The following article is adapted and reprinted from the M&A Tax Report, Vol. 8, No. 4, November 1999, Panel Publishers, New York, NY.


by Edward R. Sarti

On September 29, 1999, Glasser LegalWorks held its second annual High Tech Mergers and Acquisitions Institute in Menlo Park, California. The M&A Tax Report was there. Some of Silicon Valley's leading legal authorities spoke to a large group of lawyers, professionals and executives who are a part of the increasingly active world of high tech M&A. And there's perhaps no place more active (maybe hyperactive?) than Silicon Valley. The four co-chairs of the event were Richard Climan of Cooley Goodward in Palo Alto, Michael Halloran of San Francisco's Pillsbury Madison and Sutro, Michael Kennedy of the San Francisco office of Valley heavyweight Wilson Sonsini Goodrich and Rosati, and Henry Lesser of Heller Ehrman White and McAuliffe in Palo Alto.

The seminar started with a review of the current market trends affecting M&A led by investment bankers George Boutros of Credit Suisse First Boston, Kenneth Sawyer of Volpe Brown Whelan & Co. in San Francisco, and Jon Woodruff. One particularly interesting trend is the use of EBG (earnings before goodwill) (and other similar variations) by financial analysts attempting to determine (or at least justify) how a company is performing when it is voraciously acquiring others.

With the now several-year old flurry of M&A activity in the high tech sector, the use of EBG may grow in popularity. Many high tech firms would like to take away the bite of having little or no net income. There was speculation that spin-off activity would increase, especially with the expected success of Hewlett Packard's high profile spin of Agilent Technologies. (On that topic, incidentally, see "Hewlett-Packard's Agilent To List on NYSE Under 'A'," Wall Street Journal, October 4, 1999.)

Along with the co-chairs, Diane Holt Frankle of Gray Gary Ware and Freidenrich in Palo Alto, and Laura Fennel, Director of Corporate Securities at Sun Microsystems, Inc., spoke about current legal issues in the M&A process. The principal topics in this segment of the day included:

Accountant Doug Barton spoke about the recently announced SAB99, and pending SAB's and FASB business combination issues. As expected, the demise of pooling accounting for business combinations under FASB was a key topic. Pooling will not be available for transactions that are initiated after the effective date of the new standard, which is estimated to be sometime in the fourth quarter of 2000. (For prior coverage, see Wood, "Pooling of Interests' Accounting to Be Ousted," Vol. 7, No. 11, M&A Tax Report (June 1999), p. 1.) According to Barton, "initiation" of a transaction means that there is a definitive agreement between the parties.

Other issues and topics covered in the seminar were in-process R&D write-offs, alternatives to M&A transactions (such as joint ventures, strategic alliances, spin-offs, and technology licensing), compensation and employee issues in M&A deals, antitrust considerations in high tech deals, and a lengthy discussion on material adverse change provisions (a.k.a. "MAC" outs).

High Tech Mergers and Acquisitions Institute Held in Silicon Valley, by Edward R. Sarti, Vol. 8, No. 4, The M&A Tax Report (November 1999), p. 6.