Closed-door justice will leave dealmakers in dark

Thu Oct 20, 2011 12:13am IST

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(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)

By Reynolds Holding

NEW YORK, Oct 19 (Reuters Breakingviews) - Closed-door justice may leave U.S. dealmakers in the dark. An attempt by chipmaker Skyworks Solutions (SWKS.O) to renege on its acquisition of Advanced Analogic Technologies AATI.O will play out in private instead of open court under Delaware's new arbitration system. That may save the companies time and money. But it deprives the M&A world -- and investors -- of valuable legal guidance.

Corporations eschew litigation when possible. They often prefer arbitration because of its fewer rules, tighter deadlines and typically lower costs. To avoid losing cases to private arbitrators, Delaware last year allowed companies to air their beefs confidentially before the state's own judges. Skyworks is among the first to use the system.

Many of the details remain unknown, but the fight involves one of M&A's trickiest issues: When can a buyer bail? The courts were this month set to shed light on the question in the case of private equity firm Cerberus [CBS.UL] breaking its agreement to buy hotel chain Innkeepers USA INKPQ.PK. The two sides, though, simply agreed to a lower price. Skyworks wants to walk for a different reason, but because of the secret proceedings, it's unlikely the case will enlighten future dealmakers.

At a time of uncertain credit markets and jittery would-be acquirers, companies and investors should be eager to understand the rulebook better. And Delaware's Chancery Court is in the best position to help them. For over a century, it has shaped U.S. corporate jurisprudence. By allowing litigants to, in effect, keep their cases off the record, the court could leave gaps in the law and undermine its own hard-earned authority.

Something similar may already be happening at a higher level. U.S. Supreme Court Justice Anthony Kennedy recently noted that fewer lawsuits involving businesses are landing on the court's docket, because more are being handled in arbitration.

Private proceedings aren't necessarily a bad thing, especially since they can help clear overloaded dockets. But using court resources to keep significant cases under wraps is a troubling precedent. Businesses have long been crying foul over too much uncertainty from the legislative and executive arms of government. By going to court instead of arbitration, they could at least ensure more clarity from the judicial branch.

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CONTEXT NEWS

-- An attempt by Skyworks Solutions to back out of its $257 million deal to buy rival semiconductor maker Advanced Analogic Technologies will be heard in binding arbitration in late November, according to a regulatory filing by Skyworks on Oct. 11.

-- Skyworks alleged its takeover target broke the merger agreement by failing to provide certain financial information. Advanced Analogic denied the accusations and filed to enforce the deal. The hearing will occur before a Delaware Chancery Court judge under a new program that allows companies to have their disputes resolved in confidential arbitrations rather than in open court.

-- Reuters: Skyworks seeks right to end Advanced Analogic merger pact [ID:nL3E7KQ34A]

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(Editing by Jeffrey Goldfarb and Martin Langfield)

((reynolds.holding@thomsonreuters.com)) Keywords: BREAKINGVIEWS ARBITRATION/

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