X

Thank you for sharing!

Your article was successfully shared with the contacts you provided.
All summer long, tech lawyers were hoping a stock market rally — at least a small one — would come right after Labor Day so they could get some deals done by the end of the year. Companies were lining up to file their initial public offering documents for a winter IPO or prepping for huge capital injections from a debt or equity offering. Now, everything has changed. Almost all ongoing projects at Silicon Valley firms have been frozen in the wake of the terrorist attacks on the World Trade Center and Pentagon. But even with the disaster, a few deals moved forward last week and many corporate lawyers said the stock market’s gyrations, while violent, could have been worse. Yet, hopes the economy will see a rebound this year are gone, and many corporate lawyers are bracing for uncertainty ahead; that goes for tech-centric firms as well as those who represent more traditional clients, like banks, oil companies and airlines. “There was a great hope that things would try to bounce back after Labor Day, and that’s been completely eliminated,” said Tracy Edmonson, a Latham & Watkins partner in Los Angeles. “And that’s a huge setback for the economy.” Edmonson is actually one of the few lawyers to progress on a deal in the last week. She represents a food distributor that was hoping to close on $300 million in debt financing. Last week, the day after the World Trade Center was destroyed, the deal’s investment bankers were back at work, calling for calm and trying to close the deal. “The debt markets are resilient,” Edmonson said. “It wasn’t a matter of whether [the deal would close], it was a matter of when.” The debt markets, however, are traditionally more insulated from outside events than the equity markets. Debt investors tend to focus on the performance of an individual company, Edmonson said. Equity investors keep a closer eye on the overall economy, she said. Some companies seeking private equity offerings did get lucky. On Friday, Seattle-based Internap Network Services Corp. closed a private placement for $101 million after the CEO personally appealed to investors. Like most deals, Internap’s financing was subject to a so-called “material adverse change out.” A MAC clause is like a get-out-of-a-deal-free card for investors if a company suffers some extreme change for the worse. Bruce Dallas, a partner at Davis, Polk & Wardwell in Palo Alto, Calif., said that after the attacks last week, investors got nervous. “The CEO kept a level head, explaining to the investors that the attack itself didn’t have any adverse impact on the company,” Dallas said. Internap makes Internet infrastructure components. But for stocks trading on the open market, it’s a different story. The New York Stock Exchange suffered its largest point drop in history on Monday, but tech lawyers say it could have been much worse had federal regulators not moved to stabilize the markets. SEC officials even called on some of the nation’s largest companies directly, inviting them to take advantage of the temporary no-penalty window, lawyers said. The SEC’s move had Steven Bochner, a Wilson Sonsini Goodrich & Rosati partner, working through last weekend to help companies execute on their existing repurchase plans, or draft new ones. Repurchase plans limit both how much money a company can spend buying its own stock and how much time it can take to buy stock, and they require board approval. Companies that hadn’t set up repurchase plans were moving fast to do it, Bochner said. “It’s gone better than some expected,” Bochner said. “People have been just trying to deal with getting back to normal.” As a result, overall deal flow is picking up, said Bochner. A handful of venture financings that were nearing a close before last week are continuing, and several pending mergers and acquisitions are gaining steam, he said. While it’s not Bochner’s deal, the Wilson-led Hewlett-Packard Co. merger with Compaq Computer Corp. appears to be moving forward. Most lawyers predict there won’t be a flood of canceled deals — though many companies with pending deals are weighing their options. Companies are also waiting to see what kind of ricochet effect the attacks and lingering consumer fears will have on various industries, said Michael Halloran, a Palo Alto-based partner of Pillsbury Winthrop. “It’s hard to give a clear answer in Silicon Valley, but I would say there will be a greater degree of caution overall,” Halloran said. For the San Francisco Bay Area, any adverse ripple effect of last week’s attacks in New York and Washington, D.C., won’t be limited to technology companies. Law firms throughout the Bay Area have clients that could be affected. The airlines, for example, have already been affected. San Francisco-based Heller Ehrman White & McAuliffe handles insurance coverage matters for American Airlines Corp. Two of the company’s jets were hijacked last week; one was used to destroy the North Tower of the World Trade Center, and the other crashed into the Pentagon. The firm said it could not comment on its representation of American. Heller’s insurance coverage practice extends to large lending institutions that increasingly have insurance divisions, said James Olson, a Heller partner who represents major lenders. “At the outset, one of the concerns people had was whether or not the banking system would break down,” Olson said. “And that didn’t happen.” Perhaps the greatest uncertainty is how lenders will react to the crisis. Flagging consumer confidence could weaken a number of industries, sending them scrambling for cash, said George Haley, a Pillsbury partner in San Francisco who has a large banking practice. He counts among his clients GE Capital Corp., which, so far, is upbeat about the economy. “Most of the people I talked to kind of look at lending as, ‘this is something that we do, we finance America,’ ” Haley said. But business, as Haley put, is terrible right now, and even patriotic intent may not keep the money flowing. “They’re going to go to a lender, and a lender is going to say, ‘I just can’t loan to you — a week ago, your business looked great and right now, it doesn’t look so great,’ ” Haley said.

This content has been archived. It is available exclusively through our partner LexisNexis®.

To view this content, please continue to Lexis Advance®.

Not a Lexis Advance® Subscriber? Subscribe Now

Why am I seeing this?

LexisNexis® is now the exclusive third party online distributor of the broad collection of current and archived versions of ALM's legal news publications. LexisNexis® customers will be able to access and use ALM's content by subscribing to the LexisNexis® services via Lexis Advance®. This includes content from the National Law Journal®, The American Lawyer®, Law Technology News®, The New York Law Journal® and Corporate Counsel®, as well as ALM's other newspapers, directories, legal treatises, published and unpublished court opinions, and other sources of legal information.

ALM's content plays a significant role in your work and research, and now through this alliance LexisNexis® will bring you access to an even more comprehensive collection of legal content.

For questions call 1-877-256-2472 or contact us at [email protected]

 
 

ALM Legal Publication Newsletters

Sign Up Today and Never Miss Another Story.

As part of your digital membership, you can sign up for an unlimited number of a wide range of complimentary newsletters. Visit your My Account page to make your selections. Get the timely legal news and critical analysis you cannot afford to miss. Tailored just for you. In your inbox. Every day.

Copyright © 2020 ALM Media Properties, LLC. All Rights Reserved.