Corporate Lawyer Breaks Down Succession Business Deals
Released on 09/15/2022
I'm Holly Gregory.
I'm a partner in the international law firm
of Sidley Austin.
Today, we're talking about each and every business deal
from HBO's Succession.
Let's gang up on dad and take him down.
Who's really behind me?
Just take the money.
Me, Ro, Tom, we take down dad.
Do not do this.
You have to be a killer.
In the very first episode,
we see Kendall going to Vaulter, a social media company,
to explore acquiring them.
Waystar has been very slow to pivot
into the social media-digital media space.
And the easiest way to remain relevant
is to acquire a company
that already has built that capacity.
And that's what Vaulter is.
I think Vaulter is the shiz.
But it becomes very clear early on
that Lawrence isn't a big fan of the Roy family.
Take care, dude.
If early on, they're not certain that they want the deal,
they're going to negotiate hard
to try to see how much money will be on the table.
[Frank] They're not gonna budge,
unless it gets to be a stupid number.
What's a stupid number?
What's a stupid? A bidillion, I don't know.
Kendall probably has a sense of how much leeway
he has to negotiate.
He's probably gotten some direction from his father
about how much he can bargain.
[Logan] Did you close?
Um, we're not quite closed. I'm going to 120.
There are many ways to sweeten a deal.
You can offer more money.
[Kendall] The number is 140.
You can offer a board seat.
You're on our board.
You're gonna still run this company independently.
We're not gonna interfere with you.
We're just gonna give you some advice from time to time
and make sure you have resources.
[Narrator] Corporate funding.
It's very common for companies to have debt.
They're borrowing money and using it to invest
so that they can make money.
Logan has taken out a loan and to secure the loan
he has pledged his family's stock.
He agreed to a condition that said
if the value of the stock went below $130 a share,
the bank had the right to call the loan immediately.
And the bank would be repaid from the stock.
It will take them from owning
more than half of the company
to owning about 36% of the company.
What I'd like to know is what your position will be,
if we have a sustained breach of the stock price,
and we fall out of compliance with our debt covenant?
A loan covenant is a condition important to the loan.
And if you breach that condition,
it has some implication for when the loan is due
or how much is owed under the loan.
Right, I know.
In the COVID pandemic in May of 2020,
a number of companies were looking at their loan covenants
and renegotiating with their banks
because the immediate hit to the business.
The banker has to be thinking
of the bank's own shareholders.
He needs to make sure that this loan is secured
and that this loan gets repaid.
[Narrator] Capital investment.
Kendall goes to Stewy,
who's a friend but also a private equity investor,
and has a fund that may be able to provide the money
the Roy family needs to pay back the loan.
Private equity investor is someone,
an investor who has a fund that invests in companies
through private means.
To sell it, I'm gonna need voting stock.
Voting stock is stock that has voting rights,
and most stock does have voting rights.
I'm also gonna need a board seat.
What's different is the board seat.
Stewy wants to be on the board
because a member of the board of directors
has a lot more information than a shareholder does,
and has the ability to influence decisions
that the company is making
in a more regular fashion.
She's making sure you're not selling
any more of the company from under me.
This is very interesting.
So this is where in selling the family stock,
Kendall would've had to have gotten approval
from the holding company voting trust.
[Narrator] Voting trust agreement.
The family members have votes in this voting trust
and they do that by giving votes in the trust
to each of the children, Logan's ex-wife, his brother,
and at the start of the show,
there's a discussion about giving a share to Marcia.
I'm gonna add Marcy to myself and you four.
And my seat also to go to her on my death.
That means when he passes away,
she will then have two votes.
Some family businesses do have these kinds of voting trusts
and do have their children heavily engaged in the business.
And there's nothing fundamentally wrong with that.
Here, however, this is a public company
with shareholders who are widely dispersed.
There are pension funds and institutional investors
and people like you and me
who invest through our 401k plans.
So it's not just a family business.
They have to watch out for all the shareholders.
[Narrator] Vote of no confidence.
With a particular company,
when a CEO, a chairman, gets sick,
you will see the stock price go down.
We've seen it, for example, at Apple with Steve Jobs,
when it was announced that he was ill, the stock took a hit.
So in the aftermath of his father's stroke,
Kendall is seeing a real change in Logan.
And he's worried that Logan isn't making good decisions
in running the company.
Do you think the real Logan would want us to stand by
and watch while he throws it all away?
So he decides to see if he can get the board
to support him in what he calls a vote of no confidence.
At the next board meeting,
there's going to be a vote of no confidence.
So a vote of no confidence really isn't a legal term.
It's the notion of, let's take a vote and get a sense
of how we feel about this individual.
Are we confident in their leadership.
Good morning. Oh!
Quite a turnout. Yep.
The meeting has been called and it's clear
that this is one of the key points on the agenda.
And Logan is there.
Typically, you would not have Logan there
to have this discussion.
You would find a way to do it
in what's called executive session,
without the person who is conflicted
in this decision, there.
You don't get to vote and you don't get to comment.
The other thing that's unusual
is clearly Kendall hasn't done his homework.
He hasn't done a good job of understanding
how strongly other directors feel about this issue.
And you would not go into this vote
without having a really good idea
of who was supporting you and who wasn't.
And Kendall, Frank, Asha, Ilona, off the board.
Fired with immediate effect. Uh, I don't think
you're able to do that. Security!
The firing is very interesting.
Certainly, the CEO can fire people who are employees,
but what he's really trying to do is fire them as directors.
And that's not a power that he has.
Oh, fuck off.
But he's a very influential
and very, very large shareholder.
So he probably knows that he can cause them
not to be renominated
and therefore not to be up for reelection,
which is sort of the same as being fired.
[Narrator] Hostile takeover strategy.
A bear hug is an offer that's too good to turn down.
It's an offer that is so rich
that shareholders would be furious
if the board didn't accept it.
So, at the wedding of his sister,
Kendall gives his father the offer.
It's a proposal to buy Waystar for $140 a share.
A little bit unusual,
delivering the letter to your father in his bathroom.
It would be more typical for the letter to be delivered
to the board of directors at the corporate headquarters.
It also would be typical when you get an offer of this type,
for the board of directors to be very quickly informed.
Emergency phone board meeting for later? Tonight?
Or is that tomorrow?
And also to bring together
the legal and crisis communications team,
so that they can start preparing for a defense.
[Logan] Come on, come on, let's go.
The financials are hard.
We need political support.
We don't have information to really assess
how strong this bear hug is,
but we do see that it would be a significant amount
in addition to what the stock is currently trading at.
And so, for example, in the acquisition bid
that Elon Musk made for Twitter,
he put on the table about 38% more
than where the stock was trading.
38% is a lot.
Investors would be very happy with 38% premium.
Logan and the board are free to say no to the bear hug,
but there are also other devices
that they have at their disposal.
I will have the options for our poison pill defense.
A poison pill is a shareholder rights plan.
And it's a device that's designed to make the acquisition
much more expensive for the acquirer.
[Narrator] Corporate merger.
Logan is interested in having a much larger company
and finding a way to be almost too big to be taken over.
And so he is approaching the Pierce family
that owns a media empire
to see if he can do a deal with them and acquire them.
We can all agree, for decade after decade,
your outlets have been essential
to the functioning of our grand republic.
[All] Here, here.
If they can do this successfully,
it will certainly make the company much, much larger.
I think we would also like to have a conversation
In the negotiation to be acquired,
a company can certainly say, look,
we hope that when you acquire us,
this is who the CEO will be.
Who ends up king potato?
But there's really no way to hold them to it.
At any moment in time,
the board needs to have the flexibility
to have in place whoever they think is the right person.
If indeed the company is struggling,
cutting your losses early can be a good strategy.
So they have choices.
They can try to fix what's wrong and invest a lot of money.
Accounting team, analytics team.
Or they can look and see what can we sell off now,
recoup some money.
Hive off the profit center.
You keep the domain name, the archive.
Or just by shutting down, save some cost.
Yeah, you're, you're all fired.
I don't really know all of New York employment law,
but yes, basically, they can let employees go.
They can lay people off.
That's within the power of a company.
I'd like to thank you all for your hard work.
If you have a rational reason to believe that the action
you're taking is good for the company and its shareholders,
you can downsize.
We see in Silicon Valley, a lot,
a company will acquire a smaller company
for its engineering talent
or for some intellectual property,
and then really not operate the company
as it was operated before
[Narrator] Mergers and acquisitions.
The lovely thing about selling is
everybody gets to go off and do what they want
in a hopefully happier, more satisfying life.
I would make everything nice for you.
I could pay you out.
Or if you want control,
inside or outside of the assets you love, that's cool.
What's interesting about the GoJo deal is
Logan seems to be interested in it in a different way.
And he believes that there is some real value there.
It may be that ultimately they decide that the deal
with GoJo is a merger of equals
where the Roy family are still heavily involved on the board
and in some executive positions.
But Waystar will not be sold because then the show ends.
I take over.
Dad, just tell 'em it's gonna be me.
They could take the company out of our hands.
Step in, take the reins.
[Shiv] You plotted a takeover.
What the fuck is wrong with you?
You lost. This is about the future.
This is about our future.
Karl stole my sausage.
And I am in the middle of turning a fucking tanker.
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