FEI Members and Prospective Members
I'm sad to report that one of FEI's greatest leaders, Bill Parfet,
lost a son this week in a boating accident. Bill is well-known member of FEI.
The family has suggested that any contributions be made in memory of Kiley
Johnson, and I encourage you to do so. You can send them to the Coast Guard
Foundation, 394 Taugwonk Road, Stonington, CT 06378-1807.
acquisitions are so important to our members that the recent court decision
forcing Tyson to complete its acquisition of IBP prompted the issuance of a
legal summary. What's Your Beef? M&A Lessons to Be Learned from the IBP
Versus Tyson Foods Case, is an alert from Barry Brooks, Esq., of Paul,
Hastings, Janofsky & Walker LLP. Barry is a long-time associate and
supporter of FEI. He was kind enough to summarize the important lessons for
deal-making financial officers. Check out
http://www.financialexecutives.org/news/Tyson-Foods.pdf. You can contact
Barry directly at: email@example.com.
On June 15, the Delaware Chancery Court declared that IBP, the
nation's number-one beef and number-two pork distributor, could force Tyson
Foods, the poultry giant, to specifically implement its agreement to purchase
IBP for cash and Tyson stock, valued at $3.2 billion. The court ruled, in
essence, that Tyson had no legal basis for avoiding its obligation to
consummate the merger agreement, notwithstanding allegations by Tyson of false
representations and warranties by IBP in that agreement. The transaction was
the result of an intense auction process, during which Tyson made sure it was
the winning bidder. When the dust settled and it was time to close the
transaction, Tyson suffered from "buyer's remorse" and wanted to renegotiate.
Without dwelling on the details, there is a lot to learn and remember from this
case. Highlights include:
- It's hard for a buyer to argue breach of representations and
warranties when the seller is forthcoming during the diligence process. Tyson's
attorneys laid out multiple technical arguments to show that IBP didn't fully
disclose its financial and accounting problems in the merger agreement. It
turns out, however, that IBP disclosed or made available all of the material
issues. Full disclosure is great insurance. The court was willing to retrace
the diligence and disclosure history in painstaking detail, and concluded that
Tyson was provided all relevant information prior to signing the merger
agreement. Further, if there were red flags in the materials produced by IBP,
it was Tyson's responsibility to follow up.
- Disclosure schedules and representations and warranties ARE
important. Leaving these matters to the lawyers or the "B" transactional team
can be a huge mistake. Sophisticated buyers and sellers, with teams of
professionals, will be charged with the strict meaning of contractual language
and knowledge of due diligence results and disclosure schedules. Maybe it is
better to bury your head in the sand!
- Reliance on projections produced by the seller in a merger or
other acquisition transaction is problematic. Tyson's assertions that IBP's
projections were misleading went nowhere. IBP's projections were based on
reasonable assumptions, but they were prepared for different purposes (not the
sale of the company), and did not represent a guarantee of meeting
- The court awarded the extraordinary relief of specific
performance. This relief is even more unusual in view of the fact that the
seller, and not the buyer, was seeking this result.
US Loses Important FSC Case
Before WTO Dispute Panel
Mark Rosen of our DC staff summarized this
important issue. You can contact him directly at
firstname.lastname@example.org. On June 22, the World
Trade Organization Dispute Panel issued an interim report indicating that the
changes Congress made last year to the section of the tax code dealing with
foreign sales corporations (FSCs) did not comply with the WTO agreement. The
three-member panel, chaired by New Zealander Crawford Falconer, concluded that
the FSC Replacement Act provides less favorable treatment to imported products
than to similar products made in the U.S., in violation of Article III:4 of the
basic WTO agreement. The case against the United States was brought by the
European Union, and the preliminary decision (still confidential) was described
by most who have seen it as "overwhelmingly" against the United States FSC
Replacement system. Once the interim agreement is formally confirmed by the WTO
Appellate Body, the stage is set for additional negotiations or use of an
arbitration panel. If the United States ultimately loses the case, retaliatory
tariffs in the $4 billion range could be imposed by the EU on U.S. goods
entering that market. The burden is now shifting to office of the United States
Trade Representative (USTR) to try to broker some type of compromise to avert a
trade war with the EU.
Large companies rely heavily upon the FSC benefits, as do many
smaller and medium-sized businesses. For companies that are heavily involved in
exports, the impact of the decision - if carried forward to conclusion - is
likely to be a moderate to significant increase in the effective tax rate.
Standards Advisory Council
Four FEI members were appointed to the new
Advisory Council this week: David Sidwell, CFO of JP Morgan Chase & Co.
Investment Bank; David Shedlarz, CFO of Pfizer; Keith Sherin, CFO of General
Electric; and yours truly. The first meeting of the advisory council is set for
July 23, to discuss possible projects for the IASB agenda. Here is a link
to the press release announcing the full advisory
IASB and Stock Option
Leading compensation consultant Frederick Cook put out an
alert this week on this matter. The new IASB is considering reopening the
option accounting debate, after a decade-long battle in the United States that
put the issue to rest. Fred makes the important point that currently, this is
one subject on which global accounting standards already exist. No country
requires a fair value expense for fixed-term, at-the-money options granted to
employees. All countries permit the grant-date, intrinsic value method allowed
by the FASB. So, this isn't a global harmonization move, but rather another
step in the endless and relentless media, academic and regulator movement to
intervene in corporate governance matters through accounting rules and
undermine employee stock option programs they are so envious of.
Read Fred's update for more discussion.
CFOs See Economic Rebound,
But Not This Year
Chief Financial Officers predict U.S. economic
growth will remain slow during 2001 but foresee an economic rebound next year.
They also anticipate moderate corporate earnings increases over the next twelve
months. They do not, however, expect the recently mandated tax rebates to
contribute to their firm's revenues.
Read the full press release here.
diCarta, Inc., invites you a free Webinar on Revenue
Management Best Practices with Dr. Mary Barth, Professor Stanford Graduate
School of Business, and Gary Matuszak, Office Managing Partner with Andersen.
For more information, click here.
Don't miss "Expensing of Pension Plan Costs,"
Wednesday, July 11, 2 pm ET, and "Succession Planning: Tales from the Front
Lines," Wednesday, July 18, 2 pm ET.
Register for these
and all teleconferences here.
Job Posting: CFO (FEI Job
Ideal candidate has 5 - 10 yrs experience as Controller,
Dir. Finance or CFO of a software firm, and has successfully taken a company
public. Will manage finance, tax, accounting, HR, IR and admin/facilities. As a
key member of Management team, will work closely w/ CEO and VP Sales on
creating strategic business alliances and int'l expansion plans. Will build and
manage to the operating plan. Will be a regular presenter at Board of Directors
meetings. Contact Peggy Weigle, email@example.com. For more
career opportunities, visit the FEI Career Center.
Congratulations to Christopher Culver, Controller, John Deere
Landscapes, Atlanta, and Richard Passov, Treasurer, Pfizer, Inc., New York
That's all for now,
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