Category: Blog Articles

Delaware Court Gives New Meaning to the Non-Disclosure Agreement

Posted on by Tristan Heinrich

“But the road to true love seldom runs smooth, even for companies that make paving materials.” [1] This was just one of the memorable remarks from a recent Delaware Chancery Court decision, where Chancellor Leo Strine added a new twist to the way the court construes language in Non-Disclosure Agreements (“NDAs”). The opinion provides a plethora of information about NDAs and reminds law students – who may draft and negotiate these documents during their first years at a firm –that NDAs have significant strategic implications for clients and that standardized terms in these documents could be costly. Strine, in a lengthy opinion, strictly construed language in an NDA to have the effect of a standstill provision and issued an equitable remedy for the breach of the contract.[2]

This dispute began when Martin Marietta, a North Carolina aggregates corporation, entered into friendly discussions with Vulcan Materials (“Vulcan”), a large domestic aggregates corporation headquartered in Alabama.[3] Pursuant to the NDA facilitating these discussions, Martin Marietta could only use information acquired during the discussions for the purpose of considering a “business combination transaction” that was “between” the parties.[4] After discussions broke down, Martin Marietta used information it gained during the friendly talks in SEC public disclosure documents, investor calls, and press releases while it launched an unsolicited exchange offer proposing a deal of .5 shares of Martin Marietta for each Vulcan share.[5] Vulcan argued that the language in the NDA meant that any information gained from either side during the initial discussions was limited to use in “a friendly, contractual business combination between the two companies that was negotiated between the existing boards of the two companies, and that was not the product of a proxy contest or other unsolicited pressure strategy.”[6] Martin Marietta argued that the NDA allowed either side to use the information from the friendly negotiations for any type of business combination transaction between the two companies, and that Vulcan was attempting to read a standstill into the agreement even though it did not contain an explicit standstill.[7]

Strine looked to extrinsic evidence to resolve ambiguity in the contract language, focusing on Martin Marietta’s position as a potential target in the merger at the time of the NDA, and their sloppy attempts to gather and silo material gained during the friendly discussions in an effort to claim that information was not used in the hostile bid.[8] Martin Marietta’s changes to the initial NDA were “unidirectional: every one of the proposed…changes had the effect of making the NDA stronger in the sense of broadening the information subject to its restrictions and limiting the permissible uses and disclosures of the covered information.” According to Martin Marietta CEO Ward Nye’s own notes, at the time of the NDA he and his team were “interested in discussing…the prospect of a merger, but not an acquisition whether by [Vulcan] or otherwise.”[9] However, information gathered during discussions led Nye to believe there was an additional $100M each year in synergy potential above his initial estimates.[10] Nye claimed that the team evaluating the deal did not rely on any non-public information, but Strine held that once Nye had this information the deal was tainted. Any evaluation of a hostile bid at that point was an unauthentic attempt at using public information to rationalize synergy estimates derived initially from non-public information.[11]

Finally, the parties had included a clause in the NDA providing for injunctive relief in the event of breach by either side, and Strine held that “[t]he very fact that measuring the precise loss to Vulcan in terms of negotiating leverage, customer relations, and productivity loss from Martin Marietta’s misconduct is difficult to impossible is a reason why the parties’ voluntary agreement that any breach would give rise to injunctive relief should be respected and honored, not gutted by a judge, particularly of a state whose public policy is pro-contractarian.”[12] The injunction reflected the timing spelled out in the NDA restrictions and prevented Martin Marietta from making a hostile bid for four months.[13] While news reports have suggested that a renewed bid for Vulcan is on the table again because the injunction expired on September 15, 2012, the injunction has the practical effect of preventing a hostile bid for much longer.[14] The four month injunction prevented Martin Marietta from running its slate of directors at Vulcan’s June 1, 2012 annual meeting, and since only two Vulcan directors are up for election in 2013, the ruling eliminates Martin Marietta’s chances of taking control of Vulcan’s 10-member board until 2014.[15] Additionally, Vulcan’s position has now strengthened and analysts estimate that Martin Marietta would have to offer .7 shares for every share of Vulcan, a costly 40% increase above the previous bid.

Here are just a few takeaways from this decision:

You may not know your client is the target until it is too late

Vulcan entered into the initial NDA thinking it was the potential acquirer, and Martin Marietta ended up using information to turn Vulcan into the target. NDAs have the potential to enable or limit future strategic opportunities for clients, so they should not be viewed just as preliminary agreements that can be entered into without consequence.[16] The client’s position may shift based on information uncovered during friendly discussions and the thinking behind the language in the NDA should contemplate a range of potential outcomes.[17]

Establish a clean team to preserve a hostile takeover bid

Strine suggested that establishing a “clean team” may be a sufficient way to keep open the possibility of a hostile bid after friendly discussions are not fruitful.[18] Sequestering internal personnel, directors and advisors from exposure to confidential information could keep this option open, although in many cases this will not be available because senior executives need to be involved in both potential friendly negotiations as well as any potential hostile bid decisions.[19]

Do not count on a strict construction of the NDA – include a formal standstill to avoid a hostile bid

It is left for us to guess why Vulcan and Martin Marietta did not have a standstill agreement in their NDA. The most plausible reason is that neither party contemplated a hostile takeover bid. Something as simple as a friendship between executives may be a reason that parties do not include standstills in early conversations. But it’s better to be safe than sorry. Friendly relationships can easily sour during negotiations and clients concerned about a potential takeover bid would be wise to include a standstill provision. While a standstill provision may be a contentious issue, negotiating the types of information and the length of time applicable to any restrictive clauses may be a way to provide both sides what they need to fully engage in friendly discussions.[20] Additionally, the process of negotiating these items may uncover whether the other party wants to keep the hostile option on the table.

Do not forget about Injunctive relief

Delaware law allows parties to stipulate elements of a compulsory remedy.[21] While the injunctive relief in this case mirrored the initial timelines set in the NDA on restrictive use of information, there is no guarantee that the court will stick to timelines provided in the NDA when it comes to injunctive relief. Chancellor Strine noted that Vulcan’s request for relief was for the minimum period, and that a longer injunction may have been justified by the pervasiveness of the breaches.[22] It is plausible that the court in future cases could extend injunctive relief for up to a year beyond the NDA timing for the purpose of preventing a party from running directors at an annual meeting, which could then have longer-term implications for gaining board control depending on the timing of board elections.

Think early and often about framing the executive storyline

Strine staged the legal analysis with an extensive account of the facts and particular emphasis on Ward Nye, Martin Marietta’s CEO. Strine noted that “Nye was not at all anxious to find his chance to be a CEO lost in a large synergistic merger, which was a possibility depending on the relative negotiating and financial strength of Vulcan and Martin Marietta in merger talks.”[23] He also noted that “Nye’s own desire to be CEO and to have the headquarters in Raleigh was simply a selfless manifestation of his and Lloyd’s obviously superior management approach and the undisputed fact that an aggregates company should be closer to ACC basketball than SEC football.”[24] Further, Strine wrote “Nye did not want to be demoted, even during a transition period, and evinced a willingness to forego a 20% premium for Martin Marietta stockholders in the exchange ratio to ensure he was slotted as CEO right away.”[25] As if that were not enough, Strine added in a footnote that “[t]he Chinese concept of face is a good one for effective negotiators and public figures to keep in mind. Nye and Lloyd [Martin Marietta’s CFO] seemed to have had the same grasp of that concept as the self-engraved chosen one.”[26] While Strine’s legal analysis regarding ambiguity focused on the circumstances leading to the NDA, we can wonder to what extent the court’s image of Nye may have played a role behind the scenes.

____________________________________________________________

[1] Martin Marietta Materials, Inc. v. Vulcan Materials Co., 2012 WL 5257252, at *15 (Del. Ch. May 4, 2012) aff’d, 45 A.3d 148 (Del. 2012) and aff’d, 254, 2012, 2012 WL 2783101 (Del. July 10, 2012), as corrected (July 12, 2012).

[2] Jonathan M. Grandon & Christina Bergeron, New Guidance on Confidentiality Agreements, 4 Fin. Fraud L. Rep. 607, 609 (2012). A traditional standstill provision expressly prohibits a party from pursuing any alternative acquisition of its securities or attempting to exert any control over its management or board of directors for a set time period.

Jahangier Sharifi, et al., The Accidental Standstill, Richards Kibbe & Orbe LLP (July 20, 2012), http://www.rkollp.com/assets/attachments/The%20Accidental%20Standstill.pdf.

[3] Martin Marietta Materials, Inc., 2012 WL 5257252 at 1-2.

[4] Id, at 3.

[5] Id, at 3, 25.

[6] Id, at 3.

[7] Id, at 4.

[8] Martin Marietta Materials, Inc., 2012 WL 5257252 at 36-37.

[9] Id, at 37.

[10] Id, at 14.

[11] Id, at 19.

[12] Id, at 58.

[13] Martin Marietta Materials, Inc., 2012 WL 5257252 at 58.

[14] Tara Lachapelle & Thomas Black, Martin Marietta Seen Bumping Vulcan Bid: Real M&A, Businessweek (Sept. 18, 2012), http://www.businessweek.com/news/2012-09-18/martin-marietta-seen-bumping-vulcan-bid-real-m-and-a.

[15] Martin Marietta Materials, Inc., 2012 WL 5257252 at *58; Fraud Report 609.

[16] Marc Kushner & Medard T. Fischer, Corporate E-Review: Strategic Lessons Arising From Canadian and U.S. Judicial Consideration of Confidentiality Agreements, JDsupra.com (October 17, 2012), http://www.jdsupra.com/legalnews/corporate-e-review-strategic-lessons-ar-71002/.

[17] Jonathan M. Grandon & Christina Bergeron, New Guidance on Confidentiality Agreements, 4 Fin. Fraud L. Rep. 607, 612 (2012).

[18] Martin Marietta Materials, Inc., 2012 WL 5257252 at *17

[19] Marc Kushner & Medard T. Fischer, Corporate E-Review: Strategic Lessons Arising From Canadian and U.S. Judicial Consideration of Confidentiality Agreements, JDsupra.com (October 17, 2012), http://www.jdsupra.com/legalnews/corporate-e-review-strategic-lessons-ar-71002/.

[20] Id.

[21] Jonathan M. Grandon & Christina Bergeron, New Guidance on Confidentiality Agreements, 4 Fin. Fraud L. Rep. 607, 611 (2012).

[22] Martin Marietta Materials, Inc., 2012 WL 5257252 at *59

[23] Id. at *5

[24] Id. at *17

[25] Id.

[26] Id. at *17 n.80

Private Equity Shares the Spotlight with Tax Reform

Posted on by Stephanie Cunningham

Post-2012 Presidential Election, the private equity industry is in the public spotlight simultaneously with the tax reform proposals. Throughout the election, private equity was a constant topic of conversation – especially Bain Capital. Acknowledging the media attention received from the election, Bain Capital addressed its investors in a formal letter thanking them for their support despite the increased scrutiny.[1] In this letter, Bain Capital attempted to portray the positive aspects of the business outside of its profits by asserting its creation of hundreds of thousands of jobs and support of hundreds of charities in its 28-year history. [2] These reassurances acknowledge the added scrutiny to the private equity industry that may not disappear post-election.

Tax reform is one topic that has emerged in response to the perceived inequities in the tax code and the need to reduce the national deficit. Earlier this year, President Obama proposed changes to the tax code to end corporate tax breaks and decrease the corporate tax rate from 35% to 28%. [3] Similarly, the top House Republican tax writer, Dave Camp, has vowed to pass tax reform legislation in 2013.[4]

With the private equity industry comprising a significant amount of the U.S.’s economic activity, this industry is not likely to avoid the effects of tax reform. Venture capital, one subset of private equity, alone provides 21% of the U.S. GDP.[5] If these efforts to close the gaps in the tax code are successful, private equity’s increased media attention comes at an inopportune time in light of the industry’s favorable “carried interest” rates.

Under the “carried interest” rule, private equity firms, alongside real estate and mining partnership structures, could lose its favorable tax treatment. In this provision, private equity firms are able to pay the capital gains tax rate, 15%, on a third of its profits rather than the income tax rate, 35%, paid on the remaining two-thirds of payments made on the guaranteed annual management fees. [6] Supporters of the favorable tax treatment argue that the private equity firms should be viewed as entrepreneurs whose risk-taking should be encouraged by this favorable tax rate.[7] Yet, some critics of the favorable tax rate state argue that private equity funds should be treated like investment bankers who use individual investor funds in these risky investments and retain approximately a 2% management fee and a 20% profit if they reach their target.[8]

Congress estimates that eliminating this favorable tax rate could generate up to $2 billion in tax revenues, increasing the attraction to close this provision. [9] Despite objections from the industry that investors would not receive adequate returns on their investments in this risky industry, there are admissions of some industry members that the “carried interest” provisions are generous.[10]

As the public and Congress continue to look more closely into the private equity industry, the favorable tax provision in private equity will not likely avoid review following the election. Consequently, as the support for tax reforms increases in the upcoming year, the media attention provided to the private equity industry makes the industry a prime candidate for tax reform in 2013, decreasing or eliminating the “carried interest provision”.

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[1] Greg Roumeliotis, Bruised by Romney criticism, Bain Capital thanks investors, Reuters (Nov. 8, 2012, 8:31PM), http://www.reuters.com/article/2012/11/09/us-usa-campaign-bain-idUSBRE8A804220121109.

[2] Id.

[3] See, Kevin Drawbaugh & Patrick Temple-West, Top U.S. House tax writer vows tax reform in 2013, Reuters (Nov. 15, 2012, 8:26 PM), http://www.reuters.com/article/2012/11/16/us-usa-tax-camp-idUSBRE8AF00620121116; Zachary A. Goldfarb, Obama proposes lowering corporate tax rate to 28 percent, The Wash. Post (Feb. 22, 2012), http://www.washingtonpost.com/business/economy/obama-to-propose-lowering-corporate-tax-rate-to-28-percent/2012/02/22/gIQA1sjdSR_story.html.

[4] Id.

[5] Brian McCann, Private Equity Searches for its Public Identity After the US Election, Opalesque (Nov. 15, 2012), http://www.opalesque.com/private-equity-strategies/2/private-equity-searches-for-identity-after-the.html .

[6] An end to the carry on, Buy-out firms face the prospect of a bigger tax bill, The Economist (Nov. 17, 2012), available at http://www.economist.com/news/finance-and-economics/21566647-buy-out-firms-face-prospect-bigger-tax-bill-end-carry.

[7] Id.

[8] Id.

[9] Id.

[10] Id.

Should the Carried Interest Tax Loophole be Eliminated?

Posted on by Miguel Oria

With the “fiscal cliff”[1] fast approaching and the federal budget taking center stage in national politics, legislators are under intense pressure to find politically feasible changes to the tax code that can be used to raise revenue. One feature of the tax code in particular – its treatment of the “carried interest” income earned by most private equity and hedge fund managers – has fallen squarely within these legislators’ crosshairs. It seems likely that this “loophole” will soon be eliminated, but current proposals for doing so miss the mark.

Most private equity firms’ fees are structured on the “2 and 20” model. The “2” refers to a baseline fee fixed at 2% of assets under management, which is taxed as ordinary income. The “20,” on the other hand, is the famous “carried interest:” fund managers also keep 20% of all gains realized by the fund. Because private equity funds typically enter relatively long-term investments, private equity fund managers can characterize their carried-interest income as long-term capital gains, which are taxed at 15%.[2] Thus, successful private equity fund managers – whose incomes routinely exceed seven figures – often have the bulk of their income taxed at the low rate of 15%.

Not surprisingly, this practice has drawn scrutiny from legislators in Washington. Congressman Sandler Levin has introduced a “Carried Interest Fairness Act” in the House of Representatives,[3] and President Obama’s 2013 budget specifically targets the loophole.[4] Both simply propose that carried interest be taxed as ordinary income. This is an enticing solution: it singles out these wealthy fund managers, a group many people find unsympathetic,[5] and it raises much-needed revenue.

However, resolving this issue may not be quite so simple. Whatever justifications exist for taxing other kinds of capital gains at rates lower than ordinary income may apply for carried interest income as well. For example, some argue that lowering capital gains taxes incentivizes risk-taking and investment; these incentives are certainly in play in the private equity world. The same is true of the “lock-in” rationale: some say lowering capital gains taxes prevents people from holding on to subpar investments simply for tax purposes, and the same considerations could affect the decision-making process of private equity fund managers deciding when to realize their gains.

A simpler solution would be to eliminate the distinction between capital gains and ordinary income altogether. Economic research has found little, if any, empirical evidence supporting the rationales described above.[6] More direct and effective methods can be used to achieve the purported benefits of low capital gains tax. Worst of all, this distinction encourages people to engage in inefficient rent-seeking. The time spent by accountants and tax lawyers thinking of ways to re-characterize income, and indeed the hours spent writing this very article, could be used for other pursuits. The most sensible solution, then, is to do away with this distinction and tax income of all types at one simple rate.

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[1] I.e., the large number of scheduled tax increases and spending cuts set to go into effect in early 2013. See Jonathan Weisman, Q&A: Understanding the Fiscal Cliff, N.Y. Times Economix Blog (Oct. 9, 2012, 6:28 PM), http://economix.blogs.nytimes.com/2012/10/09/qa-understanding-the-fiscal-cliff/.

[2] Janet Novack, Romney’s Taxes: It’s the Carried Interest, Stupid, Forbes (Aug. 24, 2012, 6:03 PM), http://www.forbes.com/sites/janetnovack/2012/08/24/romneys-taxes-its-the-carried-interest-stupid/.

[3] H.R. 4016, 112th Cong. (2012).

[4] Cutting Waste, Reducing The Deficit, And Asking All To Pay Their Fair Share (2012), available at http://www.whitehouse.gov/sites/default/files/omb/budget/fy2013/assets/cutting.pdf.

[5] (just ask Mitt Romney)

[6] See, e.g., Capital Gains and Dividends: What is the effect of a lower tax rate?, Tax Policy Center, available at http://www.taxpolicycenter.org/briefing-book/key-elements/capital-gains/lower-rate.cfm; Brendan Greeley, Study Finds Benefit is Elusive for Low Capital Gains Rate, Bloomberg (Oct. 4, 2012, 10:17 AM), http://www.bloomberg.com/news/2012-10-04/study-finds-benefit-is-elusive-for-low-capital-gains-rate.html

Venture Capital in Emerging Markets

Posted on by Tomer Dorfan

With Silicon Valley dominating the venture capital arena,[1] it is easy to overlook the significance of investments occurring in smaller markets. In 2011, roughly $3.4 billion of venture capital investments were made in emerging markets such as Brazil and India[2] with many more made in more established, yet still relatively small, markets such as China and Israel.[3] In fact, despite remaining the world-wide leader in venture capital, the United States is no longer as controlling a market economy as it once was.[4] The move into emerging markets is attributable in part to troubles in traditional markets.[5] As pre-money valuations continue to rise due to increased competition,[6] fund managers are finding it increasingly difficult to realize returns that keep investors close to home.[7] Consequently, venture capital firms looking for the “next big thing” are making significant investments in emerging markets.[8]

Brazil

While Brazil’s private equity market has seen significant progress in the past decade, venture capital seems to be lagging behind.[9] Due to illiquidity and a relative lack of exit opportunities, global funds are apprehensive about investing in Brazil.[10] Consequently, the venture capital market’s primary investors are local pension funds, the Brazilian National Development Bank, and other domestic institutional investors.[11] Moreover, the relatively long maturation period for most investments leads to a depressed internal rate of return, making investment in Brazil less attractive.[12] Nevertheless, a strong private equity market spells exit options for Brazilian companies and has helped attract at least some venture capital investors.[13]

China

In 2011, China surpassed its previous record in both dollar amount raised and number of investments entered into.[14] A variety of factors contributed to the country’s all-time highs, including government support for venture capital, a soaring GDP growth rate,[15] ample exit opportunities,[16] high price-earnings multiples, demand for shares in newly listed companies, and the overall strength of late-stage private companies looking for equity in preparation for an initial public offering.[17] The increasingly positive outlook of venture capital in China has not gone unnoticed, drawing the attention of global investment funds such as the Carlyle group and Sequoia Capital.[18] Despite this attention, domestic funds continue to spring-up and grow at very fast rates.[19] Like many other global venture capital markets, China exhibits a strong focus on cleantech, internet technology and e-commerce.[20]

India

Despite a historical focus on the internet and telecom sectors, India’s venture capital market over the coming decade is predicted to revolve around innovations in both technology and business models in areas such as e-commerce, mobile applications, health care, medical devices, clean-tech and IT.[21] However, the expected paradigm shift is not without its challenges. With roughly 400 funds in operation, valuations in India are growing fast and creating apprehension among potential investors.[22] Nevertheless, India’s rapid GDP growth, its proliferating middle class,[23] and its increased attention to early-stage investments is likely to continue drawing investors in the near future.[24]

Israel

Unlike China and India, the Israeli venture capital market is currently struggling.[25] The continued success of domestic firms will depend largely on their ability to raise follow-on funds in the coming years.[26] In 2011, 75% of capital invested came from United State funds, particularly for investments exceeding $50 million.[27] Exacerbating the situation is Israel’s relatively weak IPO market,[28] making acquisition the most practical exit option.[29] Notwithstanding the seemingly grim outlook painted by market analysts, at least one Israeli venture capitalist is optimistic about the near future of Israel’s venture capital market.[30] Daniel Cohen[31] predicts that the optimal Israeli fund over the next decade will most likely be “dedicated [to] health care, tech or cleantech” and will control between “US$100 million–US$200 million . . . with a strong local presence complemented by excellent global access.”[32]

As globalization flattens the investment playing field, venture capital is seeing a shift from traditional markets to emerging markets around the globe. With innovations in countries like China and India growing at astonishing rates, it may not be too long before Silicon Valley becomes an equal player in a truly global marketplace.

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[1] See Ernst & Young, Globalizing venture capital: Global venture capital insights and trends report 6 (2011) [hereinafter Globalizing venture capital] available at http://www.ey.com/Publication/vwLUAssets/Globalizing_venture_capital_-_Global_venture_capital_insights_and_trends_report_2011/$FILE/Globalizing_venture_capital_Global_venture_capital_insights_and_trends_report_2011.pdf; see also, WilmerHale, 2012 Venture Capital Report 6 (2012) available at http://www.wilmerhale.com/files/upload/2012_VC_Report.pdf.

[2] VC Clone Home: Making money by bringing old ideas to new markets, The Economist (June 2, 2012), http://www.economist.com/node/21556269 $3.4 .billion is over double the amount invested in 2008.

[3] Globalizing venture capital, supra note 1, at 6.

[4] Jennifer Kho, Following the Money: Venture Capital Flocks to Emerging Markets, Daily Finance (Mar. 28, 2011, 10:00AM), http://www.dailyfinance.com/2011/03/28/following-the-money-venture-capital-flocks-to-emerging-markets/

[5] VC Clone Home: Making money by bringing old ideas to new markets, supra note 2.

[6] There are currently over 350 venture capital firms trying to raise $50 billion dollars in North America. Id.

[7] Id. See also, Vijay Govindarajan, What Venture Capital Can Learn from Emerging Markets, Harvard Business Review (Feb. 17, 2011, 3:10PM), http://blogs.hbr.org/govindarajan/2011/02/what-venture-capital-can-learn.html

[8] Kho, supra note 4.

[9] See Globalizing venture capital, supra note 1, at 21 (interview with Clovis Meurer, Partner and Senior Executive at CRP Companhia de Participações). On the one hand, when asked to describe the history of venture capital in Brazil, Clovis Meurer paints a picture of a flourishing market starting in 2005, where “the Brazilian stock market was booming, with a lot of new IPOs and a very good exit environment.” However, when asked about the biggest obstacles in the path to a larger Brazilian venture capital market, Meurer notes that for global funds to “invest in Brazil they need to see more liquidity than there is currently” and that “exit opportunities, especially by way of the local stock exchange, are still maturing.” Id.

[10] Id. The stock exchange in Brazil is still developing leaving relatively little opportunity for domestic IPOs.

[11] Id.

[12] The average maturation period of venture capital investments in Brazil is between five and seven years. Id.

[13] Id.

[14] Id. at 22.

[15] China’s GDP growth rate surpassed that of the United States and Europe by over 400%. Id.

[16] Domestic IPOs comprise over 90% of venture capital backed exits in China. Id. at 24. Additionally, China has seen a rapid increase in the number of private acquisitions; up nearly 400% from 2008 to 2010. Id. Moreover, the median turnaround for a VC-backed company was just slightly over 4 years. Id.

[17] Id. at 22.

[18] Id. at 23.

[19] Id.

[20] Id. at 25.

[21] Id. at 26

[22] Id.

[23] India’s rapid growth in domestic consumption is leading venture capital firms to invest in “companies that are capitalizing on the proliferation of wealth.” Id. at 27.

[24] Id. at 26.

[25] Id. at 34.

[26] Id.

[27] Id.

[28] See id. at 35. A major contributing factor is low valuations for Israeli companies in foreign markets. Id.

[29] Id.

[30] Id. at 36

[31] General Partner of Gemini Israel Funds. Id.

[32] Id.

London Bank Scandals Open Doors for Financial Start-Ups

Posted on by Zachary A. Ciullo

Throughout the United Kingdom, consumers’ trust in banks has deteriorated due to a series of recent scandals.[1] The tidal wave started in June, 2012, when Barclays Bank agreed to pay $450 million to settle claims that it manipulated interest rates to lift profits and mask concerns about its declining health.[2] Next, the United States Senate issued a report that HSBC bank failed to stop laundering Mexican drug money; HSBC faces up to $1 billion in fines.[3] Furthermore, JPMorgan & Chase Co. recently disclosed a $5.8 billion trading loss caused by its London office in a portfolio designed to circumvent risks that the bank takes with its own money.[4] As a result to these financial disasters, London bankers now worry that regulators will increase their efforts to clean up the image of the financial sector and quell public outrage.[5]

As a result of these scandals, newcomer financial firms seek to capitalize on United Kingdom banks’ misfortunes. Financial startups are using new technology and are innovating in ways that banks cannot in order to improve customer service, and venture capital firms are jumping at the chance to get a piece of the action.[6] For instance, Wonga, an online lending firm that offers high interest lending services to small businesses and consumers, has secured about $150 million in venture investment[7] from Balderton Capital, TAG, and Kreos Capital.[8] To cut own on costs, Wonga gathers publically available online data to determine a potential lendee’s creditworthiness.[9] Consumers are attracted to the fact that they can obtain loans within 15 minutes that they would not be able to receive from banks due to their risky credit.[10] Last year, Wonga reported revenues amounting to $73 million,[11] and is contemplating a $1.5 billion IPO on Nasdaq.[12]

Other venture capital success stories include GoCardless, a new financial firm based in London, which provides services to small businesses and consumers, allowing them to set up monthly payments directly to suppliers, at a cost dwarfing that of what banks charge.[13] The company is able to provide such favorable rates by cutting out the cost and complexity of credit card networks.[14] GoCardless has secured approximately $1.5 million from the venture capital firm Y Combinator.[15]

Finally, as banks have pulled back on lending, deeming small businesses to be too much of a financial risk, MarketInvoice helps small businesses obtain capital fast.[16] MarketInvoice is an online marketplace where small businesses are able to auction their long-term supply contracts to money managers for the highest price.[17] The company has received $1.4 million from venture capital investors.[18]

Growing disdain among small businesses and consumers for banks in light of recent scandals in conjunction with new innovative and technological services provided by financial start-ups has sparked a new industry in the United Kingdom. Venture capital firms will without a doubt continue to seize on the opportunity to invest in these financial start-ups.

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[1] Mark Scott, In London, Nimble Start-Ups Offer Alternatives to Stodgy Banks, N.Y. Times DealBook (Oct. 22, 2012, 4:45 PM), http://dealbook.nytimes.com/2012/10/22/in-london-nimble-start-ups-offer-alternatives-to-stodgy-banks/.

[2] Ben Protess & Mark Scott, Barclays Settles Regulators’ Claims Over Manipulation of Key Rates, N.Y. Times DealBook (June 27, 2012, 8:11 AM), http://dealbook.nytimes.com/2012/06/27/barclays-said-to-settle-regulatory-claims-over-benchmark-manipulation/.

[3] Robert Barr, Bank Scandals Tarnish London’s Reputation, The Miami Herald (Aug. 17, 2012), available at http://www.miamiherald.com/2012/08/07/v-fullstory/2938519/bank-scandals-tarnish-londons.html.

[4] Id.

[5] Id.

[6] See Scott, supra note 1.

[7] Bobbie Johnson, Wonga Readies $1.5bn IPO, but Stigma Won’t Go Away, Gigaom (June 6, 2012, 1:26 AM, http://gigaom.com/europe/wonga-ipo/.

[8] http://www.startups.co.uk/wonga.html.

[9] Scott, supra note 1.

[10] See id.

[11] Id.

[12] See Johnson, supra note 7.

[13] Scott, supra note 1.

[14] John Peabody, GoCardless Tries to Disrupt the Credit Card Industry, Reuters (May 15, 2012), http://blogs.reuters.com/small-business/2012/05/15/gocardless-tries-to-disrupt-the-credit-card-industry/.

[15] Scott, supra note 1.

[16] Id.

[17] Id.

[18] Id.

Dividend Recapitalization: A Controversial Trend

Posted on by Michael Muthleb

In a slow economy, with low interest rates, private equity firms are adding debt to the companies they own in order to create returns for investors. This controversial practice is now reaching record pace.[1] The resurgence is due to investors’ desires of achieving high yielding debt at a time of historically low interest rates.[2] Some of the most prominent private equity firms, such as Leonard Green & Partners LP, Bain Capital LLC, and the Carlyle Group LP are a few of the firms using this tactic, which became popular before the financial crisis.[3] Between 2003 and 2008, companies borrowed $69 billion primarily to pay dividends to private-equity owners, according to Standard & Poor’s Corp.[4] That compares with $10 billion in the previous six years.[5]

“In these deals, known as ‘dividend recapitalizations,’ private-equity-owned companies raise cash by issuing debt. The proceeds are distributed in the form of dividends to buyout groups.[6] In other words, private equity firms are creating returns for their shareholders by leveraging the companies that they own. This financing method allows the private equity fund to recoup part, if not all, of the fund’s initial investment and leaves open the possibility of benefiting from any future increase in value, since no sale transaction occurs.[7] Despite the creation of high returns for shareholders, this trend of dividend recapitalization may prove to be extremely costly to a recovering economy.

First, many private equity funds, especially the mid-sized and smaller funds, are likely to feel pressure to sell off portfolio companies to create liquidity for their investors and build a track record that will support future fund raising efforts.[8] Although the main goal for private equity firms is to create returns for investors, this is not the way that private equity firms traditionally went about fulfilling that goal. In the traditional sense, multiple parties with diverging interest potentially benefited from private equity firms taking over a struggling company. A struggling company would be made profitable through changes made by the private equity firm, and the private equity firm would sell the company once they thought they could get a return on their investment. With “dividend recapitalization,” the only party that benefits is the stockholders. They are getting paid, but the companies that the private equity firm owns are not any better off. In many cases they are worse off, as private equity firms may be unwisely leveraging the companies they own.

Second, through dividend recapitalizations, private equity funds maintain high leverage on portfolio companies capable of paying down their debt, thereby maintaining risk of insolvency.[9] In times of economic uncertainty, it does not seem like a wise move to create unnecessary debt. One has to wonder what would be the consequence if some of these companies started going bankrupt. It all probably depends on how greedy the private equity firms are. There is one thing that will probably keep them in check, their public image. Leonard Green & Partners LP, Bain Capital LLC, and the Carlyle Group LP do not want to be known as the people who shut down American companies.

______________________________

[1] Ryan Dezember & Matt Wirz, Debt Fuels a Dividend Boom, Wall St. J., Oct. 18, 2012, (http://online.wsj.com/article/SB10000872396390444592704578064672995070116.html?mod=WSJ_Markets_LEFTTopStories)

[2] Id.

[3] Id.

[4] Louis S. Freeman, General Overview And Strategies In Representing Sellers, 825 PLI/Tax 7

[5] Id.

[6] Dezember & Wirst, supra note 1.

[7] Alan S. Gutterman, et al., Review of Major Developments Affecting Mergers, Acquisitions and Divestitures, 28 No. 12 Corp Acq Ideas 1

[8] Louis S. Freeman, General Overview And Strategies In Representing Sellers, 825 PLI/Tax 7

[9] Id.

Corporate Venture Capital: Boom, Bust, or Here to Stay?

Posted on by Christina Kim

Corporate Venture Capital has traditionally had a cyclical journey of ups and downs since the mid-1960s. Although its history has had three distinct boom and bust cycles, corporate venture investing has always presented significant advantages to both corporations and start-up companies. Entrepreneurs have often benefited from corporate venture capitalists’ expertise of bringing products to global markets, as well as from their additional funding and customer base.[1] Corporations have also been eager to invest in external start-up companies not only to generate financial returns, but also to develop new products and supplement its own activities.[2]

On October 31, 2012, Boston Consulting Group (“BCG”) released a report that makes a case for corporate venture capital’s permanent tenure in the corporate landscape. BCG points to data gathered by the Global Corporate Venturing, which lists 756 corporations that have corporate venture capital units.[3] The analysis separated the corporations by industry, and focused on the thirty largest corporations in seventeen industries.[4]

The first major trend garnered from the analysis shows a steady growth of CVC within the traditional industries of technology, pharmaceutical, telecommunications, and media and publishing.[5] Within the industries of technology, pharmaceutical, and telecommunications, over half of the thirty largest companies in each industry maintain CVC units.[6] This reflects the increasing corporate acknowledgement of the need to invest into start-ups to supplement their corporate development, research, and competitive advantage. Concurrent with this increase in CVC penetration, the numbers demonstrate a decrease in internal R&D.[7] These trends may indicate that companies are “transferring a share of the innovation investment from R&D into their venture units.”[8]

The second major trend demonstrates that there is a sharp increase in CVC investing within industries that have not traditionally engaged in CVC activity, such as machinery, power and gas production, consumer, and construction.[9] As a response to increasing pressure for “cleaner technology, more sustainable operations, and an improved user experience,” these industries are looking to CVC investing as a way to supplement their own internal R&D and find avenues for innovation.[10]

The third major trend demonstrates that investments are broadening beyond core business sectors towards adjacent sectors that have the potential to disrupt existing industries.[11] For example, the chemical industry diversified from its typical focuses and instead invested in clean technology.[12] This may lead to the discovery of innovative processes to supplant petrochemical processes with biochemical ones.[13] Such discoveries are essential not only to sustainable operations, but also to meet consumer demand and future efficiency.

The last major trend demonstrates that corporate venturing is occurring at earlier stages with many transactions occurring in the seed and Series A funding rounds.[14] Although investing in start-ups is inherently risky, industries such as the pharmaceutical industry rely on innovation in order to maintain a competitive advantage. Also, with the increase in CVC activity, investors are becoming more experienced, and thus, more comfortable with funding risky start-ups.[15]

These trends support the argument that corporate venture capital has changed from what it once was to an attractive and potentially permanent fixture in venture capital. With CVC emerging as an attractive avenue for supplementing R&D and discovering new innovative products and processes, CVC may indeed be able to avoid its typical decline. Thus, the mutually beneficial relationship between entrepreneurs and corporations may become a long-standing one for years to come.

___________________________

[1] Deborah Gage, Corporations Refocus on Venture Investing, Wall Street Journal (March 21, 2012), http://online.wsj.com/article/SB10001424052702304636404577291982192150956.html.

[2] Kent Bernhard, Jr., Why Corporate Venture Capital is a Good Thing for Startups, Upstart Business Journal (November 1, 2012), http://upstart.bizjournals.com/money/loot/2012/11/01/corporate-vc-is-here-to-stay.html.

[3] Falk Bielesch, Michael Brigl, Dinesh Khanna, Alexander Roos, & Florian Schmieg, Corporate Venture Capital: Avoid the Risk, Miss the Rewards, BCG Perspectives by the Boston Consulting Group (Oct. 31, 2012), https://www.bcgperspectives.com/content/articles/innovation_growth_mergers_acquisitions_corporate_venture_capital/.

[4] Id.

[5] Id.

[6] Id.

[7] Id.

[8] Id.

[9] Id.

[10] Id.

[11] Id.

[12] Id.

[13] Id.

[14] Id.

[15] Id.

Law Students and MOOCs

Posted on by Andrew Mauro

In the face of contracted legal hiring, many have criticized law schools for failing to properly train students for modern legal careers. These perceived deficiencies in legal education were the subject of a notable 2011 New York Times article, which highlighted the difficulties many students—even those from the top institutions in the country—have had adapting to practice at corporate law firms.[1]

Some law schools have responded by reforming upper-class curriculum. NYU, for instance, recently revamped its third-year curriculum with a focus on offering students opportunities to pursue specialized concentrations, including programs dedicated to developing students’ business and financial literacy.[2]

But another quickly-emerging trend in legal education indicates that students interested in transactional careers don’t have to wait for curriculum reform if they want to cut their teeth before starting at a firm.

At http://www.lawmeets.com Drexe,l University Professor Karl Okamoto offers a solution considerably more proximate and infinitely less pricey. On October 23, Professer Okamoto debuted a two-week massive open online course (MOOC) entitled “The Basics of Acquisition Agreements.”[3] The course was open to the public, and offered free of charge.[4]

Okamato’s course included a mix of lectures, interactive learning exercises, and panel discussions, and was headed by professors from premier law schools throughout the country.[5] Students were given hypothetical client inquiries about drafting business acquisition agreements and instructed to upload video responses.[6] The responses were then evaluated by a group of experts from law firms and corporate legal departments around the world, who provided written feedback via online discussion boards and streaming video.[7]

LawMeets, which pitches itself as an online legal education program dedicated to training young lawyers via the apprenticeship system, is just one of many such open courses offered by institutions throughout the world to any student with a working internet connection.[8] At http://www.coursera.org inter,ested students can take classes covering a broad array of mathematical subjects.[9] http://www.edX.com a non,profit startup from Harvard and the Massachusetts Institute of Technology, opened its first official classes this fall to an audience of 370,000 students.[10] As the costs of higher education soar, MOOCs are going viral.

Upcoming LawMeets programs bode particularly well for students interested in private equity and venture capital law. The website plans to offer a MOOC called “Advising the Startup.”[11] In addition, LawMeets sponsors a program called “Transactional LawMeet,” an annual “moot court” experience for students interested in honing transactional skills.[12] The next National Transactional LawMeet will occur in February 2013, and will be hosted regionally by schools throughout the country.[13] The program will include interactive educational competitions designed to give students a hands-on experience in developing and honing transactional lawyering skills.[14]

Critics of the MOOCs system point to various issues raised by the courses’ unusually large enrollment—often teachers cannot offer direct feedback to students, and there exists a propensity for students in such large classes to cheat.[15] In addition, while droves of students tend to register for MOOCs, a large percentage of enrolled students often do not complete the courses for which they register.[16]

Still, these trends should come as welcome news to law students, who, often impatient with the Socratic tradition of hiding the ball, now find the ball in their court when it comes to attaining the applicable skills necessary to hit the ground running in a transactional practice. For such students willing to make the commitment, MOOCs are an efficient, low-cost alternative to university courses.

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[1] See David Segal, What They Don’t Teach Law Students: Lawyering N.Y. TIMES, November 19, 2011, at A1. Available at http://www.nytimes.com/2011/11/20/business/after-law-school-associates-learn-to-be-lawyers.html?pagewanted=all.

[2] THE NEW YORK UNIVERSITY LAW SCHOOL, NYU ANNOUCES AmBITIOUS NEW STUDY-ABROAD PROGRAM AS PART OF CURRICULAR ENHANCEMENTS (2012). Available at http://www.law.nyu.edu/news/NYU_LAW_ANNOUNCES_STUDY-ABROAD_PROGRAM_CURRICULAR_ENHANCEMENTS_THIRD_YEAR

[3] See LAWMEETS, http://www.lawmeets.com (last visited Nov. 10, 2012).

[4] Id.

[5] THE DREXEL UNIVERSITY LAW SCHOOL, LAW PROFESSOR CREATES FIRST MASSIVE OPEN ONLINE COURSE TO TEACH BUSINESS ACQUISITON SKILLS. Available at http://www.drexel.edu/now/news-media/releases/archive/2012/September/Law-MOOC/.

[6] Id.

[7] Id.

[8] LAWMEETS, http://www.lawmeets.com/about (last visited Nov. 10, 2012).

[9] See Laura Pappano, The Year of the MOOC, N.Y. TIMES, November 4, 2012, at ED26. Available at http://www.nytimes.com/2012/11/04/education/edlife/massive-open-online-courses-are-multiplying-at-a-rapid-pace.html?pagewanted=2&_r=0.

[10] Id.

[11] See LAWMEETS, http://www.lawmeets.com (last visited Nov. 10, 2012). (Toward the bottom of the page they note an upcoming program with date TBA called “Advising the Startup”).

[12]LAWMEETS, http://transactionalmeet.lawmeets.com/ (last visited Nov. 10, 2012).

[13] Id.

[14] Id.

[15] See Laura Pappano, The Year of the MOOC, N.Y. TIMES, November 4, 2012, at ED26. Available at http://www.nytimes.com/2012/11/04/education/edlife/massive-open-online-courses-are-multiplying-at-a-rapid-pace.html?pagewanted=2&_r=0 (“What’s Frustrating in a MOOC is the instructor is not as available because there are tens of thousands of others in the class,” Dr. Schroeder says…”We found groups of 20 people in a course submitting identical homework,” says David Patterson, a professor at the University of California Berkeley.)

[16]Id. (“The ones I have study groups with people, those are the ones I finish,” Ms. Spillman says.)

Decline in Venture Capital Investment in 2012

Posted on by Dilpreet Minhas

Many startups and young companies rely on venture capital investments to spur their growth and development, but such investment has decreased over the last fiscal year. With VC investment levels improving since the recession, but still well below what they were prior to it, 2012 reflects a declining trend in VC investment as compared to 2011. Some cite the presidential election as a contributing cause of this, suggesting investors were wary of potentially higher taxation rates on income and capital gains and that lower taxation rates on capital gains provide greater incentives to invest through venture capital firms.[1] Additionally, with the Bush tax cuts expiring in January 2013 if they are not renewed, investors may be more cautious given the uncertainty regarding potentially higher taxes that may be owed upon cashing out investments.[2] Only time will tell how President Obama’s reelection will influence investor behavior in the post-election period and through the next fiscal year.

According to a PricewaterhouseCoopers LLP and National Venture Capital Association (NVCA) report, investment for the first three quarters of 2012 totaled $20 billion in 2,661 deals, down from the results of the same period in 2011.[3] Further, in the third quarter of 2012, venture capital investment decreased in terms of both dollars and deals across all stages of development.[4] Additionally, venture capitalists invested a total of $6.5 billion in some 890 deals, representing an 11% VC investment dollar decline and a 5% deal decline from the second quarter of 2012.[5] First-time financing dollar investments also declined 8% to $1.0 billion in the third quarter, though the number of deals invested in increased 1% to a total of 297 deals.[6] Overall, it is predicted that the record of both dollar investment and deal volume will be appreciably lower at the end of 2012 than the previous year.[7]

Reflecting on this decline, NVCA President Mark Heesen commented, “Information technology investment continues to be very strong, particularly in the Internet arena while life sciences investment remains low, reflecting ongoing concerns regarding regulatory uncertainty, capital intensity and investment time horizons in the space. We also continue to see clean tech investment shifting concentration to smaller, more capital efficient deals. Opportunities continue to abound in each of these sectors, but lower venture fundraising levels will push investment dollars down as the industry recognizes it cannot put out more money than it takes in.”[8] As a result of the recession, the market has been less welcoming and favorable to companies’ initial public offerings, making it quite difficult for their investors to make a profit.[9] Further, poor responses to IPOs mean such investors are unable to recover as much of their investments to direct toward other startups, though this does not by any means leave all promising young companies without hope.

While not all are unable to secure funding and not all venture capital funds are shrinking, there is a very real trend of limited partner financiers favoring less risky investments and investing exclusively in select venture capital firms, rather than investing more broadly.[10] With a new year approaching, it will be interesting to see whether the completion of the election and the tax decisions that follow will reverse the declining investment trend of 2012.

____________________________

[1] Steven Overly, U.S. Companies Find Venture Capital Harder to Find, Wash. Post, Oct. 24, 2012, available at http://www.washingtonpost.com/business/capitalbusiness/us-companies-find-venture-capital-harder-to-find/2012/10/24/0f429b48-1d24-11e2-b647-bb1668e64058_story.html.

[2] Id.

[3] Caroline Traylor and Emily Mendell, Venture Capital Investments Decline in Dollars and Deal Volume in Q3 2012, PwC, Oct. 19, 2012, available at http://www.pwc.com/us/en/press-releases/2012/venture-capital-investments-q3-2012-press-release.jhtml.

[4] Id.

[5] Id.

[6] Id.

[7] Id.

[8] Id.

[9] Steven Overly, supra note 1.

[10] Id.

Private Equity in India

Posted on by Rebecca Targan

Since the enactment of economic reforms in the early 1990s, India has experienced a period of rapid economic growth.[1] On average, GDP has grown over 7% per year since 1997,[2] making India one of the world’s fastest growing economies. In 2004, investors began seeing opportunities for private equity investment,[3] and the market grew from $6.6 billion in 2005 to $55.8 billion in 2007.[4] Despite taking a major hit in response to the economic crisis, investment grew back steadily through early 2011,[5] at which point India had the fastest growing private equity market in Asia.[6] However, towards the end of 2011, investment began trending downward and has languished ever since.[7] Unfortunately, this is due at least in part to the Indian government’s inconsistent policies, which have created regulatory uncertainty among foreign investors.

In January of 2012, the Supreme Court of India held that the Indian government may not tax capital gains from indirect transfers of capital assets located in India, an issue over which there had been much confusion.[8] The suit began after Vodafone, a Netherlands company, had purchased CGP Investments Ltd. (CGP), a company based in the Cayman Islands.[9] CGP’s main asset was an interest in Hutchison Essar Limited (HEL), based in India.[10] Under Section 9 of India’s Income Tax Act, a non-resident must pay tax on income arising through “transfer of a capital asset situate[d] in India.”[11] India’s tax authorities contended that this section applied to Vodafone, claiming that Vodafone’s acquisition of CGP was equivalent to a transfer of shares of HEL to Vodafone. Therefore, the government insisted that Vodafone owed taxes on capital gains derived from the acquisition of HEL.[12] The Supreme Court disagreed, holding that Section 9 did not cover indirect transfers of capital assets situated in India.[13] The case set an important precedent for a number of foreign investors whose deals were structured similarly to Vodafone’s, and provided clarity for others who were hesitant to invest due to the legal uncertainty of the pending case.[14] Unfortunately, the issue was once again opened in March of 2012, thanks to the Indian Financial Minister’s proposal of new tax rules. The proposal would enact General Anti-Avoidance Rules (GAAR),[15] making transactions between international companies with Indian subsidiaries liable for a domestic capital gains tax.[16] GAAR would “effectively overturn[]” the Supreme Court’s decision in the Vodafone case.[17]

The Financial Ministry’s proposal sparked massive uncertainty. GAAR would be retroactive through April 1st, 1962, creating the potential for many cases, including Vodafone’s, to be re-examined.[18] In addition, the outcome of several pending cases regarding M&A deals between international companies that hold Indian subsidiaries is once again uncertain.[19] Moreover, GAAR created further uncertainty among those who might have been planning to invest in Indian companies through deals structured similarly to Vodafone’s.[20] To assuage investor concerns, India’s Prime Minister issued a statement in June of 2012 saying GAAR would not be finalized without his approval.[21] The Prime Minister is expected to soften GAAR’s impact on investors, but exactly how he will do so is still unclear.[22]

The recent actions of the Government of India are problematic for two reasons. First, they re-open the issue of whether the Indian government may tax capital gains from indirect transfers of capital assets situated in India. Hopefully, the Indian government will soon clarify what GAAR’s practical effects will be, and resolve the matter once and for all. Second, even if the Indian Government resolves the GAAR issue in favor of investors, they have now set an example to the world that the law of India is volatile. Private equity deals are carefully structured to gain benefits from whatever legal systems they are subject to, so the fact that India’s laws seem to be constantly in flux is highly discouraging to anyone looking to acquire Indian companies. If the country wants any sort of private equity market, it must find a way to rebuild investors’ confidence in the stability of India’s laws. At any rate, it will not be easy to do so before Indian private equity investment falls even further.

___________________________________

[1] Central Intelligence Agency, Economy: INDIA, The World Factbook, https://www.cia.gov/library/publications/the-world-factbook/geos/in.html#Econ (last visited Oct. 27, 2012). See also T.C.A. Anant & N.L. Mitra, The Role of Law and Legal Institutions in Asian Economic Development: The Case of India 4, 57 (Harvard Institute for International Development 1998).

[2] Central Intelligence Agency, supra note 1.

[3] Malini Goyal, PE: The story of greed, boom and the fall of private equity in India, The Econ. Times (May 17, 2012), http://articles.economictimes.indiatimes.com/2012-05-17/news/31749390_1_pe-firms-pe-investments-subbu-subramaniam.

[4] Deloitte, Private Equity: Fueling India’s Growth 6 (2012), available at http://www.deloitte.com/assets/Dcom-India/Local%20Assets/Documents/Thoughtware/Private%20Equity.pdf.

[5] Id.

[6] Id. at 4.

[7] Id. at 6.

[8] Vodafone International Holdings B.V. v. Union of India & Anr., (2012) __ S.C.R. __ (India), available at http://judis.nic.in/supremecourt/imgs.aspx.

[9] Id. at ¶ 2 (India), available at http://judis.nic.in/supremecourt/imgs.aspx.

[10] Id.

[11] Id. at ¶70.

[12] Id. at ¶ 71.

[13] Id.

[14] Amol Sharma and R. Jai Krishna, Vodafone Overturns Tax Bill in India, Wall St. J. (Jan. 21, 2012), http://online.wsj.com/article/SB10001424052970204616504577172152700710334.html.

[15] 5 Facts About the General Anti-Avoidance Rule (GAAR), NDTV Profit, http://profit.ndtv.com/news/market/article-5-facts-about-the-general-anti-avoidance-rule-gaar-300693 (last updated May 14, 2012, 19:27 (IST)).

[16] James Crabtree, India to Change Tax Law After Vodafone Case, Fin. Times, http://www.ft.com/intl/cms/s/0/d9d96cde-6f59-11e1-9c57-00144feab49a.html#axzz2ASEttu4q (last. updated Mar. 16, 2012 8:32 PM). Language in the amendments seems to be specifically targeted at the Vodafone decision. One of the explanatory notes reads, “[A]n asset or a capital asset being any share or interest in a company or entity registered or incorporated outside India shall be deemed to be and shall always be deemed to have been situated in India.” Crabtree, supra.

[17] Crabtree, supra note 15.

[18] Crabtree, supra note 15.

[19] Crabtree, supra note 15.

[20] After Vodafone, GAAR; PM Takes Charge of Finance Ministry, The Times of India (June 30, 2012, 2:16 AM IST), http://timesofindia.indiatimes.com/business/india-business/After-Vodafone-GAAR-PM-takes-charge-of-finance-ministry/articleshow/14513903.cms.

[21] Id.

[22] FE Bureau, PM Moves to Soften GAAR, Vodafone Blow, Fin. Express (June 29, 2012, 32:00 IST), http://www.financialexpress.com/news/pm-moves-to-soften-gaar-vodafone-blow/968019/0 See .also FinMin May Amend GAAR Rules to Boost Investor Confidence, Firstpost (Oct. 2, 2012), http://www.firstpost.com/economy/finmin-may-amend-gaar-rules-to-boost-investor-confidence-476521.html