Delaware courts have proven to be very flexible when it comes to issues involving advance notice bylaws, but the Chancery Court’s recent post-trial decision in ATG Capital Opportunities Fund LP v. Lane, (Del. Ch.; 8/26), indicates that there’s a limit to that flexibility when it comes to reading requirements in to advance notice bylaws that aren’t expressly set forth in them.
The case arose out of an activist investor’s efforts to nominate a slate of director candidates to the board of Empery Digital, a digital asset company. The board rejected the activist’s slate, based on suspicions that the activist was coordinating with another investor who wanted to liquidate the company’s Bitcoin assets and the activist’s failure to disclose a “massive short position” in Bitcoin ETFs, which the board concluded created a misalignment between the interests of the activist and those of other investors.
The good news for the board was that evidence was produced at trial suggested that the board was on to something. The bad news for the board was that Vice Chancellor Will concluded that this “something” wasn’t required to be disclosed under the terms of the advance notice bylaw. The defendants argued that coordinated activity between the activist and the other investor constituted an “agreement, arrangement, or understanding” (AAU), and that in prior decisions, the Chancery Court had permitted companies to reject nominees for failing to disclose the existence of an AAU. The Vice Chancellor rejected that argument:
The defendants analogize these facts to precedent where the court held that an undisclosed agreement, arrangement, or understanding (“AAU”) provided contractual or equitable grounds to reject a nomination. Yet there is a significant difference between the bylaws in those cases and the Bylaws at issue here. In prior cases, the bylaws at issue explicitly required a nominating stockholder to disclose AAUs. Empery’s Bylaws do not.
Section 2.5 of Empery’s Bylaws, which governs “Notice of Nominations for Election to the Board,” lacks any provision requiring a nominating stockholder to disclose an AAU concerning Empery or the nomination. This omission is striking because Section 2.4 of the Bylaws, which governs notices of business proposals to be brought before a meeting, requires the disclosure of all agreements, arrangements, and understandings in connection with the proposal. Nor does Empery have a bylaw requiring the disclosure of a Section 13(d) group.
The defendants pointed to other language in the bylaw requiring disclosure of a “participant” in the solicitation. Citing federal case law interpreting the term participant under the federal proxy rules, Vice Chancellor Will observed that these decisions rejected attempts to classify individuals as “participants” unless they either financed the proxy contest or directly participated in the solicitation. Applying this precedent and common law interpretive principles, the Vice Chancellor concluded that the investor was not a participant in the activist’s proxy solicitation.
Vice Chancellor Will’s conclusion that the investor was not a participant in the solicitation proved fatal to another argument put forward by the defendants that the nominations could be rejected. The defendants pointed to a bylaw provision requiring disclosure of any information required to be disclosed in a proxy statement under Schedule 14A. While Item 5(b) of Schedule 14A requires disclosure of the participants in the solicitation, the Court’s conclusion that the investor wasn’t a participant precluded this argument.
The defendants attempted to “pivot” and contended that Rule 14a-9, which prohibits false and misleading statements or omissions in proxy materials required the activist to disclose this information in order to comply with Schedule 14A. Vice Chancellor Will rejected this argument, noting that the letter rejecting the activist’s nominees didn’t cite Rule 14a-9, and that it would not be permitted to subsequently raise that as abasis for rejection:
When a board rejects a nomination, it must give the nominating stockholder sufficient notice of the contractual basis for rejection. Having grounded its rejection in the asserted failure to disclose [the other investor] as a participant, the defendants cannot wait until trial to abandon that basis and advance a different theory of contractual noncompliance. Advance notice bylaws are not moving targets.
The board asserted an independent basis to reject the activist’s nominees based on its failure to disclose the Bitcoin ETF short position and the allegedly related plan to liquidate the company’s Bitcoin holdings. Vice Chancellor Will evaluated this argument under Unocal. She concluded that even assuming the board identified a cognizable threat to corporate policy, rejection of the activist’s nominees was not a reasonable and proportionate response:
Rejection was a disproportionate response to the perceived threat of [the activist’s] plans for Empery. The Board could have informed stockholders of the evidence concerning [the activist’s] and [the other investor’s] relationship, their apparent views concerning Empery’s Bitcoin strategy, and the risks the Board believed a change in control presented.
Those arguments could then have been tested through the electoral process. Nothing in the record suggests that permitting Empery’s stockholders to consider [the activist’s] slate would have prevented the Board from making its case to the electorate or from disclosing the information it regarded as material.
The Vice Chancellor ultimately concluded that the activist had complied with its obligations under the advance notice bylaw, and that its nominees could stand for election at the company’s annual meeting.
Last year, we blogged about the DOJ’s decision to file a lawsuit against KKR, in which it alleged that the buyout giant engaged in multiple failures to comply with the HSR Act’s pre-merger notification requirements. Last week, the parties filed a proposed settlement of that lawsuit with the SDNY. This excerpt from a White & Case memo summarizes the terms of the settlement:
On Wednesday, August 26, 2026, the DOJ filed a proposed settlement requiring KKR & Co. Inc. to pay a civil penalty of $250 million, more than 20 times any prior HSR penalty obtained by the DOJ. Associate Attorney General Stanley Woodward indicated that this proposed settlement “sends a powerful message” and shows that the DOJ “is committed to vigorous enforcement of the Act.”
This settlement comes after the DOJ alleged in January 2025 that the private equity sponsor “repeatedly violated the HSR Act” through “systemic” violations. Key allegations in the DOJ’s complaint included:
– Failure to submit responsive business documents required under Item 4 of the HSR Form
– Altering or removing content and pages in final Item 4 documents before submission to the FTC/DOJ as part of required HSR filings
– Failure to make HSR filings before consummating reportable transactions
The memo quotes a KKR spokesperson as saying that the organization determined that continuing the litigation would be a distraction to the organization & that KKR was pleased to put the litigation behind it. They also noted that their investors wouldn’t feel the bite, because KKR “will be fully reimbursed by outside law firms.” Yikes!!
The settlement comes on the heels of last month’s settlement of the FTC’s actions targeting Edwards Lifesciences & Genesis Medtech’s for alleged violations of the HSR Act. At the time, the $12 million fine that the companies agreed to pay was the largest ever for failing to make an HSR filing. I guess records were made to be broken.
Wednesday’s Chancery Court decision in Dodiya v. Franklin, et al. (Del. Ch., 8/26) is one of the few decisions to date interpreting amended Section 144 of the DGCL, but the facts were such that the Chancery Court’s finding that the Section 144(a) safe harbors were unavailable at the pleading stage because it was reasonably conceivable that the board acted with gross negligence and that the stockholder vote was uninformed is unlikely to shed much light on the application of Section 144(a) to an ordinary sales process. That’s because, as Vice Chancellor Will explains:
The complaint details a striking breakdown in corporate governance. A conflicted CEO leaked material, nonpublic information to his father’s company, which then submitted a merger proposal. Upon discovering the leak, the board demanded that the CEO sign a confidentiality undertaking. When he refused, he was placed on a leave of absence. Yet the board restored his access to sensitive and process-related information amid negotiations with his father’s company. The proxy then assured stockholders that he had been entirely walled off from the process—an assertion the pleaded facts belie.
These are not the ordinary imperfections of a sale process. The complaint describes an extreme scenario where a board acted with reckless indifference to its own safeguards against a known leak, putting the integrity of the process at risk.
But another of the plaintiff’s claims, that an uninformed vote violated Section 203, may have broader applications. Especially because, two years ago, John shared a Davis Polk memo saying that the plaintiffs’ bar has discovered Section 203 of the DGCL – the Delaware Takeover Statute – and has recently been asserting claims based on alleged non-compliance with its requirements in M&A litigation.
Section 203 prohibits certain transactions between a Delaware corporation and an “interested stockholder,” which is defined generally to mean a beneficial owner of shares representing 15% or more of the company’s voting power. The statute prohibits business combinations with an interested stockholder for a period of three years, subject to certain exceptions that weren’t applicable in the case.
As noted above, VC Will had already determined it was reasonably conceivable that the stockholder vote was uninformed, but she found that had no bearing on Section 203.
A supermajority of Whole Earth’s non-interested stockholders voted to approve the merger. Despite that approval, the plaintiff contends that the vote did not comply with Section 203(a)(3) because it was uninformed. The plain and unambiguous text of Section 203(a)(3) does not require that a stockholder vote be “informed” or that stockholders receive any particular information before the vote. Courts may not “engraft upon a statute language which has been clearly excluded therefrom by the Legislature.” When the General Assembly has intended to impose a statutory requirement that stockholders receive information in connection with a vote, it has said so explicitly in legislation pre- and post-dating the adoption of Section 203 [. . .] That other DGCL provisions require the disclosure of certain information does not mean Section 203 must be read to include the same requirement.
Citing one case that supported plaintiff’s argument, VC Will said:
I respectfully decline to adopt the plaintiff’s reading of Alon as categorically importing an informed vote requirement into Section 203(a)(3). The court in Alon did not address the fact that the statute’s plain text lacks an informed vote requirement. The court relied entirely on common law precedent concerning the validity and effect of stockholder approval. The common law duty of disclosure does not dictate statutory compliance; rather, I am bound by the statute’s text. The plaintiff cites no other case that has taken the approach it advocates for.
This Baker Donelson publication refers to AI as the “deal team’s new colleague” and describes ways AI helps buyers to be both fast and thorough in an auction process where “the buyer that reaches conviction fastest usually wins.” From deal sourcing to due diligence, drafting and integration, AI can be a valuable tool in all stages of the deal process, but it comes with risks of its own. The alert shares these four guardrails to ensure the AI use itself doesn’t create more risk:
Confidentiality and the Nondisclosure Agreement (NDA). Most confidentiality agreements were drafted before generative AI existed. Uploading a target’s data room contents into a third-party AI tool may constitute disclosure to a third party in breach of the NDA, particularly if the vendor’s terms permit customer inputs to be used to train or improve its models. Use enterprise-grade tools with contractual model-training carve-outs and SOC 2-level security, and address permitted AI use expressly in the NDA and the data room rules of engagement. Sellers should impose the same discipline on buyers.
Privilege. AI-assisted analyses prepared by counsel should carry the same protection as any other work product, but the mechanics matter. Prompts, outputs, and vendor-side logs may be discoverable if privilege is not deliberately preserved. Ask where the data resides, who at the vendor can access it, how long the vendor retains it, and whether the vendor has a credible process for preserving privilege, as more tools are failing buyers’ security reviews on privilege-handling grounds.
Verification. AI systems still err confidently. A hallucinated contract term, a fabricated citation, or a missed exception can distort valuation or leave a party without recourse post-closing. AI can prepare the first pass, but qualified professionals must verify the analysis and own the conclusions. Build a written verification protocol into the workplan and document that human review occurred.
Your Confidential Information. The deal model, the negotiation strategy, and the client’s confidences deserve the same protection you demand for the target’s data. An AI use policy should be part of the deal team’s standard workplan, identifying which tools may be used, what data may be uploaded, and what approvals are required.
Last week, the FTC announced that the U.S. District Court for the Southern District of New York had granted its request for a permanent injunction to block Henkel’s acquisition of Liquid Nails, which would have combined two of the largest construction adhesive brands. This Cooley alert explains:
After a seven-day trial, the district court sided with the FTC and issued a permanent injunction blocking the deal outright, rather than referring the matter back to the agency’s administrative process. Announcing the result, FTC Bureau of Competition Director Daniel Guarnera framed the case as a straightforward horizontal competition problem: “Anyone who looked at the construction adhesives shelves of a hardware store or home improvement retailer could see that a merger between Loctite and Liquid Nails would be a bad deal for Americans.” He added that the decision “will ensure that Americans benefit from continued competition between Loctite and Liquid Nails, including lower prices and higher quality.”
Maybe the facts were straightforward, but the process reflects a new approach at the FTC. The alert continues:
Beyond the substantive result, the agency was explicit that it views this case as validating a procedural shift, describing the win as marking “the Commission’s new approach to seeking permanent injunctions to block anticompetitive mergers without the need to continue cases in administrative proceedings,” or litigating merger challenges to a final, binding result in federal district court rather than pursuing a preliminary injunction in federal court while the underlying merits proceed in the FTC’s own administrative tribunal.
It also includes these suggestions for parties negotiating mergers that have horizontal competition concerns:
– Prepare for federal court, not the FTC’s administrative docket. If the agency is committed to litigating merger challenges to final judgment in federal district court, merging parties should plan for full-blown federal litigation – including trial – as the primary (not merely preliminary) battleground, including the associated discovery burden, timeline and evidentiary standards that this entails.
– Building materials and other consumer-facing input markets remain a priority. The agency’s public messaging ties this enforcement action to housing affordability and cost-of-living themes, signaling continued scrutiny of consolidation in building products and other markets seen as directly affecting household costs.
– Brand concentration arguments retain force. The FTC’s theory here rested on eliminating direct competition between two well-known, closely positioned brands within the same category – a straightforward horizontal theory that remains a core enforcement priority regardless of procedural reforms.
Barclays’ latest review of quarterly activism developments covering the second quarter and first half of 2026 was released earlier this month. Activity was up, and the U.S. was driving that trend. Here are some key takeaways:
– 68 [U.S.] campaigns were up 13% year-over-year (60 in H1 2025) and represented half of total activity
– A record 52% of all H1 campaigns were at Industrials and Technology companies
– Sector concentration is rising as activists increasingly target companies exposed to AI-linked disruption, spanning direct adoption and adjacent infrastructure themes
– The top 10 activists – led by Elliott and followed by other serial activists, such as Oasis, Dalton, Irenic and Palliser – accounted for 41% of all H1 campaigns
– In a divergence from recent trends, 72 unique activists launched campaigns in H1 2026 – meaningfully lower than the four-year H1 mean of 97
– M&A demands were the most prevalent H1 campaign objective at 39% of all campaigns, driven by a 63% sequential spike in Q2
The July-August issue of the Deal Lawyers newsletter was just sent to the printer and is also available online to members of DealLawyers.com who subscribe to the electronic format. This issue includes the following articles:
– Chancery Decision Highlights Need for a “Remedy Hierarchy” in a Post-Closing Purchase Price Adjustment Provision
– A Purchase-Price Adjustment Is Not the End of the Road with Indemnification on the Table
– Are Hints Disclosures? Delaware Supreme Court Revives M&A Fraud Claim Despite Buyer’s Red Flags
– AI Meets National Security — Implications for Private Equity and M&A
The Deal Lawyers newsletter is always timely & topical – and something you can’t afford to be without to keep up with the rapid-fire developments in the world of M&A. If you don’t subscribe to Deal Lawyers, please email us at info@ccrcorp.com or call us at 800-737-1271.
This recent study from The University of North Carolina’s Institute for Private Capital finds that fundless sponsors – a group that many have looked their noses down at over the years – have actually outperformed traditional private equity funds in recent years. Here’s an excerpt from the study’s conclusion, which refers to fundless sponsors as “independent sponsors”:
Our performance analysis shows that independent sponsor investments have generated strong absolute returns and, more importantly, competitive-to-superior relative performance compared to matched non-IS buyout transactions. Focusing on investor-reported transactions, we find average(median) gross TVPIs of 2.9 (2.1) and average (median) gross IRRs of approximately 29% (24%) for seasoned transactions. When benchmarked against carefully matched buyout investments by entry year and size, IS investments exhibit positive excess performance with statistically significant outperformance on average.
At the same time, we find no statistically meaningful differences in loss incidence or downside severity between IS and non-IS investments, suggesting that higher returns are driven by greater upside rather than lower risk. These results are consistent with the hypothesis that independent sponsors are able to exploit informational frictions, sourcing advantages, and bespoke structuring opportunities that persist in smaller and more complex private companies.
The study says that most fundless sponsor activity is in the lower middle market, and suggests that targeting this market segment, as well as the traits of the people involved in fundless sponsors may be part of the reason for their success:
The typical independent sponsor in our sample is experienced, operates with one or more partners, and brings prior backgrounds in private equity, investment banking, and operations, consistent with the emergence of a professionalized and increasingly institutionalized IS ecosystem. Taken together, these findings support the view that independent sponsors are not merely opportunistic intermediaries, but rather specialized providers of sourcing, structuring, and operational expertise in segments of the market that are less competitive and less standardized.
Divisive transactions like spin-offs and carve-outs often require the parties to address the post-closing use of shared technologies. This WilmerHale podcast offers some guidance on that topic. In this excerpt from the transcript, WilmerHale’s Stephen Gillespie discusses the major challenges that shared technologies present for transaction planners:
I think there’s really two key challenges in identifying and mitigating the risk of shared technology in any divestiture. And those are scale and knowledge gaps. So big companies might have hundreds or even thousands of vendor agreements and inbound licenses related to shared technology. And the people who know the details of those license agreements in IT and human resources and finance, those people with knowledge are often siloed in their particular function. And sometimes the business being sold doesn’t even know that a sale is coming. So you can’t consult with them early in the process.
Stephen goes on to say that in order to appropriately address shared technology issues, dealmakers need to build a cross-functional team early on in the process to identify the intellectual property shared by the companies involved in the spin-off or carve-out. All of the relevant contracts then need to be reviewed for divestiture clauses, restrictions on assignment and change-of-control provisions in order to determine the rights the parties have and what post-closing licensing arrangements will be necessary.
This Skadden memo discusses the increasing level of corporate political engagement and the increasingly complex legal environment surrounding corporate political activities. It points out that potential buyers must ensure that their due diligence investigation of a prospective target includes an assessment of the target’s political activities and the risks associated with them.
This excerpt provides an overview of some of the risks associated with corporate political activities and the laws that may be implicated by them:
With increased political engagement comes increased risk. A target’s political law missteps can result in reduced profits, costly investigations, and, in some cases, a material impact on valuation. Higher-risk companies include those that are, or may soon be, highly regulated and those with significant government contracts, large government relations or public policy operations, or politically active management or owners.
Unlike antitrust, tax, and environmental diligence, however, political law vetting is not yet standard in M&A practice, creating blind spots that can prove costly after closing. The relevant bodies of political law span several areas, including anti-corruption, pay-to-play, campaign finance, lobbying, gifts and entertainment, government conflict of interest, and government procurement.
The legal consequences for a violation of these laws can, in some cases, be severe. Under strict liability pay-to-play laws, a political contribution by a company or a covered director or employee — or even their spouse or child — can trigger an automatic ban on government contracts in that jurisdiction, in some cases for several years.
The memo goes on to provide guidance on how to vet political risks involved in a target’s business and how to structure a transaction to mitigate those risks if they potentially significant.