Major Legal Trends for Just Like 2014 Except More So. Charles Engros

Transcription

1 Major Legal Trends for 2015 Just Like 2014 Except More So Charles Engros January 15,

2 Major Legal Trends for 2015 SHAREHOLDER ACTIVISM SELLER S MARKET IN M&A DATA PROTECTION & PRIVACY Morgan, Lewis & Bockius LLP 2

3 Shareholder Activism is Here to Stay Morgan, Lewis & Bockius LLP 3

4 Activism on the Rise Why Now? Activist Hedge Funds Hold $93 Billion in assets (a 43% increase since 2012) 120 New activist funds in past two years 140 Activist campaigns in 2014 vs. 64 in 2011 Plenty of cash on company balance sheets Easy access to debt Growing acceptance by institutional investors Morgan, Lewis & Bockius LLP 4

5 What Do Activists Really Want? Better Corporate Governance Actual Control of Target Unlocking Shareholder Value for All Shareholders Opportunity to Generate Outsized Returns on Investments PROBABLY NOT NO! MAYBE? YES! Morgan, Lewis & Bockius LLP 5

6 What Companies are Vulnerable? A company that is undervalued by the market relative to its intrinsic value. With levers activists can use Poor operating performance Cash reserve or debt access Subpar board or management Weak legal defenses Poor investor relations Divisible assets Morgan, Lewis & Bockius LLP 6

7 Size Does Not Matter Wolf Packs Vulnerable Small-caps: Easier to swallow Less sophisticated board Weaker preparations Disproportionate public status costs Attractive M&A target Morgan, Lewis & Bockius LLP 7

8 Implications for You Prepare Defenses Join a Wolfpack Mine Either Group for M&A Opportunities Morgan, Lewis & Bockius LLP 8

9 M&A: Still A Seller s World Strategics flush with cash and confidence Sponsors flush with cash and need to make investments Speed and flexibility critical Persistence of Public Company Deal Creep No indemnity deals Material Adverse Effects standards Smaller (or no) escrows Court Decisions of 2014 Aiding and abetting liability Controlling shareholders Forum choice and fee-shifting bylaws Morgan, Lewis & Bockius LLP 9

10 Insurance Industry to the Rescue? Rep and Warranty Insurance Who benefits more? Will the insurer pay a claim? Who pays for the policy? Better coverage to buyer Sharing diligence findings? 10-20% of enterprise value Rates decreasing: From 4-10% to 2-4% of amount of coverage Plus underwriting fee Sharing the pain still required Morgan, Lewis & Bockius LLP 10

11 Insurance Industry to the Rescue? Rep and Warranty Insurance (Cont d) What does it exclude? Known problems Diligence findings How does it impact the deal? Speed: (3-4 weeks) Terms Sponsors starting to include as part of bid packages Will it become the new staple? Morgan, Lewis & Bockius LLP 11

12 Cybersecurity and Data Privacy 48% increase in detected cybersecurity incidents vs (PWC survey) Increased public awareness Ever increasing sophistication of hackers Complex and expanding legal patchwork Morgan, Lewis & Bockius LLP 12

13 Sources of Complaints Federal Trade Commission Securities and Exchange Commission State Attorneys General or other Agencies Consumer Class Actions Media (reputational harm) EU and other Foreign Regulators Morgan, Lewis & Bockius LLP 13

14 Ten Key Trends for Mobile App Privacy February 2013 FTC Staff Report January 2013 California AG Recommendation GPEN (Global Privacy Enforcement Network) September 2014 Report 2. Data Security Compliance Programs 7 state mandates 47 state security breach notification laws Healthcare industry at forefront Cyberhygiene programs Morgan, Lewis & Bockius LLP 14

15 Key Trends for 2015 (cont d) 3. Security Breach Responses FTI Consulting Survey What Must You Do What Should You Do What Should You NOT Do Response and Recovery Plan Who does what Engagement with law enforcement Informing customers, investors and the public 4. Privacy by Design FTC recommendation Proactive, not reactive HTC America case Morgan, Lewis & Bockius LLP 15

16 Key Trends for 2015 (cont d) 5. NIST Cybersecurity Framework 1.0 (2014) Presidential Executive Order Living Document Critical Infrastructure SEC Adoption 6. Economic Cyber Espionage Consumer information Trade secrets Trade Secrets Protection Act of 2014 DOJ Cybersecurity Unit (December 2014) Morgan, Lewis & Bockius LLP 16

17 Key Trends for 2015 (cont d) 7. Board Liability Shareholder derivative actions Understanding vs. expertise Recruitment of knowledgeable board members Enterprise risk Committees and Analyses 8. Insurance Traditional Comprehensive General Liability Policies Insurers began adding exclusions in 2014 Specialty cyber policies First party coverage Third party coverage D&O policies Morgan, Lewis & Bockius LLP 17

18 Key Trends for 2015 (cont d) 9. California Developments Toughest state laws January 1, 2015 enhancements for minors September 2014 amendments to security breach notification law A de facto national standard 10.Big Data May 2014 White House Report Regulation likely but uncertain Morgan, Lewis & Bockius LLP 18

19 The End Morgan, Lewis & Bockius LLP 19