ProfessorBainbridge.com

I get misused and abused by American Association for Justice President Gary M. Paul

Regular readers will recall that a while back I opined on the Carlyle Group's aggressive effort to include a mandatory arbitration provision in its foundational documents as it went public. Carlyle has announced that it is going to drop that provision, which prompted an outfit (of which I had never heard) called the American Association for Justice to put out a press release in which its President, some guy named Gary M. Paul, is quoted as saying that:

"With the investor community, lawmakers, and former SEC officials speaking out against the use of forced arbitration in Carlyle's proposed IPO, it was evident that this was an ill-conceived move from the start.  Corporations intent on skirting accountability have used forced arbitration as a weapon to hide wrongdoing and deny legal recourse to countless workers and consumers.  Today's developments should send a strong signal to other companies that forced arbitration clauses will not be accepted by investors or the SEC."

The press release continues with clips from a bunch of experts, including yours truly:

What the Experts Say

...

"If Carlyle can get away with this, you are going to have a bunch of CEOs telling their tax accountants, 'Price out what it would cost me.'" –Stephen Bainbridge, a corporate and securities law professor at the UCLA School of Law

I deeply resent the use of my name in this way. They cherry picked one quote from a news story to make it seem as though I was critical of what Carlyle was trying to do. In fact, however, I was in favor of what they were doing. In that same news story, for example, I was also quoted as saying:

The high court would be “almost certain” to strike down SEC policy if Carlyle were to push the issue, Bainbridge said. “Carlyle is admittedly taking an extremely aggressive position, but it’s a position I believe is fully consistent” with U.S. and Delaware law, he said.

And here on the blog, I wrote that:

Setting aside the issues relating to litigation rights and mandatory arbitration, I'm not especially bothered by the governance provisions of Carlyle's set up.  ...

Turning to the mandatory arbitration provision, I continued:

If you can limit fiduciary duties by contract in the case of a public limited partnership, why wouldn't a mandatory arbitration clause be enforceable as well? And, if you can do that with respect to state law claims, why shouldn't you be able to do it with respect to federal claims?

In sum, FREEDOM OF CONTRACT + SUPREME COURT POLICY FAVORING ARBITRATION + MARKET WILL PRICE TERMS = the SEC policy is wrong. Mandatory arbitration clauses ought to be enforced as to both state and federal claims.

So this so-called American Association for Justice is invoking my good name to advance their nefarious pro-litigation, anti-freedom of contract goals. Where's the justice in that?

Update: It turns out that the American Association for Justice is the new name for the American Trial Lawyers Association, the plaintiffs' bar trade association. Since they'll probably sue me for saying their goals are "nefarious," I guess I should emphasize that that's an OPINION. Anyway, I called their PR person and she refused to change the press release. 

Macey on Private Equity

The absurd attacks on Mitt Romney's work at private equity firm Bain Capital prompted a detailed defense of the private equity industry by Yale law professor Jon Macey in yesterday's WSJ. He concludes:

Unlike some other investors who trade in debt and derivatives, private-equity firms make money by investing in businesses that make things and provide services. This industry should be applauded, not attacked.

Assaults on the private-equity industry really are attacks on economic freedom, because the private-equity process is nothing more and nothing less than free-market capitalism at work. Shame on all the people, particularly those who claim to be friendly to capitalism, who attack Mitt Romney because of his association with the U.S. private-equity industry.

Please go read the whole thing.

Are the Green Bay Packers Really the Worst Stock in America?

The WSJ's Laura Saunders ponders the titular question in a most amusing way. 

The stock offering also has corporate governance experts at odds. “What’s the point of being a shareholder if you can’t act like one? If the directors took the money and went to Aruba, shareholders couldn’t sue,” says Joshua Fershee, a Detroit Lions fan and a professor at the University of North Dakota’s law school.

UCLA law professor Stephen Bainbridge, who switched allegiance to the Packers from the Washington Redskins and now owns a share of stock, disagrees. “These shareholders don’t have any rights,”  he says, and “this is a great example of letting management do its thing without investors kibitzing from the sidelines.”

Indeed, one could argue that the Packers exemplify director primacy.

 

Ron Paul's Portfolio

The WSJ has an interesting report on Ron Paul's financial disclosure:

According to data available through his 2010 “Form A” financial disclosure statement, filed last May, Rep. Paul’s portfolio is valued between $2.44 million and $5.46 million. (Congressional disclosures are given in ranges, not precise amounts.) ...

... about 21% of Rep. Paul’s holdings are in real estate and roughly 14% in cash. But he owns no bonds or bond funds and has only 0.1% in stock funds. Furthermore, the stock funds that Rep. Paul does own are all “short,” or make bets against, U.S. stocks. ...

The remainder of Rep. Paul’s portfolio – fully 64% of his assets – is entirely in gold and silver mining stocks. 

At the asset level, that's a remarkably undiversified portfolio. It's also a remarkably pessimistic portfolio, which seems to assume that the dollar's going to tank and that inflation's going to take off.

Anyway, I wonder what the annual return on his portfolio's been. If memory serves, stocks have outperformed gold over the last 80 or so years, but gold's at least matched stocks over the last ten years (depending on whether one includes dividend yield as well as stock price appreciation). So he might have done okay, especially because his buy and hold strategy would have avoided a lot of transaction fees that erode the return of more frequent traders.

Will the EU Adopt the Tobin Tax?

Only over the City of London's dead body, I expect. In any case, Thomas Humphreys has an interesting analysis of the proposed EU financial transactions tax.

Did any Members or Staffers of the Super Secret Deficit Non-Cutting Committee Short the Market?

Joshua wants to know. So do I.

Why isn't the Federal Reserve subject to Regulation FD?

We know that corporate insiders often have access to material nonpublic information that can have a significant potential impact on stock prices. When some investors have access to insiders and others don't, the former can have a significant trading advantage. In order to prevent selective disclosure by insiders to some but not all investors, the SEC adopted Regulation FD: 

Regulation FD provides that when an issuer discloses material nonpublic information to certain individuals or entities—generally, securities market professionals, such as stock analysts, or holders of the issuer's securities who may well trade on the basis of the information—the issuer must make public disclosure of that information.

Recent research suggests that Reg FD has not fully leveled the playing field:

Executives of publicly‐traded firms spend considerable time meeting privately with investors, despite regulation restricting their ability to convey material nonpublic information. Using a set of records of all one‐on‐one meetings between senior management and investors for a NYSE traded firm, we investigate which funds meet privately with management and the consequences of these interactions. We find that hedge funds, large block holders, geographically close investors, and investors with higher turnover meet more frequently with management. We also find that trades are more correlated among funds that meet with management and these trades better predict future performance. Overall, our results suggest that private meetings help some investors make more informed trading decisions.

Which confirms that (a) private meetings with investors persist despite Reg FD and (b) investors privileged to participate in such meetings still get a significant advantage when trading.

The Federal Reserve is not subject to reg FD, of course, because it's not a Securities Exchange Act  of 1934 reporting company. Yet, if private issuers shouldn't be giving select investors an informational advantage, shouldn't the same principle apply to the government.

The WSJ today reported that:

Hours after an Aug. 15 meeting with Federal Reserve Chairman Ben Bernanke in his office, Nancy Lazar made a hasty call to investor clients: The Fed was dusting off an obscure 1960s-era strategy known as Operation Twist. ... Ms. Lazar is among a group of well-connected investors and analysts with access to top Federal Reserve officials who give them a chance at early clues to the central bank's next policy moves, according to interviews and hundreds of pages of documents obtained by The Wall Street Journal through open records searches. Ms. Lazar, an economist with International Strategy & Investment Group Inc., wouldn't comment for this article. ...

Mr. Bernanke discusses only matters already public, a spokeswoman said. But hedge fund managers and Wall Street executives who meet regularly with him and other Fed officials—both in his office and through advisory committees—say they get valuable insights during the face-to-face talks.

I find this quite astonishing. Basically it means that the Fed is tipping off select investors who use what they learn to reap trading profits by trading with less well informed investors. If the policy against selective disclosure makes any sense, it ought to apply to the Fed as much as to private issuers.

Christian Ethics and Capital Markets

Interesting new paper by Seth Payne argues that:

The financial turmoil of the past several years has caused many to question the integrity, stability, and very purpose of financial systems which, in today’s world, represent a unique blend of primarily capitalism but also aspects of socialism and collectivism as well. A key factor contributing to this sustained period of economic upheaval has been the uncertainty surrounding capital markets – the fuel that powers all modern economies. Capital markets have, in the minds of many, come to represent the embodiment of greed, unrestrained egoism, and exploitation of the vulnerable – conceptions at complete odds with the central values of social justice as set forth in both Christian and Jewish primary sources: caring for the poor, protecting the weak, and the promotion of justice.

In this paper I argue that capital markets, rather than being a means for the powerful to exploit the weak, have in fact become a force for social good in the aggregate. Indeed capital markets are, in fact, a social contract and as such must be governed by a set of normative ethical principles – both self imposed, and imposed by government regulation. I explore the ethical difficulties that have led to the systemic problems and market failures that lead to not only this current financial crisis, but literally all financial crises over the past eight hundred years. Capital markets, left to their own devices and without both self and governmental oversight, quickly become hotbeds of manipulation and exploitation. In order for markets to function properly, principles of basic fairness must become normative. It is when capital markets become unfair and unjust, that they fail. Thus, these markets must be structured in such a way as to 1) promote Rawl’s “Justice as Fairness” principle and 2) align the interests of market participants to produce universally beneficial market efficiency and stability.

Finally, I propose concrete ways in which the power of capital markets may be harnessed to promote the central moral values of Christian tradition and be used by people of faith to promote the ideals of social justice.

Payne, Seth R., Christian Ethics and Capital Markets (March 18, 2011). Available at SSRN: http://ssrn.com/abstract=1952030

 

Manchester United Dual Class IPO

The WSJ reports on a controversy over Manchester United's plans to go public with a dual class stock structure via a Singapore-based IPO:

U.K. soccer giant Manchester United Ltd. chose Singapore as the destination for its US$1 billion IPO so it could have a dual-share structure—one with voting rights and one without—that enables its owners to effectively retain control of the team, according to people familiar with the matter. ...

Until June, Hong Kong was the favored listing destination for Manchester United's initial public offering, according to these people, but its bourse banned dual-share listings in 1991 and refused to give Man U a waiver. ...

"Two-tier shares result in disproportionate power relative to the risk that the holder is taking," said David Webb, shareholder activist and former director at Hong Kong Exchanges & Clearing Ltd. "This exacerbates the risk of controlling shareholders placing their own interests ahead of other shareholders when running a company."

The dual-share listing structure has raised concerns about corporate governance at Man U, which is owned by the Glazer family, headed by patriarch Malcolm Glazer, also owner of the NFL's Tampa Bay Buccaneers.

I don't have much sympathy for Mr Webb's complaints. I wrote about dual class stock in my article The Short Life and Resurrection of SEC Rule 19c-4, in which I explained that dual class stock structures established in an IPO (as is the case here) pose few concerns:

Public investors who do not want lesser voting rights stock simply will not buy it. Those who are willing to purchase it presumably will be compensated by a lower per share price than full voting rights stock would command and/or by a higher dividend rate. In any event, assuming full disclosure, they become shareholders knowing that they will have lower voting rights than the insiders and having accepted as adequate whatever trade-off the firm offered in recompense.

Man U public investors will buy their shares knowing that the Glazers are in charge and will remain so by virtue of the dual class stock structure. They will know or should know that dual class stock presents a serious agency cost problem because incumbents who cannot be voted out of office are almost impossible to discipline. Public Man U investors thus implicitly will have accepted whatever trade-offs the deal entailed as appropriate compensation for that risk.

Put another way, the market will price the risk posed by dual class stock, providing investors who buy the lesser voting rights stock with a discount from the price they would have had to pay if they had had full voting rights. Those who buy the stock thus are paying the right price and are fully protected.

Buffet's BofA buy explains a lot about his tax proposals

Jonathan Macey explains the logic of Warren Buffet's investment in Bank of America:

The lead news story across America on Friday was Warren Buffett’s $5-billion investment in Bank of America.... Buffett’s investment surprised many market watchers because Bank of America — like many other giant U.S. banks — is in no better shape now than during the financial crisis of 2007 and 2008....

Certainly the Obama administration wants to assert that Buffett’s investment means that giant financial institutions — like Bank of America and Citigroup — have finally turned the corner. This interpretation would bode well for the economy....

Unfortunately, while Buffett’s $5 billion likely was a savvy investment from the billionaire’s point of view, it doesn’t tell us much, if anything, about the financial health of the nation’s biggest banks. In fact, on closer analysis, what little it does tell us is discouraging.

Buffett’s investment likely signals not that he is confident that Bank of America is a good bet, but rather that he is confident that the government will again step in and bailout the bank if his bet turns out to be a bad one.

To understand why, it’s important to know that Berkshire Hathaway is not buying the regular, so-called “common” stock available to ordinary investors. Instead Bank of America is to issue Buffett 50,000 preferred shares, for which Berkshire Hathaway is paying $100,000 each.

Unlike the paltry returns available to most other investors these days, Bank of America is promising to pay Buffett’s investment a whopping annual dividend of 6 percent to be paid out quarterly. ...

This translates into Bank of American making cash dividend payments to Berkshire Hathaway of $300 million a year. And, of course, these payments come out of the pocket of the company’s lowly common stockholders.

Many of whose taxes Buffet recently called for raising, by the way. But back to Macey:

In addition, Bank of America has sweetened the pot by giving Berkshire Hathaway securities, called warrants, that give him the right to buy an additional 700 million shares of BofA over the next 10 years, for around $7.14 per share. When Buffett made this deal Bank of America’s shares were trading at around $8.15. This valuation translates into an immediate profit to Berkshire Hathaway of approximately $1 billion profit — assuming that Buffett exercised his warrants immediately....

His warrants give him a huge upside – because, if things go well for Bank of America, his right to buy stock at this low price will be worth many more billions than it already is.

Yet if things continue to go poorly, Buffett is sure that the U.S. taxpayer will again come to Bank of America’s rescue — providing a nice cushion for the billionaire on the downside.

And so we once again learn some valuable lessons about Saint Warren. The supposedly savvy stock picker these days often makes most of his money by cutting sweetheart deals that no other investor could get. He's also investing in firms that are too big to fail--like Goldman Sachs and GE, and now BofA--fully confident that "the government will do whatever it takes to prevent mega-firms like Bank of America from failing," which means he faces no downside.

From this perspective, it's not really surprising that Buffet favors higher taxes on the rich. He wants to make sure that the government has plenty of money available to bail him out if his big investments go south. Of course, as Tim Carney pointed out, that's not Buffet's only reason:

Buffett regularly lobbies for higher estate taxes. He also has repeatedly bought up family businesses forced to sell because the heirs’ death-tax bill exceeded the business’s liquid assets. He owns life insurance companies that rely on the death tax in order to sell their estate-planning businesses.

So the next time you hear Buffet complaining about how his taxes are too low, remember that (a) he's lying, at least in part, and (b) he's got personal financial interests in a high tax system.

 

Anderson on the rating agencies

Long post but a good read.

Insider Trading and the Little Guy

After successfully prosecuting Raj Rajaratnam for insider trading, Southern District U.S. Attorney Preet Bharara issued a statement, saying that "Unlawful insider trading should be offensive to everyone who believes in, and relies on, the market."

WSJ reporter Jonathan Cheng breathlessly reported that:

In scoring their biggest insider-trading victory in a generation, regulators have a message for a nation of nervous individual investors: When it comes to information about stocks, the playing field is getting a little more level.

The little guy isn't so sure.

Piffle. Insider trading does not harm investors -- little or otherwise. As I explain in my book Securities Law: Insider Trading:

Insider trading is said to harm investors in two principal ways. Some contend that the investor’s trades are made at the “wrong price.” A more sophisticated theory posits that the investor is induced to make a bad purchase or sale. Neither argument proves convincing on close examination.

An investor who trades in a security contemporaneously with insiders having access to material nonpublic information likely will allege injury in that he sold at the wrong price; i.e., a price that does not reflect the undisclosed information. If a firm’s stock currently sells at $10 per share, but after disclosure of the new information will sell at $15, a shareholder who sells at the current price thus will claim a $5 loss.

The investor’s claim, however, is fundamentally flawed. It is purely fortuitous that an insider was on the other side of the transaction. The gain corresponding to the shareholder’s loss is reaped not just by inside traders, but by all contemporaneous purchasers whether they had access to the undisclosed information or not.

To be sure, the investor might not have sold if he had had the same information as the insider, but even so the rules governing insider trading are not the source of his problem. On an impersonal trading market, neither party knows the identity of the person with whom he is trading. Thus, the seller has made an independent decision to sell without knowing that the insider is buying; if the insider were not buying, the seller would still sell. It is thus the nondisclosure that causes the harm, rather than the mere fact of trading.

The information asymmetry between insiders and public investors arises out of the mandatory disclosure rules allowing firms to keep some information confidential even if it is material to investor decision-making. Unless immediate disclosure of material information is to be required, a step the law has been unwilling to take, there will always be winners and losers in this situation. Irrespective of whether insiders are permitted to inside trade or not, the investor will not have the same access to information as the insider. It makes little sense to claim that the shareholder is injured when his shares are bought by an insider, but not when they are bought by an outsider without access to information. To the extent the selling shareholder is injured, his injury thus is correctly attributed to the rules allowing corporate nondisclosure of material information, not to insider trading.

Arguably, for example, the TGS shareholders who sold from November through April were not made any worse off by the insider trading that occurred during that period. Most, if not all, of these people sold for a series of random reasons unrelated to the trading activities of insiders. The only seller we should worry about is the one that consciously thought, “I’m going to sell because this worthless company never finds any ore.” Even if such an investor existed, however, we have no feasible way of identifying him. Ex post, of course, all the sellers will pretend this was why they sold. If we believe Manne’s argument that insider trading is an efficient means of transmitting information to the market, moreover, selling TGS shareholders actually were better off by virtue of the insider trading. They sold at a price higher than their shares would have commanded but for the insider trading activity that led to higher prices. In short, insider trading has no “victims.” What to do about the “offenders” is a distinct question analytically.

A more sophisticated argument is that the price effects of insider trading induce shareholders to make poorly advised transactions. It is doubtful whether insider trading produces the sort of price effects necessary to induce shareholders to trade, however. While derivatively informed trading can affect price, it functions slowly and sporadically. Given the inefficiency of derivatively informed trading, price or volume changes resulting from insider trading will only rarely be of sufficient magnitude to induce investors to trade.

Assuming for the sake of argument that insider trading produces noticeable price effects, however, and further assuming that some investors are misled by those effects, the inducement argument is further flawed because many transactions would have taken place regardless of the price changes resulting from insider trading. Investors who would have traded irrespective of the presence of insiders in the market benefit from insider trading because they transacted at a price closer to the correct price; i.e., the price that would prevail if the information were disclosed. In any case, it is hard to tell how the inducement argument plays out when investors are examined as a class. For any given number who decide to sell because of a price rise, for example, another group of investors may decide to defer a planned sale in anticipation of further increases.

An argument closely related to the investor injury issue is the claim that insider trading undermines investor confidence in the securities market. In the absence of a credible investor injury story, it is difficult to see why insider trading should undermine investor confidence in the integrity of the securities markets.

There is no denying that many investors are angered by insider trading. A Business Week poll, for example, found that 52% of respondents wanted insider trading to remain unlawful. In order to determine whether investor anger over insider trading undermines their confidence in the markets, however, one must first identify the source of that anger. A Harris poll found that 55% of the respondents said they would inside trade if given the opportunity. Of those who said they would not trade, 34% said they would not do so only because they would be afraid the tip was incorrect. Only 35% said they would refrain from trading because insider trading is wrong. Here lies one of the paradoxes of insider trading. Most people want insider trading to remain illegal, but most people (apparently including at least some of the former) are willing to participate if given the chance to do so on the basis of accurate information. This paradox is central to evaluating arguments based on confidence in the market. Investors that are willing to inside trade if given the opportunity obviously have no confidence in the integrity of the market in the first instance. Any anger they feel over insider trading therefore has nothing to do with a loss of confidence in the integrity of the market, but instead arises principally from envy of the insider’s greater access to information.

The loss of confidence argument is further undercut by the stock market’s performance since the insider trading scandals of the mid-1980s. The enormous publicity given those scandals put all investors on notice that insider trading is a common securities violation. At the same time, however, the years since the scandals have been one of the stock market’s most robust periods. One can but conclude that insider trading does not seriously threaten the confidence of investors in the securities markets.

Felix Salmon's Wrong on SOX

 Felix Salmon's half right. He says "fewer companies are going public' and that that's not good:

What we don’t want is a world where most companies are owned by a small group of global plutocrats, living off the labor of the rest of us. Much better that as many Americans as possible share in the prosperity of the country as a whole by being able to invest in the stock market.

But then he goes off the rails:

How about making a public listing more attractive by relaxing rules like Sarbanes-Oxley? Again, I’m not a fan: the literature is far from compelling that Sarbox was a significant contributor to the decline in public listings.

Wrong. very, very wrong.

IPO Dearth

In yesterday's WSJ, the lead editorial dealt with the continuing dearth of US IPOs:

Recent news of a potential $25 billion initial public offering for the Web-based bargain hunting company Groupon is an exception because the overall trend is down. Last year 72 venture-capital-backed companies went public in the U.S., according to data from Thomson Reuters and the National Venture Capital Association. Over the last decade, the annual number has never reached 100 and has averaged fewer than 50.

Yes, it's unrealistic to expect a repeat of the late-1990s Internet boom, when annual IPOs twice exceeded 270. But how about the early 1990s, before the dot-com mania skewed the numbers? The U.S. averaged 160 a year from 1990-1994, three times the current rate.

As the Journal explained, this is a serious problem:

New companies are the lifeblood of a capitalist economy. Every venture-backed start-up that grows into a public company could be the next Google, Intel, Starbucks or Amgen. Venture investment adds up to 0.2% of U.S. GDP, but the revenue of companies created with such investment amounted to 21% of the economy in 2008. The diminished ability of start-ups to hit the long ball with an IPO discourages investments at all the earlier stages. Venture capitalists know they need some equity home runs to offset losses in the thousands of firms that never find a market.

So what's to blame? The Journal targets Sarbanes-Oxley:

A 2009 survey from the Securities and Exchange Commission speaks volumes. The SEC asked public companies about Sarbox's infamous Section 404, which mandates an external audit of an internal audit of a company's financial practices, known as "internal controls," on top of the traditional audits of corporate financial statements. That's as much bureaucracy as any human should be forced to endure under the Geneva Convention.

 

Not surprisingly, 70% of small public companies told the SEC that Section 404 has motivated them to consider going private again, and 77% of small foreign firms said the law has motivated them to consider abandoning their U.S. listings.

Unfortunately, there is now an organized constituency that benefits from Sarbanes-Oxley:

... the accountants who profit from Sarbox and the Treasury maintain that the law is merely one of many factors discouraging new public companies. This view is shared by most in Washington because Sarbox was a bipartisan overreaction to the accounting scandals at Enron and WorldCom and was signed by George W. Bush.

You can add to that list the large companies who find it convenient that small potential competitors are priced out of the capital markets. SOX-related costs do not scale well. As a result, the costs tend to be proportionately higher for smaller firms. Sarbanes-Oxley thus has become a barrier to entry protecting large entrenched firms.

I detail all this, as well as other regulatory failures in the IPO market in my article Corporate Governance and U.S. Capital Market Competitiveness, which explains that:

During the first half of the last decade, evidence accumulated that the U.S. capital markets were becoming less competitive relative to their major competitors. The evidence reviewed herein confirms that it was not corporate governance as such that was the problem, but rather corporate governance regulation. In particular, attention focused on such issues as the massive growth in corporate and securities litigation risk and the increasing complexity and cost of the U.S. regulatory scheme.

Tentative efforts towards deregulation largely fell by the wayside in the wake of the financial crisis of 2007-2008. Instead, massive new regulations came into being, especially in the Dodd Frank Act. The competitive position of U.S. capital markets, however, continues to decline.

This essay argues that litigation and regulatory reform remain essential if U.S. capital markets are to retain their leadership position. Unfortunately, the article concludes that federal corporate governance regulation follows a ratchet effect, in which the regulatory scheme becomes more complex with each financial crisis. If so, significant reform may be difficult to achieve.

The organized interest groups that support SOX will simply make all that much harder to unwind the ratchet effect.

Dick Grasso is still an idiot

There's been a steady drumbeat of claims coming out of New York and Frankfurtthat the proposed deal between the NYSE and Deutsche Borse is a "merger of equals." Former NYSE chief Dick Grasson repeated the claim recently:

I don’t look at this as a Deutsche Börse takeover of the New York Stock Exchange. I look at it as a consolidation or combination of two brands that will enormously complement one another in terms of the product mix.

Bullsh*t. This is a merger of equals in the same way that Daimler's acquisition of Chrysler or Germany's acquisition of Poland was a merger of equals. It's a takeover, pure and simple. Deutsche Borse's current shareholders (admittedly a globally diverse lot) will end up holding a majority of the stock and DB will control a majority of the board of directors.

I'm not saying a takeover's a bad thing (well, except for wars and such). To the contrary, M&A deals often add social value. I'm just saying we ought to call a spade a spade.