of staggered boards. We reply to five responses to our work, by Stephen Bainbridge, Mark Gordon, Patrick McGurn, Leo Strine, and Lynn Stout, which are to be published in a Stanford Law Review Symposium. We present new empirical evidence that extends our earlier findings, confirms our conclusions, and demonstrates that the alternative theories put forward by some commentators do not adequately explain the evidence. Among other things, we find that having a majority of independent directors does not address the concern that defensive tactics might be abused. We also find that effective staggered boards do not appear to have a significant beneficial effect on premia in negotiated transactions. Finally, we show that, unlike our approach, the approach that our critics advocate for Delaware takeover jurisprudence to follow is both inconsistent with its established principles and takes an extreme position in the overall debate on takeover defenses. Our analysis and new findings further strengthen the case for limiting the ability of incumbents armed with a staggered board to continue saying no after losing an election conducted over an acquisition offer.
John C. Coates & Guhan Subramanian, A Buy-Side Model of M&A Lockups: Theory and Evidence, 53 Stan. L. Rev. 307 (2000).
Categories:
Corporate Law & Securities
Sub-Categories:
Mergers & Acquisitions
Type: Article
Abstract
Lockups are an increasingly important element of M&A deals in the United States. We present, for the first time, descriptive data on lockup incidence, trends, and their relationship with Delaware case law. Prior commentators have used theoretical models to argue that lockups should have little or no impact on allocational efficiency in the market for corporate control. We use data from twelve years of M&A activity in the United States to show that prior models have little predictive power in real-world transactions. We then offer a new theoretical model of lockups that includes six "buy-side" distortions: agency costs, tax effects, informational effects, switching costs, reputational effects, and endowment effects for bidders. The implications of this new model suggest that courts and corporate boards should scrutinize lockups more closely than prior commentators have advocated.
Guhan Subramanian, Using Capital Cash Flows to Value Dissenters' Shares in Appraisal Proceedings, 111 Harv. L. Rev. 2099 (1998).
Categories:
Corporate Law & Securities
,
Banking & Finance
Sub-Categories:
Investment Products
,
Financial Markets & Institutions
,
Shareholders
,
Corporate Law
Type: Article
Guhan Subramanian, A New Takeover Defense Mechanism: Using an Equal Treatment Agreement as an Alternative to the Poison Pill, 23 Del. J. Corp. L. 375 (1998).
Categories:
Corporate Law & Securities
Sub-Categories:
Mergers & Acquisitions
,
Corporate Law
,
Shareholders
,
Corporate Governance
Type: Article

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