The Perelman family, which owns 46% of the outstanding common stock in Premium F

The Perelman family, which owns 46% of the outstanding common stock in Premium Fabrics, has determined that it would like to take the company private at $10 a share in cash. Premium Fabrics, or PFAB, is a publicly traded, Delaware corporation, specializing in the fabrication of textiles. Several years ago, PFAB patented a new technologysignificantly reducing the chemicals and water needed to dye ordinary denim and other heavy fabrics. Despite thepromise of this advancement, due to certain aggressive financials decisions made soon before the onset of the COVID-19 pandemic, the family believes the company has not been able to unlock the value of this new technology.The trading price of Premium Fabrics as of close of the market on December 12 was $7.
The Perelmans have just hired you and your firm to advise them on structuring the transaction. They know very little about doing deals but Tom Higgins, the family’s regular counsel and a graduate of Harvard, knows you and your firm from his law school days. He is looking to you and your firm for the necessary expertise and will follow your advice in structuring the transaction in a manner that protects the Perelmans. You meet with him and he provides you with the following facts:
· The Perelman family owns 46% of the outstanding common stock or Premium Fabrics with a hedge fund, Sharp Capital, owning 12%. Passive institutional investors (like Vanguard and Blackrock) and thegeneral public own the remaining shares, with none holding more than 5% individually.
· The Chief Executive Officer of Premium Fabrics, Walter Blue, a chemical engineer by training, joined the company in 2018. He holds 1% of the company’s common stock and also holds an option to receive an additional 0.5%, which vests upon the achievement of certain performance milestones but would not bereceived if the company were sold before those milestones were met.
· Premium Fabrics’ stock trades on the NYSE. There have been two public offerings by the family: the company went public in 2014 at $15, and later held a secondary offering at $20. Sharp Capital paid $15 /share for the bulk of its 12% stake.
· The Board comprises 7 members. Three members are members of the Perelman family. CEO Walter Blue is a director as well. The President of Sharp Capital, Michelle Eastman, also serves on the Board of Premium Fabrics and has been a member of Winged Foot Country Club in Westchester for several years, upon the recommendation of the Perelmans. For the last 2 years she has rented a summer cottage to the Perelmans in Nantucket for the month of August and the Perelmans have rented their second home in Miami to James and her family for two weeks in January. The rents are at market rates. Besides Michelle Eastman, the other two Board members are Norma Lange and Mark Good. Both have been designated by the PFAB Board as independent for NYSE purposes. Lange is an accountant and Good is an attorneywho represented the Perelmans four years ago in an unrelated real estate transaction. There has beenno recent transactional business. Good has been asked to remain on the Board if the company goes
private. It is assumed that neither Eastman nor Lange will remain on the Board following thetransaction.
· Premium Fabrics regularly uses an investment banking firm called Lightyear Partners, a firm that wasintroduced by the Perelman family to the Board years ago. Lightyear Partners is currently helping PFAB management prepare projections for the company’s performance over the next five years. Lightyear Partners also recently made a presentation to the PFAB Board reporting market intelligence that other public companies – competitors of Premium Fabrics – are interested in acquiring PFAB due to its low stock price, and analyzing PFAB’s value. (This presentation is in part what motivated the Perelmanfamily to reach out to you.)
· The Perelman family is very interested in acquiring the rest of Premium Fabrics and are prepared to be aggressive, but will follow your counsel. Although they would like to offer $10 per share, they are ultimately prepared to pay a price of up to $11 per share.
Please prepare a detailed memorandum to Tom Higgins outlining your advice on how to structure this transaction,addressing both the legal structure and any process considerations. You may offer the client options and you should noteany possible obstacles to your proposed approach(es). Tom Higgins also specifically asked that the memo address how the Perelman’s attempt to take the company private might fail.
Your memo should include legal analysis supporting the structure you propose. You do not need to include a statementof facts in your paper; rather, you should rely on those facts listed above.
Your memorandum should be no longer than 15 pages, double-spaced.
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*** Laws and Cases to focus on that will help address the question
– New York Stock Exchange Listed Company Manual 101.00 and Para. 312.00 Shareholder Approval Policy
Issuer Tender Offers and Going-Private Transactions- Exchange Act Rule 14(d), 14(e), Rule 13e-14
* Going private- Exchange Act Rules 13e-3 to 13e-100, Schedule 13E-3 and Item 1014 Regulation M-A Item 1014, Item 9 Schedule 13E-3 incorporates Item 1015 of Regulation M-A. * Rule 13e-3(g)(1)
– Which kind of deal(s) should be structured
– Legal Duties of Boards of Directors, Senior Executives and Controlling Shareholders in Negotiated Acquisitions and Transactions.
– Please review these topics and address them in the hypothetical appropriately
– Duties of the Board, Shareholders, Executives
– Business Judgement Rule/Entire Fairness Test
– Case list
C&J Energy Servs. v. City of Miami Gen. Employees’ & Sanitation Employees’ Ret. Trust, 2014 Del. LEXIS 602 (2014)
In re Cornerstone Therapeutics Inc., 115 A.3d 1173 (2015)
CBS v. National Amusements, 2018 WL 2263385 (2018)
Smith v. Gorkom
Revlon v MacAndrews (1986)
Paramount Communications v. QVC (1994)
In re USG Corporation Stockholder Litigation, 2020 WL 5126671 (2020)
Stein v. Blankfein, 2019 WL 2323790 (2019) Pages 502 – 529
In re Cox Communications, Inc., 879 A. 2d 604 (2005)
In re Pure Resources Shareholders Litigation, 808 A. 2d 421 (2002)
In re Morton’s Restaurant Group, Inc., C.A. No. 7122-CS (Del. Ch. Jul. 23, 2013) (in the Morton case, read Section I., Introduction only)
In re CNX Gas Corporation Shareholders Lit., 4. A.3d 397 (2010)
Kahn v. M&F Worldwide Corp., 2014 WL 996270 (Del. March 14, 2014)
Olenik v. Lodzinski 208 A.3d 704 (2018)
In re Homefed Corporation Stockholder Litigation, 2020 WL 3960335 (2020)
In re Tesla Motors, Inc. Stockholder Litigation, 2018 WL 1560293 (2019)
Tornetta v. Musk, 2019 WL 4566943 (2019)
PSC Metals, Inc. v. Southern Recycling, 324 F Supp 3rd 443 (2019)
Genuine Parts Company v. Essendant, Inc. 2019 WL 425 7160 (2019)
DGCL § 262
DGCL §§ 251, 253 and 271
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Other cases are resources IF NEEDED
1. Introduction to Mergers and Acquisitions and types of deals in Mergers and Acquisitions
Cases- Kellogg v. Georgia-Pacific Paper Corp., 227 F. Supp. 719 (1964), Bryan v. Brock & Blevins Co., 490 F.2d 563 (1974), Marshel v. AFW Fabric Corp., 533 F.2d 1277 (1976), Santa Fe Industries v Green, 430 U.S. 462 (1977), Tornetta v. Musk, 2019 WL 4566943 (2019)
2. Mechanics of Mergers, Acquisitions, and Dispositions and their Consequences – Three basic forms: The Stock Swap Statutory Merger, the Cash-for-Assets Acquisition, and the Cash-for-Stock Acquisition
Case- Shidler v. All American Life & Financial Corp., 298 N.W.2d 318 (1980), Heilbrunn v. Sun Chemical Corp., 150 A.2d 755 (1959), Hariton v. Arco Electronics, Inc. 188 A.2d 123 (1963), Rauch v. RCA Corp (1988), and Macrophage Therapeutics v. Michael M. Goldberg (2019)
Equity Group Holdings v. DMG, 576 F.Supp. 1197 (1983), Federal United Corp. v. Havender 11A.2d 331 (1940), Elliott Assoc. v. Avatex Corp, 715 A.2d 843 (1998), Vantagepoint Venture Partners v. Examen 871 A.2d 1108 (2005), Mehta v. Mobile Posse (2019), LP v. Steel Point CP Holdings (2019), United States v. Bestfoods (1998), Manti Holdings LLC v. Authentix (2019) – DGCL Section 251, 253, and 271
3. Joint Gains and the Appraisal Remedy – DGCL Section 262
Cases- Weinberger v. UOP (1983), Cede & Co. v. Technicolor (1996)
– Is Deal Value the Best Evidence of Fair Value? In re Appraisal of Dell, Inc., (2016) and 177 A.3d 1 (Del 2017)
– Awarding Interest in Appraisal Proceedings- Merion Capital, L.P., v. 3M Cognet (2013)
– New York Stock Exchange Listed Company Manual 101.00 and Para. 312.00 Shareholder Approval Policy
Issuer Tender Offers and Going-Private Transactions- Exchange Act Rule 14(d), 14(e), Rule 13e-14
* Going private- Exchange Act Rules 13e-3 to 13e-100, Schedule 13E-3 and Item 1014 Regulation M-A Item 1014, Item 9 Schedule 13E-3 incorporates Item 1015 of Regulation M-A. * Rule 13e-3(g)(1)
Transfer or Vesting of Assets Vest in Survivor- PPG Industries Inc v. Guardian Industries (1979)
Stock Acquisition: No Vesting or Transfer- Branmar Theatre Co v. Branmar (1970)
Asset Acquisitions: Transfers and Tradeoffs- Chemetall GMBH v. ZR Energy, Inc.
Shareholder Representatives LLC v. RSI Holco (2019)
4. Acquisition Documents – confidentiality agreements, letters of intent, investment banker engagement letters,
Cases- PSC Metals v. Southern Recycling (2019), RAA Mgmt LLC v. Savage Sport Holdings (2012), PharmAthene (2013), Texaco, Inc. v. Pennzoil Co (1987), Cooper Industries v. CBS Corp. (2019), Genuine Parts Company v. Essendant (2019)
The Buyer Refuses to Close- Hexicon Specialty Chemicals v. Huntsman (2008), Consolidated Edison, Inc v. Northeast Utilities (2005)
Shareholder Representative Services LLC v. RSI Holdco, 2019 WL 2290916 (2019)
PSC Metals, Inc. v. Southern Recycling, 324 F Supp 3rd 443 (2019) RAA Mgmt., LLC v. Savage Sports Holdings, Inc., 45 A.3d 107 (2012) PharmAthene, Inc. v. SIGA Technologies, Inc., 67 A.3d 330 (2013)