Click or swipe to read our partners’ perspectives on:
- Employment
- Tax
- Mergers and Acquisitions
- Antitrust
EMPLOYMENT
What does recent litigation tell us about the best way for employers to navigate labor relations in today’s market?
Stephen Berry
Orange County
Annual enactment of new workplace laws and regulations by national and local governments has become common. Employers must stay current on these developments to avoid disastrous consequences. The failure to comply with these new laws, which frequently include hyper-technical provisions, can subject an employer to class action litigation with potential eight figure or higher exposure. In sports it is said that the best offense is a good defense. We share this view with respect to avoiding potential class action litigation. We counsel and assist employers to be proactive: to stay abreast of current developments and conduct regular audits of wage and hour, compensation, performance evaluation, job advancement, and other employment practices to ensure compliance with the ever-changing rules. But whether through compliance assistance or in successfully defending our clients facing litigation, the results are what matter and we are proud of what we have achieved for our clients.
Todd Duffield
New York
The most significant change on the labor front in the last year is that the National Labor Relations Board (NLRB) has shifted its focus from unionized workforces to labor violations in the non-union workplace. Employers who are not unionized now need to be cognizant of NLRB rulings to avoid unwittingly violating the National Labor Relations Act (NLRA). For example, the NLRB struck down employee handbook provisions about confidentiality in the workplace, at-will employment disclaimers, and class action waivers in mandatory arbitration provisions, claiming that such policies unlawfully inhibit protected, concerted activities by non-union employees. The NLRB also has taken a keen interest in adverse employment actions taken against employees who post derogatory comments about their employers on social media websites. These rulings are a new trend that can be expected to continue, and requires employers, many of whom thought the NLRA did not apply to them, to review and revise their employment policies to comply with the changing landscape.
Next, read about Tax
TAX
How will the U.S. tax regime affect domestic and cross-border transactional activity?
Alexander Lee
Los Angeles
Historically, the value of direct access to the robust U.S. marketplace has clearly outweighed the adverse tax consequences produced by the U.S. system. However, slower U.S. domestic growth, coupled with the rise of foreign economies, has muted the attractions of U.S. investment.
The United States, unlike some other jurisdictions, taxes income from foreign sources, which has two major effects. First, it encourages multinationals to organize their worldwide headquarters in lower tax jurisdictions, and second, it encourages U.S.-based multinationals to locate assets and leave profits in offshore subsidiaries to avoid high U.S. taxes.
The recent hike in tax rates — most notably, the rise in capital gains rates — coupled with the imposition of the Obamacare tax, will have a significant effect on domestic taxpayers and domestic transactional activity. Increased payroll, state, and local taxes, as well as the limitation on various deductions, will have additional impact on domestic companies and their shareholders. Competition is now growing in some key global financial and business centers to lower the rate of corporation tax; this will highlight the position of the U.S. as an outlier in its higher corporation tax rates.
Kristen Chang Winckler
New York
Arguably the most significant focus of recent U.S. federal income tax policy has been to combat tax evasion. Recent measures to achieve transparency in the assets and activities of U.S. taxpayers began with the threat of severe civil and criminal penalties for failure to disclose foreign holdings on the ominous form, “the FBAR.” Further legislative and regulatory developments gave birth to a complex regime of information reporting imposed upon foreign financial institutions. Commonly referred to as the Foreign Account Tax Compliance Act, it is enforced by a substantial 30% gross withholding tax. Yet, despite widespread criticism for its overambitious, extraterritorial reach, both the public and private sectors have come to accept the framework. In fact, the U.S. Treasury is reportedly in discussion with over 50 countries regarding FATCA compliance and coordination. In the private sector, compliance efforts by domestic parties and global financial institutions are well under way. Risk allocation around FATCA can be seen everywhere, from domestic financings to foreign-to-foreign derivatives transactions, despite the lack of apparent U.S. nexus. Whether the expanded web of enforcement will eliminate circumvention of the U.S. tax rules remains to be seen.
Next, read about Mergers and Acquisitions
MERGERS AND ACQUISITIONS
Do you share the view that we will see a resurgence in M&A in the United States? What sector(s) do you see as potentially the most active?
Thaddeus Malik
Chicago
All indications are that 2013 will be a strong year for M&A. Although many private equity shops depleted their pipelines at the end of 2012, we expect momentum to build as the year progresses. Strategics appear poised to fully re-engage, with the slowly improving economy making it difficult to meet growth targets organically. Low interest rates mean continued access to funding for deals, but also focus attention on balance sheets that have grown flush with cash. With limited alternatives to generate suitable returns, buying growth becomes even more palatable.
In terms of specific sectors, rising global demand, combined with the omnipresent quest for secure sources of energy, suggests significant activity in energy — both upstream and midstream. The healthcare sector should benefit from resolution of some of the regulatory uncertainty that had accompanied the Affordable Care Act, as well as an increasing focus on penetrating developing markets. Finally, in a bit of a contrarian play, it wouldn’t be surprising if the deal volume in the government services space ticks up as well. Despite (or perhaps due to) falling budgets, we expect more deals as the prime players shed non-core assets that present increased risks of organizational conflicts of interest and focus on supported adjacencies.
Carl Sanchez
San Diego
2013 started with a bang, with total deal value at its highest level since the same period in 2005. Notable deals include Michael Dell’s US$24B offer for Dell Computers and Berkshire Hathaway’s US$23B bid for Heinz. Both buyers teamed up with private equity to tap the relatively inexpensive debt markets. U.S. Airways’ US$11B offer for AMR and Comcast’s bid for GE’s remaining interest in NBC Universal for a reported US$16.7B also garnered attention. Particularly notable is that activity has thus far been sector-agnostic, fueled by the doubling of corporate earnings since 2009, the large stockpiles of cash sitting idle on many corporate balance sheets, and the increases in most major stock indices since the start of the year. In addition, consumer confidence has risen dramatically over the last several months, helped by positive economic indicators, including the interest-rate spread, decreases in jobless claims, and increases in building permits and consumer goods and materials orders. While the potential adverse effects of cuts in federal spending need to be addressed, we believe the mega-deals announced so far this year will pave the way for record levels of M&A across all sectors and industries in 2013.
Next, read about Antitrust
ANTITRUST
What are the biggest antitrust challenges facing companies trying to grow their business in the global marketplace?
Kirby Behre
Washington, DC
Global corporations are more likely to become ensnared in government cartel investigations than ever before. An increasing number of countries are investigating anticompetitive conduct among competitors, and the U.S. Department of Justice takes a very expansive view of its jurisdiction to prosecute such conduct criminally. These investigations tend to be multi-year and involve multiple jurisdictions. They are expensive and time-consuming to defend.
Global companies that acquire businesses in other countries to expand their global reach may unwittingly acquire a cartel problem. Smaller and regional companies in certain jurisdictions may be involved in anticompetitive conduct with their competitors, and typical deal due diligence is often insufficient to detect such an issue. Trade and industry associations, events sponsored by customers, and similar meetings are very common breeding grounds for competitor contacts. Deal due diligence should thoroughly target this area in order to mitigate risk.
MJ Moltenbrey
Washington, DC
The proliferation of antitrust enforcement authorities and merger review regimes presents a challenge to any company that wants to expand through a merger or acquisition. Today over 90 countries have mandatory merger notification requirements, including the major economies in Asia and Latin America, Central and Eastern Europe, India, and, most recently, the COMESA countries in Africa. Many of these regulatory regimes reach transactions that have only a limited nexus to the country. Although efforts to promote convergence and coordination in merger reviews have had some success, companies engaged in cross-border M&A transactions are increasingly likely to face review by multiple competition authorities, with differing procedural rules, waiting periods, and substantive standards, all of which raise the costs, complexity, and uncertainty of the deal. Early planning and preparation for multijurisdictional merger filings is essential to managing these challenges.
