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The First Annual Conflict Minerals Filings: Observations and Next Steps

Editor's Note: Amy Goodman is a partner and co-chair of the Securities Regulation and Corporate Governance practice group at Gibson, Dunn & Crutcher LLP. The following post is based on a Gibson Dunn alert.

As companies prepare for the second year of filings under the Securities and Exchange Commission's ("SEC") new conflict minerals rule, many companies are looking for guidance from the first annual filings, which were due June 2, 2014. As expected, the inaugural Form SD and conflict minerals report filings reflect diverse approaches to the new compliance and disclosure requirements. We offer below some observations based on the first round of conflict minerals filings for companies to consider as they address their compliance programs and disclosures for the 2014 calendar year. It is important to note, however, that the shape of future compliance and reporting obligations will be impacted by the outcome of the pending litigation challenging the conflict minerals rule, which also is discussed below, and any subsequent action by the SEC.

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Categories: Governance

A Response to Professor Macey

Editor's Note: Joseph A. Grundfest is the W. A. Franke Professor of Law and Business at Stanford University Law School. This post responds to a post, titled SEC Commissioner, Law Professor Wrongfully Accuse SRP of Securities Fraud, by Yale Law School Professor Jonathan R. Macey (available on the Forum here). The post by Professor Macey offered a critique of a paper by SEC Commissioner Daniel M. Gallagher and Stanford law School Professor Joseph A. Grundfest, described in a post by Professor Joseph Grundfest (available on the Forum here).

In a December 15, 2014, post to this Harvard Corporate Governance blog, (here) Professor Jonathan R. Macey suggests that the article I co-authored with Dan Gallagher, "Did Harvard Violate Federal Securities Laws? The Campaign Against Classified Boards of Directors," (here) wrongfully accuses Harvard's Shareholder Rights Project of fraud. Professor Macey's post presents a detailed critique, and I greatly appreciate Harvard's courtesy in providing this opportunity for response.

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Categories: Governance

I.P.O. of Juno Therapeutics, Developer of a Cancer Treatment, Excites Investors

New York Times DealBook - Fri, 12/19/2014 - 19:16
A little-known year-old company, which counts Jeff Bezos as an early investor, pulled off one of the largest initial public stock offerings in the biotechnology sector.
Categories: Transactions

Fed’s Delay of Parts of Volcker Rule Is Another Victory for Banks

New York Times DealBook - Fri, 12/19/2014 - 17:57
The banks' win on the Volcker Rule came just days after Congress passed legislation that gutted a regulation that focused on derivatives.
Categories: Transactions

How J.P. Morgan Does Business, in 100 Pages

Wall Street Journal MoneyBeat - Fri, 12/19/2014 - 16:17
stan honda/Agence France-Presse/Getty Images

J.P. Morgan Chase & Co. released a report on how it does business Friday that acknowledges its mistakes and details how it is improving its culture and controls among other things.

The report was initiated in response to a request from a shareholder group led by The Sisters of Charity of Saint Elizabeth, a member of the Interfaith Center on Corporate Responsibility. The shareholders had asked for J.P. Morgan to conduct a business standards review report.

The report references the largest U.S. bank by asset’s mistakes, including the London Whale, hiring practices in Asia and foreign exchange matters.

“In some cases, our controls fell short, and in others, we simply weren’t meeting the standards we had set for ourselves,”according to the report. “The changes we are undertaking are part of a necessary evolution.”

J.P. Morgan detailed in the report its interactions with regulators between 2013 and 2014, when the bank was under intense scrutiny from regulators around the globe.

The bank’s directors and executives held talks with U.S. regulators regularly, and some board members met with international regulators, including the U.K.’s Financial Conduct Authority, Germany’s Federal Financial Supervisory Authority and the Hong Kong Monetary Authority, according to the report.

J.P. Morgan Chief James Dimon met with regulators from all regions where the company operates, including the French Treasury, Japanese Ministry of Finance and Australian Treasury.

From the beginning of 2013 through the third quarter of 2014, operating committee members and their direct reports had more than 1,300 meetings with regulators.

The bank also reiterated in the report the risk of cyber attacks and detailed its cyber defense strategy. That includes proactively detecting and responding to “malicious” cyber activity and strengthening partnerships with the government and cyberspace ecosystem.

A new Cybersecurity Executive Council meets on a monthly basis and includes business, control and technology leaders. There are also weekly updates with its Chief Operating Officer Matt Zames, who spearheaded the bank’s cybersecurity efforts after a summer cyber attack.

The bank launched an 18-month “Cyber Attack Remediation” initiative focusing on “multifactor authentication, secure server builds, access self-attestation, perimeter lockdown, vulnerability remediation and information technology risk assessment.”

J.P. Morgan reiterated in the report that cyber-attacks haven’t resulted in “material harm to our customers and have not had a material adverse effect on our results or operations.”

The Interfaith Center on Corporate Responsibility began asking the bank for the review a few years ago, said Rev. Seamus Finn of the Missionary Oblates of Mary Immaculate, an active J.P. Morgan shareholder.

The group had previously asked and received a report from Goldman Sachs Group Inc. with 39 recommendations the bank was obliged to implement.

Mr. Finn and his colleagues have met with J.P. Morgan a few times during the preparation of the report, including J.P. Morgan’s lead independent director Lee Raymond and director William Weldon.

“This is not going to prevent all mistakes or missteps in the future but it goes a long way to setting the platform and some standards,” Mr. Finn said. “They’ve got a fairly clear articulation here that if they don’t do these things there will be consequences.”

Categories: Transactions

Caesars Unit Takes a Step Toward Chapter 11

New York Times DealBook - Fri, 12/19/2014 - 15:55
Caesars Entertainment Operating Company, which owns or manages 44 casinos and resorts in the United States, will also split itself into several new companies.
Categories: Transactions

Bond Issues From Russia and Ecuador Serve as Cautionary Tales for Junk-Rated Debt

New York Times DealBook - Fri, 12/19/2014 - 15:40
Two fast-imploding bond issues from Ecuador and Russia are leaving prominent creditors, including BlackRock and Franklin Templeton, in their wakes.
Categories: Transactions

Banks Pour Resources Into Mobile

Wall Street Journal MoneyBeat - Fri, 12/19/2014 - 15:38
Bloomberg News

U.S. customers are now interacting with their banks more through mobile devices than any other channel. The banks have taken note, pouring more resources into ensuring customers’ mobile experiences are useful.

Gavin Michael, head of digital at Chase, a unit of J.P. Morgan Chase & Co. created a team focused on digital projects at the bank and set specific goals. One of the top items on his agenda? Revamp the Chase mobile application. Among the changes, Mr. Michael and his team simplified the sign-in process.

In December, an update allowed users to swipe to see balance information for most accounts without logging in, the bank said.

The bank has also been experimenting with personalization. Earlier this year it customized photographs as a way to greet some users. For instance, users in New York City can see Washington Square Park in the day and Bryant Park at night or those in Los Angeles can see Santa Monica beach during the day and Griffith Park at night.

Mr. Michael and his team review hundreds of customer reviews each week to improve issues and incorporate feedback into the next release. One item that often pops up: mobile check deposits. In response, the team has sent out tips on typical problems users face, for instance, don’t take photos of checks on a white background, clean your phone photo lens and keep your hands steady while taking the picture.

Cincinnati-based Fifth Third Bank is preparing to launch a feature that allows users to deposit checks by just laying them in front of their phone’s camera, without having to actually take a picture. The feature, expected to become available in the first quarter of 2015, has already helped cut error rates in half.

While 85% of interactions between Wells Fargo & Co. and its customers are self-service–over ATMs, online and mobile channels–the real power of mobile is its ability to interact and integrate with other channels to make them all better, said Brett Pitts, head of digital at Wells Fargo. The goal is to more seamlessly transition customers from self-service to assisted- and, ultimately, full-service transactions, he said.

The San Francisco-based bank has worked on mobile banking platforms for nearly two decades. In 1997, they worked on a Nokia device, in 2000 they focused on PalmPilots and in 2006 moved to the BlackBerry , said Jim Smith, head of Wells Fargo Virtual Channels, in an interview earlier this year. Eventually they built an app in the bank’s incubator and launched it in early 2007, he said.

Wells Fargo is working on rolling out new infrastructure that’s “device aware” so it will work on say an iPhone or Android operating system, Mr. Smith said. Roughly every 90 days the bank has a new app release, he said, examining customer behavior, competition, economics and risk.

Categories: Transactions

Morgan Stanley, J.P. Morgan Take Tech IPO Honors

Wall Street Journal MoneyBeat - Fri, 12/19/2014 - 15:12

It came down to the wire: A final-month burst in technology and Internet IPO underwriting pushed Morgan Stanley a hair ahead of Goldman Sachs Group Inc., who won last year’s race, in terms of proceeds raised, and tied it with J.P. Morgan Chase & Co. by number of deals, according to Dealogic’s figures.

Associated Press

Morgan Stanley hit the tape as the “lead left” underwriter on six of the seven tech and Internet IPOs this month—headlined by online lender LendingClub Corp.’s $1 billion debut and Chinese dating app Momo Inc.’s $216 million IPO.

By proceeds raised in deals, Morgan Stanley got credit for being a lead underwriter on $6.26 billion worth of U.S.-listed tech and Internet IPOs. That just narrowly beat out Goldman Sachs’s $6.02 billion. Third place in proceeds was Credit Suisse, with $5.67 billion, who jumped up from 6th last year.

In terms of number of deal roles, J.P. Morgan tied Morgan Stanley for the most, with bookrunning positions on 27 tech and Internet IPOs in the U.S. each.

Last year, it was Goldman who had come out on top on both counts, with $1.56 billion across 20 tech and Internet IPOs. That was a notable leap after Morgan Stanley had led virtually all of the big software and Internet IPOs in 2011 and 2012, with top billing on Facebook Inc., LinkedIn Corp., Workday Inc., and Splunk Inc.

Both Goldman and Morgan Stanley had some leadership changes in their tech banking businesses in 2014: Goldman lost Anthony Noto, who helped land Twitter’s IPO, when he left to become Twitter’s CFO. At Morgan Stanley, veteran Paul Chamberlain retired, and Drew Guevara and Andy Kearns were named as co-heads of global tech banking with Michael Grimes.

Alibaba, despite raising $25 billion in its IPO, had limited effect on the final ranking. The way Dealogic works is, it divides the total sum raised by the deal equally among each lead underwriter. So giant as it was, Alibaba ended up as a bit of a wash because it spread out the lead-bank love so widely. (Dealogic also gives no extra credit for being “lead left,” or the first listed on a deal, which sometimes, but not always, goes along with a bit more money and responsibility.)

Credit Suisse Group AG secured its winning position for China-based Internet and tech IPOs, with lead credit for $4.7 billion worth, across 9 deals.

Banks fight fiercely for hot Internet company deals, and often tout their leadership in the sector. So while it’s hardly life-and-death stuff, the league table is always closely watched, including by companies who are picking banks for their own deals.

In other words, the folks at Uber Technologies Inc., Xiaomi Inc., and other members of the $10 billion-plus private valuation club will surely be seeing a lot of these tables in slide decks.

Categories: Transactions

Podcast: Recapping a Wild Week for Markets

Wall Street Journal MoneyBeat - Fri, 12/19/2014 - 14:58

The stock market took investors on a wild ride this week, tumbling alongside the plunging price of oil at the start of the week and then reversing course sharply when the Federal Reserve vowed to be “patient” in raising interest rates.

Paul Vigna/WSJ

In this week’s edition of the MoneyBeat Week podcast, the crew revisits all that action, and debates whether the market’s reaction to the Fed was the right one. Did anything really change in the Fed statement?

We also look into our crystal ball to see what lies ahead in 2015 for interest rates, markets, economies and one company that always seems to be top of mind for investors: Apple Inc.

For all that and more, grab a set of headphones and listen to MoneyBeat Week. Or catch us on iTunes along with other Journal podcasts in the WSJ What’s News section.

 

Categories: Transactions

Buffett Reminds His Top Managers: Reputation Is Everything

Wall Street Journal MoneyBeat - Fri, 12/19/2014 - 14:37

Warren Buffett‘s “All-Stars” are getting their biennial reminder this month that they need to guard Berkshire Hathaway Inc.'s reputation–and plan for the future.

Bloomberg News

Mr. Buffett, who’s run Berkshire for the past five decades, sends a memo every other year to the managers of each of Berkshire’s 80-plus subsidiaries that emphasizes those two points. The latest such memo, which varies little from the version Mr. Buffett shared with investors in Berkshire’s 2010 annual report, carries Friday’s date.

Mr. Buffett reminds his managers–who head units that lease planes, sell jewelry, print newspapers, rent office furniture, make bricks, and train pilots, among other things–that their top priority must be to “zealously guard Berkshire’s reputation.”

“As I’ve said in these memos for more than 25 years,” he writes in the latest one, “we can afford to lose money–even a lot of money. But we can’t afford to lose reputation–even a shred of reputation.”

The concern about reputation is a theme Mr. Buffett has hit on in other forums as well through the years. Most famously, it was central to testimony he delivered to Congress after he stepped in as chairman of a floundering Salomon Brothers in 1991. He told legislators that his message to employees then was: “Lose money for the firm, and I will be understanding. Lose a shred of reputation for the firm, and I will be ruthless.”

The latest memo also reminds the managers–who he’s dubbed “The All-Stars”–to keep him in the loop about “who should take over tomorrow if you should become incapacitated overnight.”

Generally, the managers operate with a large degree of autonomy, and Mr. Buffett says elsewhere in the letter that they can “talk to me about what is going on as little or as much as you wish.” But Mr. Buffett himself takes responsibility for keeping a roster of potential replacements for each of the leaders of Berkshire’s far-flung operations.

“Your note can be short, informal, handwritten, etc,” he writes. “Just mark it ‘Personal for Warren.’”

The memo can be viewed in its entirety below. Click on the box in the bottom left for a full-screen view.

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Categories: Transactions

Dealpolitik: Decision Time for Dollar Tree

Wall Street Journal MoneyBeat - Fri, 12/19/2014 - 14:13
Reuters

Dollar Tree Inc. is facing a critical decision this weekend on its proposed acquisition of Family Dollar Stores Inc.: Will it up its bid for Family Dollar or declare its current cash-and-stock deal best and final, forcing Family Dollar shareholders to vote the deal up or down at Tuesday’s scheduled meeting? Or will it punt by allowing Family Dollar to postpone the meeting?

As Dollar Tree weighs its course of action, its rival for Family Dollar, Dollar General Corp., on Friday issued a long-promised update to the status of its own antitrust discussions with the Federal Trade Commission that turned out to be somewhat of a dud. Dollar General said it remained “actively engaged in discussions with” the FTC. Absent from the update were Dollar General’s prior emphatic statements that it “remains committed” to a Family Dollar buyout or that it is “confident in its antitrust strategy.”

The FTC review of antitrust issues is critical to the deal. Family Dollar’s board has rejected Dollar General’s $80-per-share offer in favor of a cash and stock deal with Dollar Tree currently worth around $76.50 per Family Dollar share. The board’s position is that there is too much antitrust risk in the Dollar General deal, and, even if the issues can be resolved, it will take a long time to close the deal. Dollar Tree has agreed to a “hell or high water” provision under which it pledges to sell as many stores as the FTC requires to approve the deal. Dollar General, however, has capped the number of stores it would sell at 1,500 and says if the deal dies for antitrust reasons, it would pay Family Dollar a fee of $500 million.

The spotlight is now back on Dollar Tree. It has a right under its merger agreement with Family Dollar to force the Dec. 23 shareholder vote unless there were to be additional disclosure that shareholders need about the deal or Family Dollar thought it would lose the vote on the merger. If it forces the meeting, it faces the risk that shareholders may turn down the merger in the hopes of getting the higher price from Dollar General or forcing Dollar Tree to up its bid.

More In Dealpolitik

Dollar Tree could decide to increase its price so that it comes closer to matching Dollar General’s $80-per-share bid. There is risk in this, as well, because substantial changes in the deal could require postponement of the Dec. 23 meeting date. That could give Dollar General time to see if it can make progress at the FTC.

Dollar Tree has a third option. It could permit Family Dollar to postpone the meeting without increasing its bid to see if Dollar General flames out in its attempt to get FTC clearance. (CNBC reported Friday that Family Dollar is planning to delay the Dec. 23 vote, and the New York Post last week had a similar report.) Since Dollar Tree’s last statement on the matter said the earliest the deal could close is February, putting the meeting off even by a month would not delay the closing. Things may not change much in a month. FTC negotiations can take a long time, and we may not know much more about Dollar General’s antitrust discussions in a month. But if Dollar Tree were in a position to close the deal shortly after a vote, shareholders might look more favorably on its deal even if its price was lower than Dollar General.

Send questions, comments or story ideas to Dealpolitik@gmail.com and follow Ron on Twitter: @Dealpolitik.

Categories: Transactions

1. ___________ Weighs In on Goldman’s Crossword Puzzle

New York Times DealBook - Fri, 12/19/2014 - 13:57
Hint: The New York Times's master of all words across and down.
Categories: Transactions

Nirvana Asia: Nevermind

Wall Street Journal MoneyBeat - Fri, 12/19/2014 - 13:13

Nirvana Asia was meant to bring investors life after death. Instead, the funeral company that caters to ethnic Chinese in Southeast Asia has plunged 36% below its initial public offering price since trading started in Hong Kong on Wednesday.

The company, which owns six crematoria and related tomb facilities in Malaysia, Singapore and Indonesia, was at a loss to explain the fall in a filing made on Friday. Nirvana reprinted its previously disclosed third-quarter results as if this old information might stir investor spirits. Perhaps the writing was on the wall when the IPO came in at the bottom of the expected price range.

The stock should find some support from cornerstone investors, who hold almost 6% of the company. These include Taikang Life Insurance Co., which now has exposure both to the death of its insurance premium payers and to their afterlife plans. It has agreed not to sell its Nirvana shares for six months. These now trade at a substantial discount to Chinese rival Fu Shou Yuan , based on earnings multiple. Perhaps investor nirvana could yet be achieved.

Categories: Transactions

Morning Agenda: Goldman Promotes Star Deal Maker

New York Times DealBook - Fri, 12/19/2014 - 12:56
Goldman names John E. Waldron co-head of its investment bank. | Regulators deem MetLife "too big to fail." | Another big whistle-blower reward in Bank of America case. | London tenants win battle over U.S. equity firm.
Categories: Transactions

A Great Place to Work Can’t Be Found on a List

New York Times DealBook - Fri, 12/19/2014 - 12:38
Few companies recognize that it’s not the number of hours their people work that determines the value they create, but rather the energy they bring to the hours they work, writes Tony Schwartz in the Life@Work column.
Categories: Transactions

Whistle-Blower Payouts Approach $170 Million in Bank of America Case

New York Times DealBook - Fri, 12/19/2014 - 12:34
The combined payout to four whistle-blowers in the federal government’s $16.65 billion settlement with Bank of America over its mortgage business would be one of the larger settlements the federal government has agreed to in any single case.
Categories: Transactions

With Oil Falling, Howard Marks Says Oaktree May Shed Some Caution

New York Times DealBook - Fri, 12/19/2014 - 12:21
Oaktree Capital likes to take advantage of disarray and doubt among other investors, and it's starting to see some.
Categories: Transactions

Oversight Council Explains Decision on MetLife

New York Times DealBook - Fri, 12/19/2014 - 12:04
The Financial Stability Oversight Council said it deemed MetLife systemically important because of its size, leverage and interconnectedness with other financial institutions.
Categories: Transactions

A Food Deal That Swims Against the Tide

New York Times DealBook - Fri, 12/19/2014 - 11:58
Thai Union's ’ $1.51 billion purchase of Bumble Bee Seafoods shows a focused, low-key approach to acquisitions that has lessons for others, says Una Galani of Reuters Breakingviews.
Categories: Transactions

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