October 18, 2017

Non-GAAP: New CDI Clarifies Exemption for M&A Forecasts

Last month, I blogged about the uncertainty surrounding the scope of Reg G’s exemption for disclosure of non-GAAP information contained in projections provided to financial advisors.  Yesterday, Corp Fin issued a new CDI that helps address some of that uncertainty.

New Non-GAAP CDI 101.01 provides that financial measures included in forecasts provided to a financial advisor and used in connection with a business combination transaction won’t be regarded as non-GAAP financial measures if & to the extent that:

– The financial measures are included in forecasts provided to the financial advisor for the purpose of rendering an opinion that is materially related to the business combination transaction; and

– The forecasts are being disclosed in order to comply with Item 1015 of Regulation M-A or requirements under state or foreign law, including case law, regarding disclosure of the financial advisor’s analyses or substantive work.

Because the tender offer rules don’t specifically reference the relevant provisions of Item 1015 of Reg M-A, some have contended that the exemption from Reg G’s requirements shouldn’t extend to disclosures contained in tender offer materials. By referring to both the requirements of Item 1015 of Reg M-A and state law, the new CDI clarifies that the availability of the exemption does not depend on whether the disclosure appears in a tender offer document, a proxy statement or a registration statement.

Forecasts may be included in disclosure documents for a variety of reasons, and since the new CDI clarifies that the exemption only applies “if and to the extent” forecasts were provided for the purposes of rendering an opinion, it doesn’t necessarily cover the waterfront.

In connection with the adoption of the new CDI, the Staff renumbered the existing CDIs and deleted references to Item 1015 that previously appeared in what is now Non-GAAP CDI 101.02.

A tip of the hat to the folks at Cleary Gottlieb – our blog on this topic last month was prompted by a Cleary blog that made strong arguments about the need for additional Staff guidance on the applicability of Reg G to M&A forecasts.  A lot of factors may have played a role in the Staff’s decision to issue the new CDI – but I don’t think it’s a bold leap to suggest that Cleary’s arguments may have been one of them. In any event, here’s a new blog from Cleary discussing yesterday’s CDI.

John Jenkins