December 1, 2016
Aiming to avoid facing shareholder lawsuits in multiple jurisdictions, auto electronics maker Harman International Industries Inc. has become the latest company to add an exclusive forum provision to its bylaws as it moves toward an $8 billion merger with Samsung Electronics Co. Ltd.
Stamford, Connecticut-based Harman and Seoul, South Korea-based Samsung agreed Nov. 14 to merge, with Harman becoming an indirect wholly owned subsidiary of Samsung under the deal, according to a Form 8-K filed with the Securities and Exchange Commission.
Samsung, which makes TVs, smartphones, and other digital and electronic appliances, will pay $112 a share to acquire Harman in a deal with a total equity value of about $8 billion, according to a statement jointly issued by the companies.
The boards of directors of both companies have approved the deal, but a majority of Harman’s shareholders still needs to consent to the transaction, according to the securities filing.
The merger is also subject to other customary conditions, including the expiration or termination of the applicable waiting period under U.S. antitrust laws and the completion of a review of the transaction by the Committee on Foreign Investment in the United States, the filing says.
The “megabillion” merger is not subject to a financing condition and is expected to close in mid-2017, according to the filing. Samsung said it expects to use cash on hand to fund the transaction.
Harman will operate as a stand-alone Samsung subsidiary after the merger closes, and the target’s current management team will continue to lead the company, according to the parties’ joint statement.
Samsung said in the statement that it is pursuing a long-term growth strategy in automotive electronics and plans to retain all of Harman’s consumer and professional audio brands.
The transaction will “immediately give Samsung a significant presence in the large and rapidly growing market for connected technologies, particularly automotive electronics, which has been a strategic priority for Samsung,” according to the statement.
“The vehicle of tomorrow will be transformed by smart technology and connectivity in the same way that simple feature phones have become sophisticated smart devices over the past decade,” Samsung President and Chief Strategy Officer Young Sohn said.
‘No shop,’ termination fee
Harman agreed to a customary “no shop” restriction on its ability to solicit alternative acquisition proposals from third parties.
Section 5.02 of the agreement provides a “fiduciary out,” however, so that the board can consider unsolicited written acquisition proposals that could reasonably be expected to lead to a superior proposal.
According to the Form 8-K, Harman will have to pay a $240 million termination fee if it scuttles the deal for a better offer.
If either Harman or Samsung terminates the deal for other specified reasons, the terminating party will have to pay a $240 million fee, the filing says.
It also says either Samsung or Harman can terminate the merger if the closing conditions have not been satisfied as of Aug. 14, 2017, although that date can be extended by 90 days if all the conditions except the regulatory approvals have been met.
Exclusive forum for investor lawsuits
Harman’s board amended the company’s bylaws Nov. 13 to make Delaware the exclusive jurisdiction for internal corporate claims.
Such exclusive forum bylaw provisions have grown in popularity since the Delaware Court of Chancery upheld their validity in Boilermakers Local 154 Retirement Fund v. Chevron Corp., 73 A.3d 934 (Del. Ch. 2013).
The Delaware legislature codified that holding in 2015 by adopting Section 115 of the state’s General Corporation Law, which permits a company’s governing documents to require that intracorporate claims are brought “solely and exclusively in any or all” of Delaware’s courts.
Since then, companies including Tesla Motors Inc., Skullcandy Inc., Cablevision Systems Corp. and TubeMogul Inc. have adopted exclusive legal jurisdiction clauses in connection with the announcement of transactions such as mergers and acquisitions that might prompt unhappy shareholders to sue.