Following on this post from last week, the boards of San Antonio-based SBC Communications Inc. and AT&T Corp. approved a mostly stock deal under which SBC will acquire AT&T for roughly $16 billion.
SBC’s board approved the transaction Sunday evening, while AT&T’s board approved it just before 1 a.m. Monday. The acquisition remains subject to approval by AT&T’s shareholders and regulatory authorities, and is expected to close by the first half of 2006.
The deal would create the nation’s largest telecommunications company. The merger will end AT&T’s 130-year remarkable run as an independent company, which began with the invention of the telephone.
Meanwhile, the Wall Street Journal ($)is reporting this morning that MetLife Inc. is close to striking a deal for Citigroup Inc.’s Travelers Life & Annuity Co. in a deal that would probably be valued at around $12 billion.
Consolidation within the life insurance industry has been predicted for some time, but the predicted consolidation has not taken place as quickly as many have predicted. If the MetLife-Travelers’ deal makes, that could trigger the predicted round of consolidation in the industry. The theory of the MetLife-Travelers’ deal is that insurance companies can generate better profit margins by serving larger numbers of customers with essentially the same back-office systems and only incrementally larger sales forces.
Both these deals signal that the markets are coming back to the type of big-scale merger deals that had largely disappeared from the business landscape over the past three years.

Following on a thread that involved earlier posts here and here, Professor Ribstein expands in this post on his proposal for reforming corporate governance:

My solution to the problems of corporate governance is to put pressure on managers to distribute excess cash by increasing owner distribution and liquidation rights. Ironically, it is the corporate form’s elimination of these partnership-type rights that Margaret Blair argues made modern business possible. I dispute that proposition here. In that article I also argue that thick sophisticated markets have made the giant corporation no longer as important as it once was.
You might well ask, if this is such a good idea, why haven?t we seen more of it ? e.g., partnership type provisions in corporate charters that mandate distributions? Why not more publicly traded LLCs?
My explanation is that the corporate tax and the ?double? tax imposed on corporate distributions reduce owners’ incentives to insist on distributions even if requiring distributions would efficiently reduce managerial agency costs, and therefore be value-increasing in the absence of this tax. So I propose eliminating the bias favoring retained earnings inherent in the our current tax system. Firms would then be freer to move toward more efficient governance forms.

Professor Ribstein’s focus on the detrimental effects of the double taxation of corporate profits raises an interesting incongruity of the related political issue.
The anti-business crowd rails against removal of the double taxation of corporate profits as an unfair concession to the rich capitalist roaders. However, the retention of corporate profits contributes to corporate blunders (such as HP’s acquisition of Compaq) and Enron-type scandals, which the anti-business forces attempt to remedy through bigger government — that is, shareholder lawsuits in the civil justice system, criminalization of questionable corporate actions in the criminal justice system, and greater governmental control in the regulatory system (i.e., Sarbox).
Thus, the anti-business crowd’s opposition to removal of the double taxation on corporate profits has the unintended consequence of promoting bigger businesses and bigger business blunders that, in turn, require bigger government to control. I’m not sure where the anti-business forces want to go with all of this, but my sense is that “bigger in everything” is not the destination that they have in mind.
Also, check out Professor Bainbridge’s additional cogent thoughts in this post on corporate governance issues, and also Professor Ribstein’s follow up post. Likewise, Professor Bainbridge passes along this site where you can download the papers presented at a conference over the weekend that addressed these and other corporate governance issues. These are great resources.

In this earlier post on the corporate case of the decade, it was noted that the outcome of the Disney-Ovitz trial may provide yet another reason for competent businesspersons to avoid serving as independent directors on boards in a business climate that already makes it increasingly difficult to find qualified board members. My own anecdotal experience is that businesspersons are avoiding board membership in droves.
This timely Wall Street Journal ($) article confirms my experience as business leaders converging on Davos, Switzerland this week for the World Economic Forum tell the Journal that they are increasingly saying “no thanks” to serving as independent members on outside boards of public companies:

Such anecdotal evidence is borne out by some hard statistics. In 1997, the chief executives of S&P 500 companies served on average on two outside boards, . . . Today, that number has fallen to an average of less than one, or 0.9%, outside board seats, . . . Until recently, about one in four companies had policies limiting the number of boards their CEOs served on, . . . Today, more than half of companies have such policies, . . .

One of the examples that the article uses for explaining the reasons for declining independent board membership is the experience of Michael D. Capellas, the former Compaq Computer Co. CEO who served on the Dynegy, Inc. board while at the helm of Compaq:

Mr. Capellas’s experience on the Dynegy board is a telling example of the changing dynamic of being a board member. While a director from May 2001 to June 2002, he recalls “we met four times a year [and] far less preparation was required. In fact, I would read the material the night before.”
Today, Mr. Capellas says, “if you are going to be on a board, you have to attend many more board meetings” and the reading material is “much more voluminous.” For example, the Dynegy board meets every other month, not counting about two other meetings via telephone, according to the company. What’s more, Dynegy’s current board members receive annual performance reviews by other board members.
Meanwhile, Mr. Capellas’s compensation as a Dynegy board member paled when compared to his salary as Compaq’s CEO. As a Dynergy director in 2001, he received an annual retainer of $30,000, plus $1,500 for each board meeting and $1,000 for each committee meeting. The same year, he was paid $3.8 million as Compaq’s CEO.
And the risks were increasing. In September 2002, Houston-based Dynegy, among the energy companies caught up in the corporate scandals of recent years, paid $3 million to settle civil charges brought by the U.S. Securities and Exchange Commission over irregular energy trades and some financial transactions that had been used to burnish the company’s financial results.
Though no directors were charged by the SEC in the September action, some current and former Dynegy directors have been named in related class-action lawsuits. Mr. Capellas, who quit the company’s board three months before the SEC settlement, isn’t a defendant in the class-action lawsuits. Since then, Dynegy has almost completely revamped its board, with 10 of its 12 directors joining over the last three years.
Mr. Capellas says he believes he and other Dynegy directors lived up to their responsibilities as board members. “I don’t believe there was any lack of preparation,” he says. “There were four board meetings scheduled but the board actually met many, many times. It’s just that to do the bread-and-butter stuff today, you have a lot more work to do.”

It is a sad commmentary on the state of American corporate governance when the main reason for declining board membership is that directors are concerned that they are not going to have the protection of the business judgment rule even after expending an inordinate amount of their time on the board matters.

San Antonio-based SBC Communications Inc. is in talks to acquire AT&T Corp., a combination that could create the nation’s largest telecommunications company in an industry where companies are feverishly attempting to grow in an effort to keep up with new technologies and competitors.
So, over 20 years after the breakup of Ma Bell, the breakup may be coming full circle. SBC is now the second-largest U.S. regional phone company and one of the three huge telecoms to emerge from the consolidation of the Baby Bells. Although such a deal is fraught with hurdles before it could be consummated, the proposed merger would combine some of the largest pieces of the Ma Bell monopoly that was broken up in 1984. It appears that the primary attraction of the deal is linking SBC’s 50 million local-line customers with AT&T’s world-largest international fiber network and its large corporate client list.
The deal makes sense for AT&T because it is struggling to compete in the vicious long-distance price wars with MCI and the Baby Bells. Moreover, given AT&T’s diminished role in the industry, the Justice Department would be unlikely to try and block such a merger. Probably the biggest industry issue is how other big telecommunications companies such as Verizon and BellSouth will respond, particularly since BellSouth had similar talks with AT&T in 2003 that did not result in a deal.