Yesterday, the SEC approved a host of changes to the exemptions for M&A transactions and rights offerings at an open Commission meeting; here are opening remarks from Tina Chalk of Corp Fin. From Mark Bergman of Paul Weiss, here is a summary of these changes:
– Look-through analysis and beneficial ownership – In order to allow bidders to make the determination of eligibility (the 10% and 40% thresholds) at an earlier point in time, bidders will now be able, in negotiated transactions, to calculate U.S. beneficial ownership as of a date within a range of dates that are no more than 120 days before, and no more than 30 days after, public announcement of a transaction.
In addition, the current requirement to exclude from the calculation of U.S. ownership securities held by persons holding greater than 10% of target securities has been eliminated (the securities held by the bidder will, however, continue to be excluded from the denominator).
If the bidder is unable to conduct the new modified look-through test, an alternate eligibility test is available. This test depends on the comparison of the ADTV of the U.S. float with the worldwide float and consideration of U.S. ownership figures reported in publicly available information, including SEC filings, as well as other information that the bidder knows or has “reason to know” about the U.S. beneficial ownership.
– Tier I exemption – The new rules will eliminate restrictions on the types of cross-border transactions that qualify for the Tier I exemption from Rule 13e-3. As a result, schemes of arrangement, cash mergers and other similar types of transactions will be eligible to rely on the Tier I exemption.
– Tier II exemption – The SEC has extended the Tier II exemption to cover any offer regardless of whether the target’s securities are subject to Regulation 14D or Rule 13e-4.
– Multiple non-U.S. offers – Bidders will now be allowed to make multiple concurrent non-U.S. offers.
– Persons included in offers – Non-U.S. holders of ADRs will now be able to participate in U.S. offers. U.S. holders will also be able to participate in non-U.S. offers where required under local law (that is, where the local law expressly precludes the exclusion of U.S. persons from the local offer) and where adequate disclosure about the implications of participating in the foreign offer or offers is provided to U.S. security holders.
– “Back-end” withdrawal rights – Bidders will be able to suspend back-end withdrawal rights during the time after the initial offering period, when tendered securities are being counted and before they are accepted for payment. This will, therefore, permit withdrawal rights to be terminated at the end of an offer and during the counting process where no subsequent offer period is provided.
– Length of subsequent offer periods – The 20-business day limit on subsequent offer periods has been eliminated.
– Rule 14e-5 – New Rule 14e-5, which prohibits purchases of target’s securities outside and during the pendency of an offer except pursuant to such offer, will codify recurrent Staff’s exemptive relief for tender offers relying on the Tier II exemption.
– Schedule 13G – The new rules will permit foreign institutions (similar to the U.S. domestic institutions that can use Schedule 13G pursuant to Rule 13d-1(b)(1)(ii) of the Exchange Act), under specified conditions, to report beneficial ownership of more than 5% of a subject class of securities on Schedule 13G, rather than filing a Schedule 13D, as it was formerly required.
The SEC has also provided additional interpretive guidance on various other issues covered in the proposing release, including termination of withdrawal rights after reduction or waiver of a minimum acceptance condition; applicability of all-holders rule to non-U.S. holders; the exclusion of U.S. holders of a target to participate in a tender offer; and vendor placements.
Back in June, the Department of Justice published an advisory opinion regarding a US company’s approach to a corporate transaction under the Foreign Corrupt Practices Act. Although the DOJ’s guidance is specific to the facts in the opinion, it is helpful to understand its expectations in the context of a proposed acquisition – the DOJ wants companies to conduct due diligence to ensure against contributing to corrupt activity when entering into transactions, particularly when they are unable to establish that foreign transaction parties are free of corrupt behavior.
Note that in the opinion, the DOJ recognizes that due diligence may be forced to be limited to accommodate the laws of other countries. We have posted memos analyzing the DOJ opinion in our “Due Diligence” Practice Area.
I seriously whacked out my back, so this blog suffers and all I can do is quote from Gordon Smith, one of the folks behind the “Conglomerate Blog“:
If you are following the Ryan case, which I blogged about below, you will be interested to read the “Defendants’ Memorandum of Law in Support of Their Application for Certification of Interlocutory Appeal and to Stay Proceedings Pending Appeal.” (Whew!) The gist of the appeal is that Vice-Chancellor Noble’s decision would “eviscerate” section 102(b)(7) because it conflates the duty of care and the duty of good faith. The crux of the argument is that the defendants were “properly motivated, unconflicted and independent directors.” As Meatloaf reminded us, two out of three ain’t bad.
Vice-Chancellor Noble’s opinion acknowledges that the defendants were unconflicted and independent, so he ends up focusing on motivation: “the Board???s failure to engage in a more proactive sale process may constitute a breach of the good faith component of the duty of loyalty as taught in Stone v. Ritter.”
The only opening I see for the defendants here is the possibility that Vice-Chancellor Noble equates a breach of Revlon with a breach of the duty of good faith. Consider the following from footnote 11 of the opinion: “the Board???s apparent failure to make any effort to comply with the teachings of Revlon and its progeny implicates the directors’ good faith and, thus, their duty of loyalty, thereby, at least for the moment, depriving them of the benefit of the exculpatory charter provision.”
Necessarily implicates? Or may implicate? As noted in my first post on this case, the latter is the better view of Revlon because it implies that directors may violate their Revlon duties because they failed to act with due care, good faith, or loyalty. The Delaware cases do not seem crystal clear on this, but I think that is a fair reading.
But the defendants dont’ take this path. Instead, they argue that Vice-Chancellor Noble’s opinion conflates the duty of care and the duty of good faith because well, because there is no “record evidence that would support an inference that the Lyondell Directors intentionally breached their Revlon duties.” Translated: we don’t like the court’s interpretation of the facts. That argument seems like a certain loser on an interlocutory appeal from a decision on a motion for summary judgment.
In the final analysis, however, the defendants have a bigger problem: nothing in Vice-Chancellor Noble’s opinion would “eviscerate” 102(b)(7), as claimed by the defendants, because the Lyondell directors can still get the benefit of the exculpation provision if they are found after trial to have breached only their duty of care. The problem with the decision is that they can’t get a lawsuit like this dismissed. But I don’t see how you can pin that on Vice-Chancellor Noble. He is just taking direction from the Delaware Supreme Court.
I recently was checking out Damien Park’s new blog – “Activist Hedge Fund Investing” – and noticed the spotlight on Point Blank Solutions and how Steel Partners is chasing after them. In particular what caught my eye was the see-saw legal battle over the company holding its annual shareholders’ meeting. The company hired a bank to explore strategic alternatives – probably because an activist is after them – and then used that to postpone the meeting and buy time. That is not anything new.
John Grossbauer of Potter Anderson notes: But what is pretty rare is a company coming back to the Delaware Court of Chancery for an extension of time after agreeing to a date to hold the annual meeting. I would imagine the Court would want some fairly compelling facts in order to permit the postponement, particularly where – as here – it would result in the meeting being held six months after the original Order was entered. Even the original postponement to August 19th is on the longer end of the range of time periods previously approved by the Court in similar cases.
How to Handle Hedge Fund Activism
We have posted the transcript from our recent popular webcast: “How to Handle Hedge Fund Activism.”
Kudos to Francis Pileggi and his “Delaware Corporate and Commercial Litigation Blog” for highlighting a new Delaware Chancery Court case that exposed independent directors of a public company to personal liability in a M&A context; a topic that always gets people’s attention.
In Ryan v. Lyondell Chemical Company, (Del. Ch. Ct., 7/29/08), the Delaware Chancery Court found that at the procedural stage of a summary judgment motion, the issue of whether independent directors should be exposed to personal liability for their role in the sale of the company can proceed to trial – despite selling the company to the only known buyer for a substantial premium. We have posted the opinion in the “Litigation” Portal.
Here is more from Francis in his blog – and some analysis from Ideoblog and Legal Profession Blog.
SEC Approves Nasdaq’s Revised SPAC Listing Standards
Earlier this week, the SEC approved Nasdaq’s proposal to adopt new listing standards for SPACs. The approved listing standards are slightly different from what was originally proposed including:
– reduced amount of gross proceeds that must be deposited from 100% to 90%
– clarified period in which SPAC must complete one or more business combinations
– required all listed SPACs contain provisions allowing shareholders to convert shares into cash if they vote against a business combination