Corporate Lawyer Breaks Down Succession Business Deals | WIRED

Summary

The script from 'Succession' explores complex business deals, including acquisitions, corporate funding, and hostile takeovers. It delves into the dynamics of corporate power struggles, the use of debt and stock pledging, and the implications of loan covenants. The narrative highlights the strategic moves of characters like Kendall and Logan Roy as they navigate through company mergers, boardroom politics, and the potential for a hostile takeover, all while considering the interests of shareholders and the future of their media empire.

Takeaways

• 📚 Holly Gregory is a partner at the international law firm, Sidley Austin, discussing business deals from the HBO show 'Succession'.
• 🤝 The show illustrates the complexities of corporate acquisitions, as seen with the character Kendall's interest in acquiring the social media company Vaulter.
• 💰 Kendall's negotiation tactics include offering more money, a board seat, and the promise of independent operation to secure the deal.
• 📉 Logan Roy's company is under financial strain due to a loan secured with family stock, which could be called in if the stock price falls below a certain threshold.
• 🏦 The concept of loan covenants is highlighted, where breaching these conditions can have significant implications for loan repayment.
• 💼 Kendall seeks private equity investment from Stewy to help with the company's financial woes, showcasing the role of private equity in corporate finance.
• ⭐ The importance of board seats is underscored, as they grant investors like Stewy more influence and information about the company's operations.
• 🗳️ Voting trust agreements are discussed, showing how family members can control a company's direction through collective voting power.
• 👑 Kendall's attempt to stage a vote of no confidence in his father Logan reveals the internal power struggles within the company's leadership.
• 🐻 The 'bear hug' strategy is introduced as a hostile takeover tactic, where an offer too attractive to refuse is presented to the target company.
• 🔄 Logan considers a corporate merger to create a larger entity that could be more resistant to hostile takeovers, emphasizing the defensive strategies companies employ.
• 🔄 Downsizing and restructuring are presented as potential solutions for a struggling company, with examples of layoffs and asset sales to cut losses.

Q & A

What is the primary focus of Holly Gregory's discussion in the script?

Holly Gregory's discussion primarily focuses on the various aspects of business deals, acquisitions, and corporate strategies as depicted in HBO's 'Succession'.

What is the significance of Vaulter in the context of Waystar's business strategy?

Vaulter is a social media company that Waystar is interested in acquiring to remain relevant in the digital media space, as Waystar has been slow to pivot in this direction.

Why does Lawrence not favor the Roy family in the script?

The script does not provide specific reasons for Lawrence's disfavor towards the Roy family, but it indicates a tension that affects negotiations.

What is the term used to describe a loan condition that, if breached, has implications for the loan repayment?

A loan covenant is the term used to describe such a condition.

How does the bank secure its loan when a company pledges its stock as collateral?

The bank has the right to call the loan immediately if the value of the pledged stock falls below a specified threshold, allowing the bank to be repaid from the stock.

What is a 'bear hug' in the context of corporate acquisitions?

A 'bear hug' is an offer to buy a company that is so attractive it would be difficult for the board to refuse, typically involving a significant premium over the current stock price.

What is the role of a private equity investor like Stewy in the script?

Stewy, as a private equity investor, is someone who may provide the necessary funds for the Roy family to pay back a loan, in exchange for voting stock and a board seat.

What is a voting trust agreement and why is it significant in the script?

A voting trust agreement is an arrangement where family members pool their voting rights in a trust, which is significant as it influences the decision-making power within a company, especially in matters of corporate governance.

What is Kendall's strategy to challenge Logan's leadership in the company?

Kendall attempts to gather support from the board for a vote of no confidence in Logan's leadership, believing that Logan's health issues are affecting his decision-making abilities.

What is the purpose of a poison pill in corporate defense?

A poison pill is a shareholder rights plan designed to make a hostile takeover more expensive and less attractive for the acquirer by diluting their ownership stake.

What are the potential strategies a company might consider when facing financial struggles, as discussed in the script?

The company could either invest in fixing the issues, potentially by hiring more teams, or they could consider downsizing by selling off parts of the business or laying off employees to save costs.

What is the potential outcome of the GoJo deal for the Roy family and Waystar, according to the script?

The potential outcome of the GoJo deal could be a merger of equals, where the Roy family remains involved in executive positions and on the board, ensuring that Waystar is not entirely sold off.

Outlines

00:00

📚 Business Deals and Acquisitions in 'Succession'

The first paragraph introduces Holly Gregory, a partner at Sidley Austin, discussing business deals depicted in HBO's 'Succession'. The narrative focuses on the Roy family's attempt to acquire Vaulter, a social media company, to stay relevant in the digital age. Kendall Roy is shown negotiating the acquisition, facing resistance from Vaulter's CEO, Lawrence. The summary covers the strategic importance of acquisitions, the negotiation process, and the concept of 'stupid numbers' in deal-making. It also touches on corporate funding, debt, and the implications of loan covenants, using the example of Logan Roy's decision to pledge family stock as collateral for a loan.

05:02

🏢 Corporate Power Plays and Vote of No Confidence

This paragraph delves into the internal dynamics of the Roy family's company, Waystar, after the patriarch Logan suffers a stroke. Kendall perceives a decline in Logan's decision-making capabilities and seeks to rally the board for a vote of no confidence. The summary explains the informal nature of such a vote, the importance of understanding board sentiment before proceeding, and the unusual circumstances of Logan's presence during the vote. It also describes Logan's retaliatory actions, including the dismissal of directors, and introduces the concept of a hostile takeover strategy, such as the 'bear hug' offer, which is an irresistibly high bid that the board is expected to accept.

10:04

🔄 Corporate Strategies: Mergers, Downsizing, and Hostile Takeovers

The final paragraph explores various corporate strategies, such as mergers, downsizing, and hostile takeovers, as depicted in 'Succession'. It discusses the potential merger of Waystar with the Pierce family's media empire to create a larger, less vulnerable company. The summary highlights the complexities of management negotiations during acquisitions, the use of defensive measures like poison pills to deter hostile takeovers, and the strategic considerations in downsizing, such as layoffs and asset sales. The paragraph concludes with a reflection on the potential outcomes of the GoJo deal and the future of the Roy family's involvement in the company.

Keywords

💡Acquisition

Acquisition refers to the act of one company taking over another, often through the purchase of its shares. In the video, it is a central theme as the Roy family's company, Waystar, considers acquiring Vaulter, a social media company, to remain relevant in the digital media space. The script mentions Kendall exploring the acquisition to pivot into the social media-digital media space, illustrating the strategic use of acquisitions in business.

💡Negotiation

Negotiation is the process of discussion and compromise between parties to reach an agreement. In the context of the video, negotiation is highlighted as Kendall tries to strike a deal with Vaulter. The script illustrates this with dialogues about the difficulty of getting the other party to budge and the concept of a 'stupid number' that could potentially end the negotiation.

💡Board Seat

A board seat refers to a position on a company's board of directors, which is responsible for overseeing and making strategic decisions for the company. The video script discusses the offer of a board seat as a way to sweeten the deal during an acquisition, giving the acquiring party influence over the company's direction and ensuring their interests are represented.

💡Debt Covenant

A debt covenant is a condition or term in a loan agreement that the borrower must meet. The script explains that Logan has pledged family stock to secure a loan and is bound by a covenant that if the stock value falls below a certain point, the bank can call the loan. This concept is crucial as it sets up a potential conflict if the company's stock price drops.

💡Private Equity Investor

A private equity investor is an individual or entity that invests in companies through private transactions, often with the goal of taking a controlling interest. In the script, Kendall approaches Stewy, a private equity investor, for funding to pay back a loan. This highlights the role such investors play in providing capital for corporate transactions.

💡Voting Stock

Voting stock is a type of stock that comes with voting rights, allowing shareholders to influence corporate decisions. The video script mentions that Stewy, as a potential investor, requires voting stock, emphasizing the power and control that comes with such shares in corporate governance.

💡Voting Trust Agreement

A voting trust agreement is a legal arrangement where shareholders give their voting rights to a trustee, often used in family businesses to consolidate decision-making power. The script discusses the Roy family's voting trust, where family members' votes are pooled, and how it affects the company's governance, especially when considering the addition of a new member like Marcia.

💡Vote of No Confidence

A vote of no confidence is a symbolic or formal expression of disapproval in a leader's ability to govern, often leading to their removal. In the script, Kendall attempts to rally the board for a vote of no confidence in Logan, reflecting internal power struggles and leadership challenges within the company.

💡Hostile Takeover Strategy

A hostile takeover strategy involves an unsolicited bid to acquire a company, often against the target company's wishes. The script describes a 'bear hug' as a type of hostile takeover offer that is too attractive for the board to refuse, as Kendall presents an offer to buy Waystar at a significant premium.

💡Poison Pill

A poison pill is a defensive strategy used by a company to deter a hostile takeover by making the acquisition more expensive or less attractive for the acquirer. The script mentions the consideration of a poison pill defense by Logan and the board as a response to the potential hostile takeover.

💡Corporate Merger

A corporate merger is the consolidation of two or more companies into a single entity, often to achieve synergies or expand market presence. The video script explores the idea of Logan seeking a merger with the Pierce family's media empire to create a larger, more secure company that would be less susceptible to takeovers.

💡Downsizing

Downsizing refers to the reduction in a company's workforce or the scale of its operations to cut costs or improve efficiency. In the script, downsizing is presented as a strategic option for the company when facing challenges, such as laying off employees or selling off parts of the business to focus on more profitable areas.

Highlights

Holly Gregory discusses business deals from HBO's 'Succession'.

The Roy family's strategy to acquire the social media company Vaulter.

Lawrence's initial reluctance to engage with the Roy family's acquisition proposal.

Kendall's negotiation tactics and the concept of a 'stupid number' in deal-making.

The use of corporate funding and debt in business acquisitions.

Logan's decision to pledge family stock as collateral for a loan.

The implications of a sustained breach of stock price and loan covenants.

Kendall's approach to private equity investor Stewy for capital investment.

The importance of voting stock and board seats in private equity deals.

The role of a voting trust agreement in family business decisions.

The impact of a CEO's health on stock prices, illustrated by Apple and Steve Jobs.

Kendall's attempt to initiate a vote of no confidence in Logan's leadership.

The unusual circumstances of a CEO being present during a vote of no confidence.

Kendall's failed attempt to fire board members and the legal implications.

The concept of a 'bear hug' in hostile takeover strategy.

Logan's consideration of a corporate merger to counter a hostile takeover.

The negotiation of management positions in the context of a corporate merger.

Strategies for downsizing a company and the rationale behind layoffs.

The potential outcomes of the GoJo deal and its impact on the Roy family's control.

The dramatic tension between family members over the future of Waystar.

Transcripts

- I'm Holly Gregory.

I'm a partner in the international law firm

of Sidley Austin.

[upbeat music]

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.

- [Narrator] Acquisitions.

- 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.

- Three billion.

- 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'll stabilize.

- 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.

- Whoa, okay.

- 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.

- Morning. - Morning.

- 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

about management.

- 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.

- [Narrator] Downsizing.

- 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.

[snare sizzles]