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Deal-making lawyers are closing deals faster as companies re-embrace lightning-fast tender-offer acquisitions, which are direct offers to buy stock from a target’s shareholders. The potential to close a tender offer in 20 business days, compared with a few months for a typical cash merger, means that lawyers finish deals quickly and usher more through the pipeline. Momentum and speed make an enormous difference in terms of getting deals done, said Lou Goodman, who heads the Boston office of New York-based Skadden, Arps, Slate, Meagher & Flom. “It will increase the number of deals that get done because it will move faster,” Goodman said. In two of Skadden’s recent deals, it represented software company Hyperion Solutions Corp., which was acquired through a $3.3 billion tender offer by Oracle Corp., and New RiverPharmaceuticals Inc. in its $2.6 billion tender acquisition by Shire PLC. The catalyst A December U.S. Securities and Exchange Commission (SEC) amendment to the tender-offer “best-price rules” — which require all security holders to receive the highest consideration paid to anysecurity holder — catalyzed the surge. The change cuts the risks from court decisions that said compensation agreements with employees or executives who are also shareholders violates tender-offer best-price rules. The court rulingssaid that the employees and executive shareholders involved in such compensation deals effectively received more money than the other shareholders. The SEC changed the best-price tender-offer rule because different circuits were interpreting the rule differently, in some cases very broadly, said Brian Breheny, chief of the office of mergers& acquisitions in the SEC’s Corporation Finance Division. The amendments make it clear that the tender-offer best-price provisions apply only to the securities involved in the offer, and not to compensation arrangements. “The amendments were adopted to alleviate the uncertainty produced by the various, and I believe at times inaccurate, court interpretations of the commission’s rule,” Breheny said. The tender-offer revival gives companies more acquisitions options and keeps lawyers busy churning out the fast-paced deals. It also helps companies avoid tangles with shareholders who opposeparticular deals. Overall, Thomson Financial tracked 117 U.S. tender-offer deals through June 18, and 213 in 2006, involving a purchase of at least 5% of stock, or 3% if the cash value exceeds $1 million. Thatpace compares with 95 in 2005 and 59 in 2004. In the last decade, U.S. tenders hit a high of 229 in 2000. Tender-offer deals finish faster because acquirers offer to buy a target’s stock for the 20-business-day tender period, plus any time extensions, instead of waiting for SEC clearance for a proxystatement. Tender deals also start faster, usually mailing their offer within about a week, said Sarkis Jebejian, a corporate partner at New York-based Cravath, Swaine & Moore. “In a tender offer, you don’t have the luxury of collapsing for a few days,” Jebejian said. Instead of a proxy statement used in a standard cash merger, tender offers require the acquirer’s offer to purchase and the target’s recommendation statement to shareholders. In friendly deals, aninformation statement about the acquirer’s nominees to the target’s board and other details is also sent to the target’s shareholders, Jebejian said. “It’s more work compressed over a tighter time frame,” Jebejian said. Cravath represented Xerox Corp. in its approximately $1.5 billion tender offer for Global Imaging Systems Inc. this year. Last year, in a deal announced right after the SEC’s notice of itsrule change, Cravath represented Kos Pharmaceuticals Inc. in Abbott Laboratories’ $3.7 billion tender-offer acquisition. The acquirer’s goal is to buy enough shares to hit a state-law mandated percentage threshold, which allows the acquirer to simply merge the target company into its operations through a so-called”short-form merger.” It’s done without a shareholder vote or meeting. The required percentage is 90% in Delaware and in the range of 80% to 90% in some other states, lawyers say. Negotiating skills Helping buyers attain deal terms that support that goal if they don’t hit the target in the initial tender period translates to extensive negotiations for lawyers. Clifford E. Neimeth, chairman of the New York mergers and acquisitions practice at Greenberg Traurig, is currently working on a tender offer for a private equity client that involves options forextensions of the original tender-offer period and a subsequent offering period. It also features a provision giving the bidder an option to purchase newly issued shares from the target company so it can hit the ownership threshold for a short-form merger. Such terms raise the comfort level of private-equity buyers, Neimeth said. “It’s generating an additional means to acquire target companies and an increase in overall deal flow,” Neimeth said. “Indirectly it’s benefiting me and my practice, and thousands of others.” Voting problems solved The SEC shift isn’t the only factor driving the tender-offer trend, lawyers say. Tender offers alleviate problems associated with the shareholder-voting requirements of a merger, said Warren de Wied, who co-heads the mergers and acquisitions practice group at New York’s Fried,Frank, Harris, Shriver & Jacobson. Shareholders increasingly try to hold up voting in a merger transaction to extract additional consideration from the buyer, he said. The date that determines which shareholders can vote on the merger is often a month or two before the vote. Shareholders who sell after that date don’t vote and new shareholders can’t get a proxystatement to vote. This shift in the shareholder population gives more leverage to dissident shareholder groups, de Wied said. “If a transaction with a significant constituency is opposed to merger, it’s hard to get the vote,” de Wied said. “In tender offers, whoever holds the shares tenders them.” Fried Frank’s recent tender-offer work includes advising shopping mall developer Simon Property Group Inc., which teamed up with Farallon Capital Management for an approximately $1.64 billionacquisition of mall owner Mills Corp. in April. The upshot is that a majority of cash M&A transactions are now tender offers, said Joe Johnson, chairman of Boston-based Goodwin Procter’s mergers and acquisitions/corporate governance practice. “With the M&A environment so hot, it allows more deals to get done,” Johnson said. Goodwin Procter has worked on at least a half-dozen tender offers since the SEC rule change went into effect, including representing Global Imaging in Xerox’s tender-offer acquisition of thecompany, he said.

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