Steve Davidoff has the story, and it’s an interesting exercise in corporate contracting complicated by jurisdictional choice.
Abercrombie’s proposed reincorporation is essentially a takeover defense. Unlike Delaware, Abercrombie’s current state of incorporation, Ohio
- Has a business combination statute that’s triggered by a 10% acquisition rather than 15% as in Delaware.
- Has a control share acquisition statute requiring shareholder approval of an acquisition of shares that would put the acquirer over the statutory level of control.
- Would disenfranchise shareholders (i.e., arbs) who acquire a more than .5% block after an acquisition proposal.
- Does not have a “Revlon rule” subjecting director decisions to sell the company to a higher scrutiny level.
- Is Abercrombie’s home state, and therefore a friendly forum in a takeover battle.
This situation illustrates how jurisdictional choice makes contractual what would otherwise seem to be mandatory takeover rules.
Is it a problem that Abercrombie is changing the original statutory “bargain” based on Delaware incorporation its shareholders may have relied on? Steve notes that Abercrombie proposed the reincorporation after the announcement of buyouts for competitors J. Crew and Jo-Ann Stores which may have put Abercrombie in play.
It would be interesting to do an event study on Abercrombie shares. I wonder if they (1) took a hit from reducing the probability of a bid; (2) got a boost because any takeover will be after an auction and possibly at a higher price; (3) got a boost because the move communicates information about the likelihood of a bid; (4) didn’t move because a reincorporation was already priced in; or (5) didn’t move because the shareholders still have to vote on the reincorporation, and proxy advisors may weigh in against it.
Finally, was there adequate disclosure to shareholders about the reason for and implications of the move? Does it matter if there were enough sophisticated or well-advised institutional shareholders to help ensure an informed vote?
The bottom line is that the Law Market is a significant part of the transactional environment.
